Income-Tax Bill 2025: Major Updates Without a Complete Overhaul

The Income-Tax Bill, 2025, aims to replace the six-decade-old Income Tax Act, 1961, introducing significant refinements to India’s tax framework.

Evolution from the Direct Taxes Code (DTC)

Unlike the Direct Taxes Code (DTC) proposals of 2009 and 2010, which sought a complete tax overhaul, the new bill retains the existing tax structure with essential updates.

The concept of DTC was first introduced in 2009 to replace the 1961 Act with a simplified and uniform tax framework.

The DTC Bill, 2010, proposed uniform tax slabs, a lower corporate tax rate, and streamlined capital gains taxation.

However, concerns over revenue loss, investor resistance, and strict anti-avoidance measures led to its delay and eventual abandonment.

Shift in Approach to Tax Reforms

After a change in government in 2014, incremental tax reforms were prioritized over a complete overhaul, leading to the formulation of the Income-Tax Bill, 2025.

The new bill modernizes tax legislation while retaining a progressive tax system with revised slabs and deductions.

While corporate tax rates remain largely unchanged, certain industries benefit from new incentives.

Emphasis on Digital Compliance

A crucial shift in the new bill is its focus on digital compliance. While the DTC proposed electronic filing, the new legislation prioritizes faceless assessments and digital transactions to minimize corruption.

Foreign entity taxation has also been refined, but without the introduction of Controlled Foreign Corporation (CFC) rules that were part of the DTC.

Capital Gains and Anti-Avoidance Measures

Capital gains taxation remains a key differentiator. The DTC aimed for uniformity across asset classes, while the new bill continues to distinguish between different investment types, retaining indexation benefits.

The General Anti-Avoidance Rule (GAAR) is maintained but refined for more effective implementation. Residency rules, especially for Non-Resident Indians (NRIs), have also been updated.

Taxation of Digital Economy and Virtual Assets

One of the major updates in the new bill is the taxation of digital assets. Unlike the DTC, which lacked specific provisions, the new legislation includes taxation for crypto-assets and digital transactions.

It defines “Virtual Digital Assets (VDA)” as any digital representation of value, excluding traditional currencies, that can be transferred, stored, or traded electronically.

This definition encompasses cryptocurrencies, non-fungible tokens (NFTs), and other digital assets.

Simplification of Tax Structures

The Income-Tax Bill, 2025, is scheduled to take effect from April 1, 2026, with an aim to simplify tax structures, improve compliance, and curb tax evasion.

The bill replaces outdated concepts such as ‘previous year’ and ‘assessment year’ with a single ‘tax year’ to align with international standards.

Key Features of the New Bill

The new bill consists of 536 sections, 23 chapters, and 16 schedules across 622 pages.

Unlike its predecessor, which had 298 sections and 14 schedules spanning 880 pages, the bill simplifies existing tax laws without introducing new taxes.

It also removes redundant provisions like the Fringe Benefit Tax and eliminates excessive legal jargon, making it more accessible to taxpayers.

Additionally, ‘notwithstanding’ clauses have been replaced with ‘irrespective’ for clarity.

Improved Readability and Taxpayer Rights

The bill enhances readability by using shorter sentences, tables, and formulae. Tables provide clarity on provisions related to Tax Deducted at Source (TDS), presumptive taxation, salaries, and deductions for bad debt.

The ‘Taxpayer’s Charter’ has been introduced, outlining taxpayer rights and obligations.

Legislative Process and Public Consultation

Once introduced in the Lok Sabha, the bill will be reviewed by the Parliamentary Standing Committee on Finance.

The government’s statement on the bill highlights the need to replace the overburdened Income Tax Act, 1961, which has become complex due to numerous amendments over the years.

To ensure broad input, the government sought public feedback on four key aspects: simplification of language, litigation reduction, compliance reduction, and removal of obsolete provisions.

The tax department received over 6,500 suggestions from stakeholders.

The Income-Tax Bill, 2025, streamlines India’s tax system while maintaining key provisions.

By enhancing digital compliance, simplifying terminology, and refining tax administration, the bill aims to improve efficiency and reduce compliance costs for taxpayers.

The transition from the 1961 Act to this modernized framework marks a significant step toward a more transparent and effective tax system in India.