Income Tax Bill 2025: A Detailed Guide
Rajesh Kumar Kar- Mar 31
- 7 min read
In India's Lok Sabha, on February 13, 2025, a new income tax bill was introduced. During the budget address of the previous year, in 2024, this highly anticipated was disclosed. Finance Minister Nirmala Sitharaman emphasized that the revised income tax law, the Income Tax Bill 2025, would be straightforward, transparent, and simple. The bill aims to streamline the tax system by removing obsolete provisions, refining existing tax regulations, and implementing structural changes, including a unified tax year. As the bill progresses through parliamentary scrutiny, it creates a more efficient and transparent tax environment, benefiting individuals and businesses. We will examine the proposed changes to the nation's income tax legislation.
Table of Contents
What is the Income Tax Bill 2025?
The Income Tax Bill 2025 comprises a comprehensive framework of rules and regulations governing the imposition, management, collection, and recovery of direct taxes in India. This extensive document of over 600 pages features 536 sections, 23 chapters, and 16 schedules that address all facets of taxation within the country. On February 13, 2025, the bill was introduced in parliament. If approved, it will take effect on April 1, 2026.
Chapters of the Income Tax Bill 2025
The Income Tax Act comprises 23 chapters, several of which include subparts. You may refer to the table below for further details.
Chapter | Overview |
Chapter I | Preliminary |
Chapter II | Basis of Charge |
Chapter III | Incomes which do not form part of Total Income |
Chapter IV | Computation of Total Income |
Chapter V | Income of other persons, Included in the Total Income of the Assessee. |
Chapter VI | Aggregation of Income |
Chapter VII | Set off, or Carry Forward And Set Off of Losses |
Chapter VIII | Deductions to be made in Computing Total Income |
Chapter IX | Rebate And Reliefs |
Chapter X | Special Provisions Relating to Avoidance of Tax |
Chapter XI | General Anti-Avoidance Rule |
Chapter XII | Mode of Payment in Certain Cases |
Chapter XIII | Determination of tax in Special Cases |
Chapter XIV | Tax Administration |
Chapter XV | Return of Income |
Chapter XVI | Procedure for Assessment |
Chapter XVII | Special tax provisions for certain persons. |
Chapter XVIII | Appeals, Revision and Alternate Dispute Resolution. |
Chapter XIX | Collection and Recovery of Tax |
Chapter XX | Refunds |
Chapter XXI | Penalties |
Chapter XXII | Offences and Prosecution |
Chapter XXIII | Miscellaneous |
Features of Income Tax Bill 2025
The Income Tax Bill 2025 includes several notable features outlined below:
Income tax is a direct tax that the taxpayer has to pay and is not transferable to another individual.
The Central Government of India oversees this taxation system.
The scope of Virtual Digital Assets has broadened.
Revisions in Dispute Resolution and Digital Compliance.
Modified Tax Rate Tiers.
The government implements a progressive income tax system, ensuring wealthier and more economically influential individuals get taxed at elevated rates.
In specific instances, deductions are subject to a maximum limit for each financial year.
Scope of Income Tax Bill 2025
The residential status of the taxpayer determines tax ramifications under the Income Tax Bill 2025.
Type of Income | Residential Status of the Taxpayer | ||
- | Resident and Ordinarily Resident (ROR) | Resident but not-Ordinarily Resident (RNOR) | Non-Resident (NR) |
Income received/deemed to be received in India | Taxable | Taxable | Taxable |
Accrued income in India | Taxable | Taxable | Taxable |
Income accruing from outside India, but the profession or business setup in or controlled from India | Taxable | Taxable | Non-taxable |
Income accruing from outside India, but the profession or business is setup in or controlled from outside India | Taxable | Non-taxable | Non-taxable |
The untaxed past foreign income remitted to India | Non-taxable | Non-taxable | Non-taxable |
Objectives of Income Tax Bill 2025
The key aims of the Income Tax Bill 2025 are as follows:
Enhanced clarity in tax regulations
The Income Tax Bill 2025 intends to create a more accessible tax code that reduces complexity, making it easier to understand and interpret.
Decreased tax rates and enhanced rebates
This Act aims to enhance the demand for goods and services by lowering income tax rates. As a result, taxpayers will have more disposable income and an increase in savings.
Minimized legal conflicts by clarifying uncertainties
The aim is to facilitate a smooth system for addressing grievances by implementing a more efficient tax administration and incorporating contemporary tax compliance.
Improved Compliance Efficiency
The Bills seek to simplify compliance by reducing the amount of content, thereby enhancing efficiency. This initiative leads to a rise in tax filings and a decline in tax evasion.
Validation of Virtual Digital Assets
The concept of Virtual Digital Assets has expanded to encompass cryptocurrencies and various other digital assets. This adjustment aims to streamline the taxation procedures associated with these assets.
