Parliament has passed the Income Tax Bill, 2025, replacing the Income Tax Act, 1961, with simplified drafting and expanded digital-era provisions.

About the New Income Tax Bill, 2025

• Objective : The Bill streamlines the Income Tax law by simplifying language and removing redundant provisions while retaining most core elements of the 1961 Act.
  • It is likely to come into effect from April 1, 2026.
• Second Version: The first draft of the Income Tax Bill, 2025, introduced in February 2025 was referred to a Select Committee led by Baijayant Panda, which submitted its report in July with key recommendations.
  • To avoid confusion, the government withdrew the earlier draft and introduced a revised version.
• The Bill reduces chapters from 47 to 23 and sections from 819 to 536, cutting redundancy and complexity.
  • The overall word count was reduced from 5.12 lakh to 2.6 lakh, making law more accessible.
  • The number of tables increased from 18 to 57 and formulas from 6 to 46 for clarity.

Key Provisions of the 2025 Income Tax Bill

• Taxpayer-Friendly Measures
  • Taxpayers may update Income tax returns (ITR) up to 4 years after the assessment year without penalties.

• • Assessment reopening limited to 5 years, ensuring certainty for taxpayers.
  • Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) provisions are separated into sub-sections for better clarity.
  • Recognises modern remittance practices by providing nil Tax Collected at Source (TCS) on Liberalised Remittance Scheme (LRS) remittances for education funded via financial institutions.
  • It has introduced a new concept of “Tax Year” (April 1–March 31) formally introduced. 
    • The concept of assessment year is being replaced by the tax year.
    • Currently, the Income Tax Act 1961, follows the concept of the assessment year. (year followed by the financial year in which income is earned).
• Digital and Professional Provisions
  • Professionals with receipts above ₹50 crore must use electronic payment modes.
  • Refund claims allowed even if  ITR is not filed on time by removing restrictive clauses.
  • Undisclosed income definition expanded to cover virtual digital assets (VDAs).
  • It expands the definition of “virtual digital space”, covering email servers, social media accounts, online banking, and cloud platforms.

• Power to frame schemes: It also seeks to empower the central government to frame new schemes for greater efficiency, transparency, and accountability.
  • The schemes framed by the central government must be laid before Parliament.
• Dispute Resolution and Tax Treaties
  • The Dispute Resolution Panel must now provide detailed reasons with its directions.
  • Tax treaties: If a term is undefined, it will derive meaning from other central laws beyond the Act or government notifications

Significance of the Income Tax Bill, 2025

• Modernisation of Tax Law: Replaces the six-decade-old Income Tax Act, 1961 with simplified, concise, and citizen-friendly drafting.
  • Removes redundant provisions and archaic language, making the law easier to read and implement.
• Greater Certainty for Taxpayers: Corrects anomalies such as refund restrictions, ensuring refunds can be claimed even for belated returns.
  • Clarifies rules on transfer pricing, corporate tax deductions, and LLP taxation, reducing litigation scope.
• Alignment with Digital Economy: Income tax authorities are empowered to access digital data, with SOPs promised  for handling personal digital information.
• Seamless Treaties: The acceptance of other nation’s definitions in case of lack of terminology or provision in Indian Act will ease the ongoing tax treaties such as Double Taxation Avoidance Agreement (DTAA).
• Stability and Continuity: Maintains tax rates, regimes, and penalties unchanged, ensuring no disruption for individuals or corporations.
  • Preserves key definitions from the earlier Act, reinforcing consistency in interpretation and compliance.
    

Concerns Regarding the New Provisions

• Mandatory Password Disclosure: Assessee must provide “reasonable technical and other assistance” to tax officials, including sharing passwords of electronic devices and accounts.
  • It opens scope for intrusion into personal emails, social media, and unrelated private information, raising privacy and data security issues.
• Expanded Access to Data: No limit is specified on what electronic information tax officials may demand for assessment.
  • Creates excessive discretion for authorities, risking misuse and harassment of taxpayers.
• Override Powers of Tax Officials: Tax officials can “override the access code” to any computer system if passwords are not provided.
  • Potential violation of individual rights and weakening of safeguards against arbitrary state action.

Conclusion

The Income Tax Bill, 2025 marks a historic overhaul of India’s tax framework by replacing the six-decade-old 1961 Act with a simplified, digital-ready law. While it ensures stability in tax rates and continuity for taxpayers, its expanded digital access provisions raise privacy concerns. Balancing modernisation, certainty, and citizens’ rights will determine the Bill’s long-term success.

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