Income Tax Bill, 2025

Context

The Income Tax Bill, 2025 was introduced in the Lok Sabha on February 13, 2025. It is currently under consideration of a Parliamentary Committee.

About the Income Tax Bill, 2025

• Introduction: The Income Tax Bill, 2025 is introduced to replace the Income Tax Act, 1961.
  • However, most of the provisions of the 1961 Act have been retained in this Bill.
• Objective of the Bill: To simplify India's six-decade-old direct taxation structure by streamlining the provisions of the current Act, removing obsolete references and creating a clear and simple legal framework.
•  Expected date of implementation: April 1, 2026
•  Key features
  • About 1,200 provisions and about 900 clarifications have been deleted.
  • Tax rates and regimes for individuals and corporations will remain unchanged.
  • Most definitions have also been retained.
  • There is no change in offences and penalties.

Key provisions proposed in the Bill

Change in tax year and no annual tax

• In the current Act, income tax has the concept of ‘Assessment Year’ (AY), which assesses tax on income earned in the ‘previous (financial) year’.
  • For example, income earned in financial year (FY) 2024-25 (April 1, 2024 to March 31, 2025) is assessed in AY 2025-26 (commencing April 1, 2025).
• The proposed Bill introduces the concept of tax year, which is defined as a period of 12 months beginning on 1 April.
• In case of a business or a newly established profession, the tax year will commence from the date on which it was set up, and end with the said financial year.
•  Income tax will be imposed based on economic activity and income earned in the tax year.

Power to formulate scheme

• The present Act has provisions for faceless collection of information and assessment of tax cases.
• These provisions have been retained in the proposed Bill.
• Also, the Bill empowers the Central Government to formulate new scheme for greater efficiency, transparency and accountability.
  • However, the scheme formulated by the Central Government must be placed before the Parliament.

Undisclosed Income:

• In the present Act, the definition of undisclosed income for determining search cases includes money, bullion, jewellery or other valuables.
• The proposed Bill includes virtual digital assets in this definition.
  • These include any code, number or token that is cryptographically generated and is a digital representation of value exchanged.
  • Virtual digital assets such as cryptocurrencies have been included in the definition of property.

Virtual Digital Space

• Definition: The Bill defines virtual digital space as an environment, area or domain that is created and experienced through computer technology.
  • It includes email servers, social media accounts, online investments, trading accounts and websites for storing details of property ownership.
• The present Act allows income tax officers to enter and search buildings and break locks.
  • This can be done if a person has not produced certain documents or ledger accounts despite the issuance of summons under the Act.
  • The Act also empowers officers to inspect electronic documents.
• The proposed Bill retains these provisions and also allows officers to gain access to virtual digital space during search and seizure proceedings.
  • Officers will have the power to gain access by overriding any required access code.

Dispute Resolution Panel

• The current Act allows eligible taxpayers to send draft orders of assessing officers to the Dispute Resolution Panel.
  • Such taxpayers include people involved in transfer pricing cases, non-residents or foreign companies.
    • Transfer pricing refers to the price charged in transactions between related entities of a multinational industry.
  • The panel may issue guidelines for completing the assessment.
• The proposed Bill retains these provisions and adds that the panel should issue directions along with the points of determination and the reasons for arriving at the decision.

Interpretation of tax treaties

• The present Act allows the Central Government to enter into agreements with other countries to provide relief in cases of double taxation.
• The proposed Bill specifies that if any term used in such agreements is not defined either in the agreement or in the Act, it shall have the meaning as notified by the Central Government.

Capital gains exemptions

• Section 54(E) of the present Act, which details exemptions for capital gains on transfer of capital assets before April 1992, has been repealed.
• The proposed Bill streamlines deductions, and removes old exemptions. 

Income & Salary

• Deductions like standard deduction from salary, gratuity and leave encashment have been provided in tabular form.
• Scope and definition of income has been expanded to include emerging sources of income.
• Exempted income, conditions for claiming exemptions, deductions, TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) have been provided in tabular form in separate schedules for better understanding.