In a significant step towards modernizing India’s tax system, Finance Minister Nirmala Sitharaman introduced the Income Tax Bill, 2025 in the Indian Parliament today.
This proposed legislation aims to overhaul the existing framework, simplifying the tax structure and making it more efficient and transparent. The Bill is a comprehensive 622-page document with 536 sections and 16 schedules, reflecting a considerable effort to revamp the country’s tax code, which has long been criticized for its complexity and outdated provisions.
While the new Bill does not introduce any new taxes, it focuses on simplifying the language of the Income Tax Act of 1961, ensuring the system is more accessible to taxpayers. As part of this process, the Finance Minister has called for the formation of a standing committee in the Lok Sabha to review the Bill and make recommendations.
Here are the major highlights of the proposed changes:
1. Shift from “Assessment Year” to “Tax Year”
The new Bill introduces a more straightforward framework by replacing the traditional “assessment year” terminology with the term “tax year.” This change, specified in Clause 4, eliminates confusion and aligns the tax process with the financial year, streamlining the entire system for better understanding and easier compliance.
2. Digital Assets and Updated Tax Guidelines
As the digital economy continues to expand, the Bill addresses the taxation of digital assets, including cryptocurrencies and income generated through online platforms. Clause 2 provides clear definitions for terms such as “virtual digital asset” and “electronic mode,” ensuring that digital income is appropriately taxed within the formal tax structure.
3. Tax Relief for Salary Arrears and Digital Tools
The Bill introduces tax relief for salaried individuals, particularly those who receive salary arrears. Clause 157 expands the scope for tax relief on back payments, allowing individuals to receive financial relief for multiple years of arrears. Furthermore, Clause 17 offers tax exemptions for digital tools such as laptops and software provided by employers, recognizing the growing trend of remote work and digital employment.
4. Increased Deductions and Revised Tax Slabs
For salaried taxpayers, the new Bill raises the standard deduction to Rs 75,000 (or actual salary, whichever is lower), which will particularly benefit pensioners and senior citizens. Revised income tax slabs now make income up to Rs 12 lakh exempt from taxation, with a standard deduction effectively making income up to Rs 12.75 lakh tax-free. This will boost disposable income for the middle class and encourage increased savings and consumer spending.
5. Simplification of the Tax Code
A major objective of the Income Tax Bill, 2025 is to simplify the tax laws. It aims to reduce the total number of sections in the Income Tax Act by 25-30%, making the code more user-friendly. The new Bill also consolidates various deductions and exemptions, replacing the cumbersome Sections 10 and 80C to 80U of the previous law, and clarifies the provisions for investments, donations, and specific expenses.
6. Streamlined Filing and Extended Time for Updated Returns
The Bill extends the time frame for filing updated returns from two to four years, providing taxpayers additional time to correct errors or omissions in their filings. This extension will facilitate better compliance and offer a fairer tax structure for individuals and businesses alike.
7. Clarity for Non-Profit Organizations
The new Bill lays out clearer guidelines for non-profit organizations, especially concerning tax exemptions. Clauses 332 to 355 provide a more comprehensive framework, defining taxable income and imposing stricter compliance standards. It also limits the scope of non-profit organizations engaging in commercial activities, ensuring that the tax-exempt status is used for its intended charitable purposes.
8. Automation and Digitalization of Tax Administration
A significant provision in the Bill is the promotion of automation and the shift to faceless assessments. With Clauses 263 to 389 mandating electronic filing of returns and automated assessments, the government aims to reduce delays and improve transparency in tax administration. This digital transformation will ensure a more efficient, faster, and reliable process for taxpayers.
9. Strengthened Anti-Tax Avoidance Rules
The Bill enhances the existing General Anti-Avoidance Rules (GAAR) to cover a wider range of tax avoidance schemes. Clauses 178 to 184 focus on addressing impermissible transactions and arrangements designed to exploit legal loopholes. These expanded provisions are intended to promote fairness and compliance across the board.
10. Taxation of Virtual Digital Assets
The Bill includes specific provisions related to the taxation of digital currencies, including cryptocurrencies. Clauses 67 to 91 define “virtual digital assets” and outline the tax rates that will apply to such assets, providing clarity for individuals and businesses involved in the digital space.
11. Capital Gains Tax Reforms
In addition to deductions and exemptions, the new Bill introduces changes to the capital gains tax framework, particularly concerning short-term and long-term gains. These reforms aim to simplify the rules surrounding capital gains, with new provisions designed to support the growth of startups, digital businesses, and renewable energy investments.
12. Focus on Startups and Sustainable Investments
Clauses 11 to 154 introduce measures to support new businesses, including startups and those involved in renewable energy projects. This includes tax breaks and incentives aimed at encouraging innovation and sustainable development, further integrating environmental concerns into the country’s tax framework.
