The much-anticipated Income Tax Bill 2025 was introduced in the Lok Sabha on February 13 by Finance Minister Nirmala Sitharaman. The bill aims to simplify the existing Income Tax Act of 1961, making it more accessible and reducing litigation. Here are the top highlights of the new bill:
1. Simplified Language and Structure
- The bill is designed to be more concise and user-friendly, reducing ambiguity in tax laws.
- The new bill has 536 sections, 23 chapters, and 16 schedules, compared to 819 sections and 47 chapters in the 1961 Act.
- Over 1200 provisos and 900 explanations have been removed.
2. Tax Year Concept Introduced
- Replaces terms like ‘assessment year’ and ‘previous year’ with ‘tax year’ for easier understanding.
- Aligns with global tax terminology and simplifies compliance.
3. Revised Income Tax Slabs
- Income up to ₹12 lakh is exempt from tax.
- Standard deduction of ₹75,000, effectively making income up to ₹12.75 lakh tax-free for salaried individuals.
- Aims to boost consumer spending and savings.
4. Simplification of Tax Laws
- Sections have been reduced by 25-30% to enhance clarity.
- Consolidation of deductions and exemptions.
- Previously scattered provisions, such as those for salaried employees, are now grouped together.
5. Extended Timeframe for Filing Updated Returns
- The window for filing updated tax returns has been increased from 2 years to 4 years.
- This allows taxpayers more time to correct errors and omissions.
6. Virtual Digital Assets (Cryptocurrency & Digital Transactions)
- Defined under Clauses 67 to 91, ensuring comprehensive tax treatment.
- Introduces clear tax rates and compliance requirements for digital assets.
7. Changes for Non-Profit Organizations
- Provisions from various sections in the 1961 Act are now consolidated in Chapter XVII, Part B.
- Defines taxable income, compliance rules, and restrictions on commercial activities.
8. TDS and TCS Provisions Made Easier
- Tables now outline tax deduction at source (TDS) and tax collection at source (TCS) provisions.
- Separate tables for residents and non-residents, streamlining the process.
9. No Changes in Tax Rates
- The bill does not introduce new tax rates.
- All amendments proposed up to the Finance Bill 2025 are incorporated.
- Existing policies on capital gains tax and Minimum Alternate Tax (MAT) remain intact.
10. Support for Startups and Renewable Energy Investments
- New provisions introduced to encourage entrepreneurship and investment in green energy.
- Capital gains taxation continues as per the earlier classification of short-term and long-term gains.
11. Improved Taxpayer Rights and Transparency
- New measures to ensure fairness in tax administration.
- Strengthened protection for taxpayers against arbitrary assessments.
12. Streamlined Appeal and Dispute Resolution Mechanism
- Faster processing of appeals and dispute resolution.
- Reduction in the backlog of pending tax cases.
13. Enhanced Compliance for High-Net-Worth Individuals
- Stricter monitoring of high-income earners.
- New reporting requirements for overseas income and assets.
14. Tax Benefits for Senior Citizens and Pensioners
- Higher exemption limits for senior citizens.
- Simplified tax-filing process for pensioners.
15. Digitalization and Automation of Tax Filing
- Increased use of artificial intelligence in tax assessments.
- Fully digital, paperless filing system to reduce human intervention.
The bill is currently under review, and a select committee is expected to submit its report by the next parliamentary session. The goal is to reduce tax-related disputes and enhance compliance through clarity and simplification.
