Why in the News?

• Finance Minister Nirmala Sitharaman has tabled the new Income Tax Bill in the Lok Sabha.

What’s in Today’s Article?

• Introduction (Context of the Article)
• Income-Tax Bill (Key Features, Impact on Tax Payers, Challenges, etc.)

Introduction:

• The government has introduced a new Income-Tax Bill, 2025, aimed at simplifying tax laws, making compliance easier, and ensuring a streamlined tax regime.
• Finance Minister Nirmala Sitharaman announced this while presenting the Union Budget on February 1, 2025. The bill eliminates outdated provisions, uses clearer language, and introduces the ‘tax year’ concept, replacing the term ‘assessment year’.
• While the overall tax structure remains unchanged, experts believe the new bill is a step towards a more efficient tax framework, ensuring that taxpayers can easily navigate provisions without excessive cross-referencing.
• If passed, the new Income-Tax Bill is expected to come into effect from April 1, 2026.

Key Features of the New Income-Tax Bill:

• Introduction of the ‘Tax Year’ Concept

• The bill defines ‘tax year’ as a 12-month period beginning from April 1.
• Unlike the existing system where income earned in one financial year is assessed in the following assessment year, tax will now be calculated within the same tax year.
• If a business or profession is set up mid-year, the tax year will begin from the date of establishment and end on March 31.

• Simplified and Crisp Language

• The bill reduces provisos, cross-referencing, and complex explanations, making tax laws easier to understand.
• The length of the Income-Tax Act has been reduced from 823 pages to 622 pages, despite keeping the number of chapters unchanged at 23.
• The number of clauses has increased from 298 to 536, incorporating provisions that were earlier scattered across multiple sections.

• Expansion of the Definition of ‘Income’

• The new bill includes virtual digital assets (VDAs), such as cryptocurrencies and NFTs, as part of taxable capital assets.
• This aligns VDAs with existing asset categories like land, buildings, shares, bullion, and artwork.

• Removal of Redundant Provisions

• The bill removes outdated exemptions, such as Section 54E, which provided capital gains exemptions for transfers before April 1992.
• Unnecessary amendments and references to old dates and laws have been eliminated.

• Improved Clarity in Tax Provisions

• Several provisions, including tax deducted at source (TDS) rules, presumptive taxation rates, and assessment time limits, have been consolidated into easy-to-read tables.
• Deductions for salaries (standard deduction, gratuity, and leave encashment) are now compiled in one section, improving clarity.

• Reform in the Dispute Resolution Process

• The Dispute Resolution Panel (DRP) now clearly defines:
• Points of determination
• Decisions
• Reasons for rulings

Impact on Taxpayers and Businesses:

• Easier Compliance for Taxpayers

• The removal of multiple cross-references between sections and rules ensures that a taxpayer can understand a provision without needing to refer to multiple documents.
• The language of tax laws has been simplified, with terms like "notwithstanding" replaced by "irrespective of anything".

• Streamlined Tax Filing and Compliance

• The bill consolidates provisions related to revenue recognition, valuation of inventory, and income exclusions in schedules, rather than scattering them across different sections.
• Provisions from other tax laws, such as wealth tax, have been incorporated, reducing the need for external references.

• Digital and Service-Oriented Economy Considerations

• The bill introduces new sections covering revenue recognition for service contracts, reflecting the changing structure of the Indian economy.
• Digital assets and online income sources are now clearly classified under capital assets, ensuring fair taxation.

Challenges and Future Implications:

• No Major Structural Reforms

• Despite simplifying provisions, the new bill does not bring major changes in tax rates, penalties, or compliance mechanisms.
• Experts believe further reforms may be required for a more taxpayer-friendly system.

• Transition Challenges

• Taxpayers and businesses may require time to adapt to the ‘tax year’ concept.
• Accountants and financial professionals will need to update their systems and tax planning strategies.

• Pending Legislative Approval

• The bill is scheduled for introduction in Lok Sabha this week and will be reviewed by a parliamentary committee before final approval.

Conclusion:

• The Income-Tax Bill 2025 aims to make taxation simpler, clearer, and more streamlined. The introduction of the tax year, removal of redundant provisions, and improved clarity in tax laws are positive steps towards an efficient tax system.
• However, while the bill improves language and structure, it does not introduce significant policy changes in tax rates, penalties, or compliance mechanisms.
• The government’s focus remains on continuity and simplification, setting the stage for further tax reforms in the future.