Table of Contents
Introduction
The Government of India introduced the Income Tax Bill, 2025 on February 13, 2025. The Finance Minister of India introduced the bill in the Lower House of Parliament. The Bill focuses mainly on the Income-Tax Act,1961[1], which was the Parent Act that governed the tax structure in India and regulated the framework in the Indian context. This new legislation is a transformative legislative proposal designed to change the taxation structure in India.
Over the years, the existing act has undergone multiple amendments leading to the complex tax structures that often burden individual taxpayers and businesses with excessive compliance requirements. The new bill seeks to simplify tax laws, introduce modern taxation principles and provide relief to individuals. The new bill has come with new modifications, but there is also the entry of some provisions that will be challenged in the future in front of the Hon’ble Courts of India due to their arbitrary nature. This article will provide a detailed overview of the Income Tax Bill, 2025, which is the background, its key provisions, its impact and challenges
Background of the Income Tax Bill
The tax system was introduced in India in 1860, by Sir Wilson, to cover the losses that were faced by the British army due to the first independence movement in 1857. In 1886, a separate income tax bill was introduced and that has remained in force with various amendments. In 1918, a new income tax bill was introduced and again it was replaced by the Income Tax Act, of 1922. This act remained in force till the assessment year 1961-1962 with multiple amendments. The Income Tax Act 1961 came into force with effect from 1 April 1962 and that is in practice till 2025, all the laws relating to tax are decided based on it.
As the Constitution of India is the root of every law in India, the taxation statute of India also governs under the Constitution of India, the Constitution of India divides the power between the Union and States in a way that the Union has the authority to levy the tax on a wide range of item than the states. Legislature derives its power of imposing taxes from Article 265[2] of the Constitution which states that “No tax can be levied or collected unless it has the authority of law”. “Article 265 of the constitution prohibits the state from extracting tax from the citizens without the authority of law”[3]
Income Tax Bill 2025
The Income Tax Bill 2025[4] marking a significant towards by simplifying the language and structure of the Income Tax Act 1961. The simplification was guided under the three core principle[5] of:
- Textual and Structural Simplification so that there will be clarity and consistency
- No major tax policy changes to ensure its durability and effectiveness
- No changes in tax rates
The Concept of Tax Year
The new income tax bill, which was presented by the finance minister has reduced the content as compared to the current income tax bill. The section count has reduced from more than 700 sections to 536, the number of chapters remains the same and the number of scheduled reduced from 16 to 14 in the new bill. The new bill has come with the removal of the concept of the previous year and assessment year. Section 3[6] of the Income Tax Act defines the previous year as the Financial Year that commences from 1st April of the year and ends on 31st March of the year in which the income was generated.
Section 2(9)[7] of the act defines assessment year as the financial year in which the tax is going to calculate the income generated in the previous year. For example, if the income is generated in 2022-23 the assessment year will be 2023-24 and 2022-23 will be the previous year for the assessment year 2023-24.
The new income tax bill came with the idea of “Tax Year” which is the period of twelve months in the financial year that starts on 1st April and ends on 31st March so whenever the dual reference is required it has been simplified by mentioning it as “Succeeding Tax Year’ instead of Assessment Year for example if the income is generated in 2019-20 so the tax year will be 2019-20 and the year in which the income is going to assesses the assessment year will be termed as succeeding tax year that will be 2020-21.
Inclusion of Digital Assests, Income and Transactions
In modern time where the digital transaction is commonly in use which leads to the rise of digital assets and income earned virtually so for this the inclusion of digital income is added for the purpose of taxation purpose. The definition of Virtual Digital asset under section 2(111)[8] has also been widened to include any assets which have digital representation of value which was not mentioned in the Income Tax Act 1961.
Inclusion of Certain Points in treaty[9]
The new bill has added certain points like if the terms are defined in the tax treaty, so the IT bill will follow the same definition given there. If the term is not defined in the tax treaty, it will follow the interpretation in the Income Tax bill or any explanation by the central government. If the term is not defined in the tax treaty, the IT bill, it will follow the meaning given by the central government. If the meaning is not given in tax treaty, the IT bill or any notification by the central government, then in that scenario, it will follow the meaning in the relevant tax law.
Applying for the Lower Tax Withholding TDS/ TCS
In the current Act the tax payer can approach the tax officer for lower TDS/TCS for certain type of transactions but in the new bill the tax payers can approach to the tax officer for any type of transaction in which TDS/TCS is applicable. Under the existing Act there are 43 sections governing various aspects of TDS, depending on various factors, in the new bill all the section were consolidated into a single section 393[10].
Withdrawal of deductions for inter-corporate dividends for certain companies
in the current Act the companies opting for tax rate of 22% are allowed for the inter-corporate dividend deduction but in the new bill the companies who have opted for the tax rate of 22% are not eligible for this deduction.
