Posted on February 13, 2025
The New Income Tax Bill 2025 aims to transform and streamline India’s taxation system to reduce disputes and increase tax certainty for taxpayers. Finance Minister Nirmala Sitharaman introduced the bill with the aim of streamlining tax compliance and increasing transparency.
Major Features of the New Income Tax Bill 2025
Simplification and Reduction in Word Count: The bill will streamline the current statute by nearly half, with a potential to eliminate approximately 3 lakh words. This shall be achieved by removing obsolete provisions, making the statute brief and easier to understand for taxpayers and administrators.
Alignment with Global Tax Standards: The new framework aims to align India’s taxation system with international standards of taxation, making India’s taxation system more business-friendly. This alignment is expected to increase investor confidence, resulting in higher foreign and domestic investments.
Trust First, Scrutinize Later’ Approach: The bill is taxpayer-centric, relying more on trust in the taxpayer and reducing scrutiny. The government has decreased manual interventions, with approximately 99% of tax returns being furnished on a self-assessment basis.
Evolution of the Tax Base: Although the income tax exemption limit has been increased to Rs 12 lakh from Rs 7 lakh, providing relief to low-income taxpayers, the bill aims to bring more entities from the informal sector into the tax net to balance the contraction in the tax base.
Facilitated Litigation Management: By introducing more transparent tax provisions, the bill aims to reduce tax disputes and provide higher statutory certainty. Major provisions for search and seizure operations against companies and individuals in instances of tax evasion have been left untouched.
Rationalization of TDS/TCS and Compliance Steps: The bill rationalizes Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) rates in order to minimize compliance burden. Other compliance steps, including Safe Harbor Rules and simplified tax filing mechanisms, are introduced.
Terminology Reforms: The bill substitutes words such as “previous year” with “tax year”. The concept of the assessment year has been abolished, and thus tax will be taxed for the tax year itself.
Benefits to Taxpayers
The New Income Tax Bill 2025 is expected to confer great advantages to taxpayers through various strategic reforms and enhancements:
For Businesses and Corporates: The bill offers improved tax certainty, which enables better financial planning. It minimizes the compliance burden through simplified tax laws and remains consistent with global tax standards, boosting India’s ease of doing business ranking.
For Individual Taxpayers: Individual taxpayers can benefit from faster tax refunds due to improved assessment mechanisms and fewer statutory contests with clearly defined tax provisions. The systematic organization of statutes should also enable easy filing of tax.
For the Indian Economy: The bill is aimed at delivering a strong statutory framework that ensures equity in taxation. Improved clarity and ease of filing should lead to increased tax compliance, attracting investors and boosting economic growth.
New Tax Regime
The Income-Tax Bill, 2025, introduces a new tax regime to simplify tax compliance and provide an optional tax format for individuals and enterprises. Taxpayers who opt for the new regime may not be able to withdraw from it in future years unless the conditions are not met. Under the regime, taxpayers will have to sacrifice some deductions and exemptions in exchange for a reduced tax rate.
Impact on Taxpayers
- Salaried taxpayers may face reduced compliance burden under the new regime but must consider the sacrifice of deductions before taking advantage of it.
- Business houses can benefit from reduced corporate tax rates but will have to meet the conditions for eligibility.
- Crypto traders and investors will have to endure stricter taxation and reporting regulations. The bill re-introduces flat 30% tax on virtual digital assets’ income, including crypto and NFTs, without deduction or exemption except the cost of acquisition. A 1% TDS on transactions in crypto remains to track digital transactions.
The Path Forward
The bill, extending to 622 pages and consisting of 23 chapters, 16 schedules, and 536 clauses, was to be introduced in Parliament on February 13, 2025. After enactment, it will be sent to a Parliamentary Standing Committee on Finance for scrutiny. The new income tax bill is expected to become effective from April 1, 2026.