New Income Tax Bill 2025: Date & Key Changes

The Need for a New Income Tax Bill

The Income Tax Act of 1961, while a foundational piece of legislation, has evolved significantly over the decades. This evolution, while necessary to address changing economic realities, has also led to increasing complexity. The Act has become voluminous, and its complications have made it difficult for many taxpayers to get along with it. This complexity has, in turn, fueled a rise in disputes and litigation, creating challenges for both taxpayers and the administration of the tax system. In response to these challenges, a new Income Tax Bill has been proposed. The need for this new legislation is driven by several key factors:

• Simplification: The new bill is designed to simplify the language and structure of the tax laws, making them easier for taxpayers to understand and comply with.
• Reduction in Litigation: By clarifying and streamlining the provisions, the bill aims to reduce ambiguities and minimize the potential for disputes and legal challenges.
• Modernization: The bill introduces modern compliance mechanisms and incorporates digital governance, reflecting the current technological landscape and improving efficiency.
• Taxpayer-Friendly Focus: The inclusion of a Taxpayer’s Charter underscores the bill's commitment to transparency and taxpayer rights, fostering a more positive and cooperative tax environment.

Structural Reforms in the Tax Code: What Has Changed?

The newly proposed Income Tax Bill has been simplified and reduced to fewer sections compared to the existing Income Tax Act. While the current Act comprises over 700 sections, the new bill consolidates these into 536 sections.

A notable change is the restructuring of section numbering. In the new bill, all clauses are sequentially numbered, eliminating the use of alphabets in section identifiers. This reorganization might give the impression of an increased number of sections, but in reality, the content remains largely unchanged.

Below is a table summarizing the key structural changes introduced in the new bill:

No Entertainment Allowance Deduction for Gov. Employees

The new Income Tax Bill, set to take effect from April 1, 2026, removes the provision allowing government employees to claim deductions for entertainment allowances. Previously, this benefit was exclusive to government employees, with the deductible amount being the lowest of the following:

• 1/5th of their basic salary,
• Rs 5,000, or
• The actual amount received as entertainment allowance.

Clarification on Tax-Exempt Gifts from Lineal Relatives

Under Section 56(2)(x) of the current Income Tax Act, gifts received by an individual from lineal ascendants or descendants (including those of their spouse) are exempt from income tax. The new bill explicitly clarifies that lineal ascendants or descendants can be from either the maternal or paternal side.

More Powers to the Central Board of Direct Taxes (CBDT)

The new bill omits the seventh provision of the current Income Tax Act, which outlines specific conditions (e.g., foreign travel, turnover exceeding thresholds) under which an Income Tax Return (ITR) must be filed, even if income is below the basic exemption limit. Instead, the CBDT has been granted the authority to determine the conditions mandating return filing. Furthermore, the CBDT can now require detailed information from taxpayers, including credit card details, expenditures exceeding specified thresholds, outgoings, and particulars of the principal place of business.

Introduction of the "Tax Year"

One of the most anticipated changes in the new Income Tax Bill was the removal of the concepts of the "previous year" and "assessment year," a move welcomed by both professionals and the common taxpayers.

Under the current Income Tax Act, these two concepts play a central role. The "previous year" refers to the year in which income is earned, while the "assessment year" is the year in which that income is taxed. The assessment year always follows the previous year, meaning taxpayers file their income returns in the assessment year for the income earned in the previous year. However, this dual framework often led to confusion and complexities in applying tax provisions accurately.

To address these challenges, the new bill introduces the concept of the "Tax Year," detailed in Section 3. Essentially, the Tax Year aligns with the financial year, running from April 1 to March 31. This simplification replaces the dual reference system, with the term "Succeeding Tax Year" now used in place of "Assessment Year" wherever necessary. This change aims to streamline the tax process and reduce ambiguities.

Virtual Digital Assets: Explicitly Included in Tax Laws

In recent years, there has been a substantial surge in digital transactions, fueling the growth of digital assets and online income. To address this shift, the New Income Tax Bill incorporates provisions for digital income and assets wherever relevant, ensuring they are properly accounted for in taxation.

For example, the definition of undisclosed income now explicitly includes Virtual Digital Assets, a category that was not covered under the existing legislation. This update reflects the evolving nature of income sources in the digital age.

Stricter Penalties for Non-Compliance Under Section 276CCC

Section 276CCC of the current Income Tax Act addresses the failure to file income returns in search cases. The new bill proposes to make this a non-cognizable offense, requiring prior sanction from the appropriate authority for prosecution. Additionally, repeat offenders will face stricter penalties, including rigorous imprisonment ranging from six months to seven years, along with fines.

How Section 202 Changes Section 115BAC

Section 115BAC of the current Income Tax Act recaps the new tax regime applicable to specific assessees, namely Individuals and Hindu Undivided Families (HUF). In the proposed Income Tax Bill, this provision is addressed under Section 202, which expands the scope of the new tax regime to include additional entities, such as the Association of Persons, Body of Individuals, and Artificial Juridical Persons, alongside Individuals and HUFs.

Similar to the existing framework, the new bill retains the option to opt out of the new tax regime, though it remains the default option. In terms of deductions, the new bill largely mirrors the existing provisions. Deductions that are unavailable under Section 115BAC of the current Act continue to be excluded under Section 202 of the new bill. Conversely, deductions permitted under Section 115BAC are also carried forward and made available under the new Income Tax Bill.

Benefits of New Income Tax Bill

Reduced Complexity: The new Income Tax Bill is expected to simplify the tax structure by reducing the number of deductions and exemptions available to taxpayers, making the system more straightforward and less cumbersome.

• Increased Compliance: By streamlining tax laws and eliminating legal ambiguities, the bill aims to enhance compliance, benefiting both taxpayers and tax authorities.
• Unified Tax Rates: The bill is anticipated to rationalize tax rates in alignment with global standards, positioning India as a more attractive destination for both domestic and foreign businesses.
• Minimized Legal Disputes: The simplification of tax laws is expected to significantly reduce the burden of litigation for individuals and businesses, fostering a more efficient and dispute-free tax environment.

These anticipated changes underscore the government's commitment to creating a more transparent, equitable, and globally competitive tax system.

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