The Income-tax Bill, 2025, introduced by Finance Minister Nirmala Sitharaman on February 13, 2025, aims to replace the Income-tax Act, 1961, which has shaped India’s tax regime for over six decades. This comprehensive reform seeks to simplify tax laws, improve transparency, reduce compliance burdens, and modernize the taxation framework to meet evolving economic demands and global standards.
Key Objectives and Features
I) Simplification of Tax Laws
Reduction in Volume: The new bill condenses the existing law from over 800 pages to 622 pages, reducing the number of sections from 819 to 536. This streamlining involves the elimination of more than 300 obsolete and redundant provisions, including sections like 80CCA and 80CCF.
Enhanced Readability: The drafting style has been modernized to use shorter sentences and a more reader-friendly format. The new law incorporates tables and formulas for clarity. Provisos and explanations scattered throughout the old law have been consolidated or removed to minimize cross-referencing.
II) Introduction of ‘Tax Year’
Unified Terminology: The bill replaces the terms ‘previous year’ and ‘assessment year’ with a single ‘tax year’, defined as a 12-month period aligning with the financial year. This change aims to reduce confusion and align with international practices.
III) Tax Rates and Slabs
No Immediate Changes: The bill does not propose alterations to existing tax rates or slabs. However, in the Union Budget 2025, the government increased the income threshold for tax exemption to ₹12 lakh, with a standard deduction of ₹75,000, effectively exempting incomes up to 12.75 lakh.
IV) Tax Deducted at Source (TDS) and Tax Collected at Source (TCS)
Consolidation of Provisions: All TDS-related sections have been unified under a single clause, presented in tabular formats for ease of understanding.
Scope of TDS/TCS: The bill outlines TDS on various income sources, including salaries, professional fees, interest income, and rent. TCS applies to specific transactions, such as the sale of motor vehicles above ₹10 lakh and foreign remittances exceeding ₹700,000. Non-compliance will attract interest charges on outstanding amounts.
V) Digital Access and Privacy Concerns
Expanded Authority: The bill proposes granting tax authorities broader powers to access taxpayers’ electronic records, including emails and social media accounts, during investigations. This has raised concerns about potential privacy infringements, highlighting the need for clear safeguards to balance tax enforcement with individual rights.
VI) Presumptive Taxation Scheme
Clarification of Provisions: The bill introduces the concept of ‘profit claimed to have been actually earned’ for businesses under the presumptive taxation scheme, aiming to provide clarity and reduce disputes.
VII) Implementation Timeline
Effective Date: The new provisions are slated to come into effect from April 1, 2026, allowing taxpayers and administrators time to adapt to the changes.
Conclusion
The Income-tax Bill, 2025, represents a comprehensive effort to modernize India’s tax system, focusing on simplification, clarity, and efficiency. While it retains existing tax rates and structures, the bill’s structural reforms are poised to make tax compliance more straightforward and reduce the scope for litigation.
The proposed changes signify a shift towards a streamlined and transparent tax regime, ensuring greater ease of compliance while also introducing necessary safeguards to protect taxpayer rights.
