Income Tax Bill 2025: On February 13, 2025, the Finance Minister Madam Nirmala Sitharaman introduced the Income Tax Bill, 2025 (Bill) to the Parliament, marking a significant turning point in India’s tax system.
The Income Tax Act of 1961, sometimes known as the present Act, was drafted more than 60 years ago. The legislation underwent numerous revisions throughout time. Many thought that as a result, the existing Act became hard to read, difficult to understand, and led to unnecessary litigation. Therefore, it was a good idea to start an activity to make things simpler. Although the Direct Tax Code (DTC) draft was an attempt to achieve this ten years ago, it was never passed into law.
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Similar initiatives have been launched globally to improve the transparency and compliance of tax legislation in nations including Australia, the I-JK, and others. Therefore, India needed a new, simpler income tax code soon.
In comparison to the Current Act, which has 46 chapters and 5.12 lakh words, the Bill has 23 chapters and 2.6 lakh words, and it was created with over 60,000 man-hours. Additionally, there are now only 536 sections instead of the previous 800+ sections.
Second, compared to the conventional verbose approach, the Bill’s language is frequently very clear and easy to understand because it includes tables and calculations.
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The Bill’s removal of the terms “previous year” and “assessment year” is among its most important features. By utilising the term “tax year,” India is attempting to join the group of similar tax countries. It appears that taxpayers were making mistakes when submitting forms, challans, and other documents due to the current terms of the previous calendar year and assessment year. With just one “tax year” words now, maybe confusion will be avoided.
For the most part, neither the definition of residency nor any requirements pertaining to salaries have changed. Individual taxpayers still have the option to choose between the two tax regimes. Tax rates have not changed, and the capital gains tax system has not changed either.
The old provisions, which contain long texts that are subject to interpretation problems and frequently difficult to grasp, have been replaced by tables that make the TDS and TCS requirements easier to understand. The Bill now allows people to apply for a lower or 0% TCS rate when they buy a car, pay for a trip overseas, or send money outside through the Reserve Bank of India’s Liberalised Remittance Scheme (LRS).
It’s also noteworthy that complex provisions have been established to address the transfer from the existing Act to the new legislation.
motivating respect to the maximum “Trust first, scrutinise later”—expressed by FM in her most recent February 2025 Budget speech is clearly a priority.
With the convenience of taxpayers and other stakeholders in mind, the administrative procedures for putting the Bill into effect will be put into place as soon as it is enacted (e.g., issuing rules, modernising IT infrastructure, etc.). It is expected that the Bill will facilitate easier tax compliance and law understanding for ordinary person.
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The Income Tax Bill 2025 brought five major income tax amendments that all taxpayers should be aware:
- Introduction of ‘Tax Year’: The new bill’s adoption of a single “Tax Year” in place of the current split system of the assessment year and the financial year (April to March) is one of its most significant structural changes. The tax year will start for professions or businesses that are established during the year on:
- The date that the business or profession was established, or
- the start date of a new revenue stream.
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- No entertainment allowance deduction for government employees: Government employees would no longer be able to deduct their entertainment expenses from their salaries under the income tax bill, which will take effect on April 1, 2026. Previously, only government employees were eligible for this deduction. The lowest of the following would be the amount taken into account for deduction:
- Rs 5,000, or one-fifth of their base pay, or the real amount they get as amusement allowance
- Clarity of lineage for tax-exempt reception of gifts received by an individual : According to section 56(2)(x) of the present Income Tax Act, an individual will not be required to pay income tax on gifts from their spouse or lineal descendants. A lineal ascendant or descendant may be either maternal or paternal, as the new income tax statute made clear.
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- Stricter penalty for offences committed under Section 276CCC : Section 276CCC of the current Income Tax Act addresses the failure to provide an income return in search cases. According to the income tax bill’s related clause 480, this is intended to be a non-cognizable offence that can only be committed with the prior approval of the relevant authority. Furthermore, a person would face severe penalty of at least six months and up to seven years in prison along with a fine if they are found guilty of the same act under this section again.
- More power given to CBDT (Central Board of Direct Taxes) : There is no clause in the income tax bill that relates to the seventh provision of the Income Tax Act. Even if an individual’s yearly income is below the basic income exemption limit, this clause specifies the conditions under which an ITR must be submitted, such as international travel, turnover or gross receipts surpassing the threshold limit, etc.
The authority to define the circumstances under which submitting returns will become required has been granted to the Central Board of Direct Taxes (CBDT). Additionally, CBDT may request information on the assessee’s credit card, outgoings, expenses that exceed the threshold, specifics of the primary place of business, etc.
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