NEW INCOME TAX BILL 2025: A SIMPLIFIED AND STRUCTURED APPROACH TO TAXATION

The Indian government is set to introduce the Income Tax Bill 2025 in the Lok Sabha on February 13, 2025. This new legislation aims to replace the Income Tax Act, 1961, which has become cumbersome due to numerous amendments over the past six decades. The new bill promises to bring clarity, reduce litigation, and modernize tax administration.

Key Features of the Income Tax Bill 2025

1. Structural Overhaul

1. The new bill consists of 536 sections and 23 chapters, compared to 298 sections in the existing Act.
2. The number of schedules has increased from 14 to 16, while the overall document is more concise, spanning 622 pages, almost half of the current Act.

2. Introduction of ‘Tax Year’

1. The bill replaces the concept of ‘Previous Year’ and ‘Assessment Year’ with a single ‘Tax Year’.
2. Currently, income earned in one year is taxed in the following assessment year (e.g., income of 2023-24 is taxed in 2024-25). This system will be simplified under the new law.

3. Enhanced Tax Administration Powers to CBDT

1. The Central Board of Direct Taxes (CBDT) has been empowered to introduce tax schemes, compliance measures, and digital tax monitoring without requiring frequent parliamentary approval (as per Clause 533).
2. This will reduce bureaucratic delays and make tax governance more dynamic.

4. Clarity on Employee Stock Options (ESOPs)

1. The bill provides a clear tax treatment for ESOPs, which is expected to reduce tax disputes.
2. Judicial pronouncements of the last 60 years have also been incorporated for better clarity.

5. Capital Gains Taxation Reforms

1. Unutilized capital gains from the sale of assets must be deposited in a specified bank account, as notified by the central government.
2. The time limit for acquiring a new asset or depositing funds in bonds will be counted from the date of receipt of compensation, rather than the acquisition date, in cases of compulsory acquisition.

6. Virtual Digital Assets (VDAs) and Cryptocurrency

1. The bill formally recognizes crypto-assets as part of the definition of Virtual Digital Assets (VDAs).
2. This was absent in the Income Tax Act, 1961.

7. No Changes in Income Tax Slabs and Regime

• There are no major changes in tax slabs between the old and new tax regimes, ensuring continuity for taxpayers.

8. Due Dates for Filing Tax Returns Remain Unchanged

1. The due date for filing Income Tax Returns (ITR) for individuals and HUFs remains July 31.
2. Tax audits will continue to be conducted only by chartered accountants holding a valid certificate of practice.

Why the New Bill?

Finance Minister Nirmala Sitharaman had first proposed a comprehensive review of the Income Tax Act, 1961 in the July 2024 Budget. The objective was to make the Act more concise, transparent, and user-friendly. The CBDT formed an internal committee, along with 22 specialized sub-committees, to ensure a structured review.

Key focus areas for reform included:

• Simplification of tax language
• Reduction of litigation and compliance burden
• Removal of outdated provisions
• Integration of digital tax monitoring

The Income Tax Department received over 6,500 suggestions from stakeholders before finalizing the bill.

Next Steps

Once introduced in Lok Sabha, the bill is expected to be referred to a Parliamentary Standing Committee for further scrutiny. The government aims to implement the new Income Tax Act from April 1, 2026.

With a focus on clarity, digital governance, and streamlined tax compliance, the Income Tax Bill 2025 marks a significant shift towards a modernized tax system that aligns with India’s evolving economic landscape.