The Income Tax Bill 2025, tabled by the Honourable Finance Minister on February 13, 2025, aims to replace the Income Tax Act, 1961 with a modern, structured, and digitally enabled tax administration system. This bill, comprising 536 sections, 23 chapters, and 16 schedules, seeks to simplify tax laws, promote transparency, and improve compliance.
Key Objectives of the Income Tax Bill 2025
- Simplified Tax Code: Clearer and more understandable tax provisions.
- Lower Tax Rates & Higher Rebates: Encourages higher disposable income and savings.
- Reduced Legal Disputes: Streamlined processes to minimize ambiguities.
- Easier Compliance: Modern mechanisms for efficiency and reduced tax evasion.
Scope of the Income Tax Bill 2025
The bill determines tax implications based on the residential status of an assessee:
- Residents (ROR & RNOR): Taxable on all income earned or received in India.
- Non-Residents (NR): Taxable only on income received or accrued in India.
- Foreign income repatriated to India remains non-taxable.
Salient Features of the Income Tax Bill 2025
- Direct tax remains non-transferable.
- Controlled by the Central Government.
- Applicable to income earned in the tax year.
- Progressive tax rate system maintained.
- Deductions capped per financial year.
Key Reforms in the Income Tax Bill 2025
1. Income Tax Bill 2025 vs. Income Tax Act, 1961
- Removal of complex legal jargon like “notwithstanding” (replaced by “irrespective of”).
- Introduction of tabular representations for clarity (e.g., “agricultural land” definition).
2. ‘Tax Year’ Replaces ‘Assessment Year’ & ‘Previous Year’
- The tax year is now aligned with the financial year (April 1 – March 31).
- Simplifies understanding, especially for new businesses and taxpayers.
3. No Changes in Tax Rates
- The existing tax rate structure remains unchanged.
- Focus is on structural reforms rather than rate alterations.
4. Residential Status Provisions Unchanged
- Criteria remain the same as per Section 6 of the new Bill.
- Deemed residency provisions restructured for better clarity.
5. Retention of Five Heads of Income
- Salaries
- Income from house property
- Profits and gains of business or profession
- Capital gains
- Income from other sources
6. Introduction of Separate Rules under the Bill
- Rules related to perquisites, valuation of assets, and exempt income to be specified separately.
- More clarity awaited on the operational aspects.
7. Exempt Income Now in Schedules II to VII
- Agricultural income, partnership firm profits, family pensions, and other exemptions tabulated separately.
- Easier for taxpayers to determine eligibility.
8. Consolidation of TDS & TCS Provisions
- Previously scattered TDS (Tax Deducted at Source) & TCS (Tax Collected at Source) provisions now presented in tabular format.
- Sections 392 to 394 of the Bill streamline TDS/TCS rules, making compliance easier.
9. Withholding Tax on Payments to Non-Residents
- Provisions from Section 115A (Income Tax Act, 1961) now in Section 207.
- No change in tax rates (remains at 20%, subject to DTAA benefits).
Conclusion
The Income Tax Bill 2025 is a progressive step toward a modernized and efficient tax system. By simplifying legal provisions, enhancing clarity, and ensuring easier compliance, this bill sets the foundation for a transparent and digitally enabled tax regime. While no changes have been made to tax rates or residential status determination, the restructuring efforts will undoubtedly make tax administration more seamless for businesses and individuals alike.
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