The bill aims to simplify tax laws, make compliance easier, and ensure a streamlined tax regime.
The new Act is expected to become effective from April 1, 2026.
KEY CHANGES PROPOSED IN THE NEW INCOME TAX BILL, 2025
Tax Year
The Income Tax Bill 2025 bill introduces the 'tax year' concept, replacing the age old term 'assessment year'. This will align India's tax system with international standards.
The ‘tax year’ has been defined as a 12-month period beginning from April 1.
If a business or profession is set up in mid-year, the tax year would begin from the date of establishment and end on March 31.
Simplification of Language
The bill simplifies and clarifies the language of tax laws, making them easier to understand and comply with. The bill reduces provisos, cross-referencing, and complex explanations, making tax laws easier to understand.
Inclusion of Virtual Digital Assets
A major change introduced in The Finance Bill, 2025 is to include virtual digital assets (VDAs), such as cryptocurrencies and NFTs, as part of taxable capital assets. This change is certainly going to significantly impact the new era crypto investors in terms of levy of higher tax.
Removal of Outdated Provisions
The bill removes outdated exemptions and unnecessary amendments, streamlining the tax code. In contrast to the current Income Tax Act, 1961, which has 47 Chapters and 819 effective sections, the new Income Tax Bill has 23 Chapter and 536 effective sections.
Consolidation of Provisions
The bill consolidates provisions related to revenue recognition, valuation of inventory, and income exclusions in schedules.
New Sections for Revenue Recognition
The bill introduces new sections covering revenue recognition for service contracts.
No Major Changes in Tax Rates, Penalties, or Compliance Mechanisms
The New Income Tax Bill, 2025 does not bring major changes in tax rates, penalties, or compliance mechanisms. This ensures continuity and stability for taxpayers.
Conclusion
As of now the The Income Tax Bill, 2025 has been introduced in Lok Sabha (lower house of the Indian Parliament). The bill will be reviewed by a parliamentary committee before final approval. After approval in Lok Sabha, the bill would be introduced in the Rajya Sabha (upper house of the Indian Parliament) for deliberations and approval. Finally, it would be sent to the President of India for approval.
In the Income Tax Bill, 2025, the government's focus remains on continuity and simplification, setting the stage for further tax reforms in the future.
Overall, the New Income Tax Bill, 2025 is a welcome step towards simplifying and modernizing India's tax system. It is expected to make taxation easier for taxpayers and businesses, while also ensuring that the tax system remains fair and equitable.
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