Tax return by specified individual tax payers
In the Income tax act 1961 provides for filling of tax return if the tax payers if certain conditions are fulfilled by them like expenditure incurred on foreign travel etc. in the new bill such returns are not included and tax returns are not mandated in such cases.
Tax Regime for Non Profit Organizations(NPO)[11]
The framework for the tax regime of NPO has been concluded in one chapter that includes registration, taxation of income etc.
Tax Refund
In the current tax Act i.e., is Income tax Act 1961, the individual is eligible for tax returns of income even though if it is not filled in the due date but in the new bill the tax refund filing is applicable only to whom who has filed that in the due period of time i.e, the original due date of tax filing.
Reassessment
The IT bill has proposed the certain reassessment framework when the tax officer will receive:
Directions form the approving panel declaring the arrangements as an impermissible avoidance agreement.
Finding or directions contained in an order passed by any authority in any proceeding under the IT bill by way of appeal, reference or revision or by a court in any proceeding under any other law.
Penalty
The new IT bill in certain cases where the penalty is there the mandatory requirement of giving an opportunity to be heard is removed for ex., failure to furnish a date.
Dispute Resolution Panel
The new IT bill has proposed the model of DRP directions should include points of determination decision thereon and the reason for such decision.
Saving Clauses
The IT bill includes a saving clause for application of certain provisions for the continuity of existing proceedings under the IT Act.
New tax regime under section 115BAC[12] of IT Act 1961 provides an option for HUF or individual with income other than form a profession or business to be taxed under a new tax regime featuring reduced tax slabs rates. Under the new bill the provision of the current tax regime will be moved to section 202[13], which is set to effect from April 1, 2026
Restructuring of Section 80C[14]– encompasses various deductions that help tax payers for the tax planning to reduce their taxable income. Under the new bill, the provision changed to section 123[15].
Analysis
The Income Tax Bill 2025 work on the principles of textual and structural simplification for maintaining the continuity and certainty in tax policy is essential for fostering a stable economic environment. By avoiding major tax policy changes the government ensures predictability for business and individual taxpayers allowing them to plan their finances and investment with confidence.
Preserving existing tax rates prevents sudden financial burdens on taxpayers and businesses. Stability in tax rates supports economic growth by maintaining consumer and investor confidence, reducing compliance complexities and ensuring steady revenue collection for the government.
The qualitative improvements that lead to the simplified language, make the law more accessible, and the consolidation of amendments will also reduce the fragmentation and the removal of obsolete and redundant provisions for greater clarity. Structural rationalization through tables and formulae for improved readability. Preservation of existing taxation principles, ensuring continuity while enhancing usability, the Income Tax Bill, 2025 reflects the Government’s commitment to enhancing ease of doing business by providing a tax framework that is simple and clear
Despite of the bill, despite its vaunted objective[16], it scarcely embraces this approach. It continues to rely on the dense and consulted text, doing little to make the law more accessible to the common taxpayer. The replacement of the phrase “notwithstanding anything contained to the contrary”, with the words “irrespective of anything contained to the contrary” will help to simplify the law. The worrying aspect of the bill is its approach to search and seizure.
The bill extends the power of search into a new domain, it does so by allowing officials to inspect any information stored in electronic media or computer systems, widely to include all manners, should a taxpayer deny these spaces, the authorities can now override his rights while accessing the codes to enter the system.
The new income tax bill has come with various things and the core principles of ease of business to make the act simple and altering the act but there were some provisions that are curtailing the rights of the individual or taxpayers who are going to be governed under the Act.
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This article is written by Vedant Pratap Singh.
[1] Income Tax Act, 1961
[2] India Const. art. 265
[3] Comm’r of Customs (Import), Mumbai v. M/s. Dilip Kumar & Ors., Civil Appeal No. 3327/2007 (India May 2, 2016).
[4] The Income Tax Bill, 2025, Bill No.24 of 2025.
[5] Ministry of Finance, Income-tax Bill, 2025, tabled in Parliament today towards achieving comprehensive simplification of the Income-tax Act, 1961, PIB Delhi
[6] Income Tax Act, 1961, § 3
[7] Income Tax Act, 1961, § 2(9)
[8] The Income Tax Bill, 2025, Bill No.24 of 2025, § 2(111)
[9] Unit 1 of Income Tax, Univ. of Kashmir,
[10] The Income Tax Bill, 2025, Bill No.24 of 2025, § 393
[11] Ministry of Finance, FAQs on Income-tax Bill, 2025, Income Tax Dept., https://incometaxindia.gov.in/Documents/income-tax-bill-2025/faqs-income-tax-bill.pdf.
[12] Income Tax Act, 1961, § 115 BAC
[13] The Income Tax Bill, 2025, Bill No.24 of 2025, § 202
[14] Income Tax Act, 1961, § 80C
[15] The Income Tax Bill, 2025, Bill No.24 of 2025, § 123
[16] Suhrith Parthasarathy, Little has changed in the Income Tax Bill,2025, Times of India, February 15,2025
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