Provisions of The Income Tax Bill 2025
The Income Tax Bill 2025 includes various provisions, among which the most significant are:
The establishment of the Tax Year concept
Adoption of advanced mechanisms for regulatory compliance alongside a more systematic approach to tax recovery specified in Chapter XIX-D of the Bill
The Income Tax Bill 2025 includes provisions regarding the Tax on Updated Returns, specified in section 267
Procedure for Evaluation
Expanded definition of Virtual Digital Asset as outlined in section 2(111)
Integration of TDS regulations into a single section
TDS and TCS provisions
The Income Tax Bill 2025 sets forth the Tax Deducted at Source (TDS) on various forms of income, such as salaries, professional fees, interest income, and rental income. In addition, Tax Collected at Source (TCS) will be relevant to specific transactions, including:\
The sale of alcoholic beverages, tendu leaves, minerals, and scrap materials is subject to a 1-5 percent tax rate.
The sale of motor vehicles priced over INR 1 million incurs a tax of 1 percent.
Foreign remittances that exceed INR 700,000 get taxed at a rate of 5 percent.
Non-adherence to TDS/TCS regulations will result in a default designation, with a monthly interest penalty of 1 percent on any amounts due.
The Income Tax Act of 1961 delineates the TDS provisions across various sections, such as:
Article 194A – Income from interest
Article 194I – Rental income
Article 194J – Fees for professional services, technical assistance, and royalty payments
Article 194H – Commissions
Article 194C – Contractual agreements
Most provisions remain the same; however, there are distinctions in tax rates and thresholds. To clarify TDS regulations, excluding salaries, the Income Tax Board (ITB) has compiled these provisions into a structured table within Section 393 of the Income Tax Bill 2025.
Treatment of Capital Gains
The Income Tax Bill 2025 maintains the core structure and essence of Capital Gains, but the terminology gets simplified for better understanding. Clauses 67, 196, 197, and 198 of the Income Tax Bill 2025 address provisions about Capital Gains. Here are the details of these clauses:
Clause 67: Capital Gains definition
Clause 196: Short-term Capital Gains for Equity Oriented Funds, Equity Shares, and Business Trust Units
Clause 197: Long-term Capital Gains for Non-Equity Long-term Assets
Clause 198: Long-term Capital Gains for Equity Mutual Funds, Equity Shares, and Business Trust Units
The recent amendments to Section 47 of the Income Tax Act 1961 include a proposal to abolish the clauses concerning the transfer of land from companies facing industrial sickness and the process of stock exchange demutualization. Moreover, the bill has eliminated uncertainty by categorizing cryptocurrencies and various virtual digital assets as taxable income. As a result, cryptocurrencies are now formally acknowledged as taxable capital assets.
Conclusion
Having gained clarity on the Income Tax Bill 2025, you can comprehend the functioning of the Income Tax Department. Moreover, reviewing the distinct sections will allow you to discover the various deductions that are accessible. This insight will assist you in making wiser investment choices and realizing tax savings.
FAQ
Q1. When will the provisions of the Income Tax Bill 2025 be applicable from?
The Income Tax Bill 2025 will take effect after being approved by both houses of Parliament. The anticipated date for implementation is April 1, 2026.
Q2. What is the “Tax Year” as per the Income Tax Bill, 2025?
Within the framework of this Act, "Tax Year" denotes a 12-month segment of the financial year used to assess the income of individuals or entities for taxation. The period will start on the 1st of April.
Q3. What has been removed in the Income Tax Bill, 2025?
The Income Tax Bill has repealed more than 300 provisions from the present Income Tax Act that have become unnecessary or have been disregarded over time. Notable examples include Section 80CCA, which allows for deductions on investments in the National Saving Scheme, and Section 80CCF, which offers deductions for investments in long-term infrastructure bonds.
Q4. Are there any changes in tax slabs and rates in the new income tax bill?
The initial version of the Income Tax Bill 2025 maintains the existing income tax slabs and rates (under the new tax regime) as presented in the Union Budget 2025 for the fiscal year 2025-26. This approach guarantees consistency for taxpayers while enhancing the clarity of the legislative framework.
Q5. Will Foreign Dividends be taxed in India?
If you are classified as a Resident and Ordinarily Resident (ROR) in India for the tax year, your global income will be subject to taxation in India. Consequently, foreign dividends will also be taxed accordingly.
Q6. How does the new income tax bill expand the power of search and seizure?
Section 247 of the Income Tax Bill 2025 significantly enhances the authority of tax officials, particularly regarding the search and seizure of digital and electronic data. Investigations conducted by the Income Tax Department earlier were primarily confined to physical documents and locations. However, the new legislation extends these powers into the digital realm. Consequently, officials can access email servers, social media accounts, online banking, trading and investment accounts, cloud storage, digital wallets, and payment applications. In the past, any investigation with digital data required separate authorization; now, officials gather information even without passwords and access codes.
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