Income-tax Bill 2025 – Key Highlights | Major Changes

The Income-tax Bill 2025 is proposed legislation intended to replace the 75-year-old Income-tax Act, 1961, by simplifying tax provisions, reducing disputes, and creating a more transparent and concise framework for taxpayers in India.

Table of Contents

1. Introduction
2. Basics
3. Salary
4. Income from House Property
5. Profits and Gains of Business or Profession
6. Capital Gains
7. Income from Other Sources
8. Clubbing of Income
9. Set-off and Carry Forward of Losses
10. Deductions and Relief

Check out Taxmann's Income Tax Bill 2025 which offers a smooth transition from the Income-tax Act 1961 to the new legislation. It features side‑by‑side comparative tables, repealed provisions, in‑depth analysis, and a fully indexed text of the Bill. Notable highlights include a new chapter on taxation for registered NPOs, FAQs, and a navigator for quick reference. The book's user-friendly structure, cross‑referencing, and comprehensive coverage cater to tax professionals, businesses, individuals, government authorities, and academics. It clarifies transformative changes and helps readers quickly adapt to the new framework.

1. Introduction

During the Budget Speech on July 23, 2024, Finance Minister Smt. Nirmala Sitharaman announced a comprehensive review of the Income-tax Act of 1961 (ITA). She explained that the rationale behind this move is to make the Act concise, clear, and easier to read and understand. The aim is to reduce disputes and litigation, thereby providing taxpayers with tax certainty. She announced that the review would be completed within six months. During her budget speech on 1st February 2025, she stated that the Income-tax Bill 2025 (‘ITB’) would be tabled within a week. The Bill was tabled in parliament on 13th February 2025.

When passed, the 580+ pages Income Tax Bill will replace the 75-year-old Income Tax Act of 1961 and become a new Income-tax Act of 2025. The ITB contains 2.56 lakh words, almost 50% fewer than the half a million words in the ITA. Despite the significant reduction in the legislation’s size, the essence has been retained. The ITB is a remarkable departure from the 1961 Act, which respects the legacy of the 1961 Act. The ITB simplifies the structure, removes the redundant and omitted provisions of ITA, and replaces the Provisos and Explanations of ITA with sub-sections, clauses, or sub-clauses.

The ITB provides interesting facts compared to the ITA. The 911 sections and 11 schedules of the ITA are restructured into 536 sections (clauses) and 16 schedules in the ITB. The ITB eliminates more than 300 provisions of the ITA that have become redundant or were omitted over time. The provisions included within 1,200+ Provisos and 550+ Explanations of the ITA are presented as sub-sections, clauses, or sub-clauses in the ITB. The entire ITB does not contain a single Proviso or an Explanation. Section 2 of the ITB includes 112 clauses that explain all important definitions in one place, which were defined in the relevant provisions of the ITA. The words “Previous Year” and “Assessment Year” now rest in peace and are reincarnated as “Tax Year” and subsequent to “Tax Year”, respectively.

The legacy of the ITA, with structural adjustments, has been retained in the ITB to prevent unsettling the ITA, which has gained certainty after more than thousands of amendments through 80+ Finance and Amendments Acts. However, the provisions for the taxation of charitable trusts, amended by more than 20 Finance Acts since 1961, have found a successor, a new name, and a dedicated chapter. Chapter XVII-B encompasses all provisions related to non-profit organisations in one place, including registration, computation, accreted tax, and more.

The ITB has 16 schedules, compared to 11 in the ITA. These schedules contain provisions that were previously covered under sections of the ITA. One schedule specifies conditions for eligible investment funds and fund managers; six schedules provide a list of incomes exempt from tax (corresponding to section 10 of the ITA); one Schedule Specifies conditions for exemption to Political Parties and electoral trusts, while five schedules pertain to profits and gains from business or profession, including two new schedules that address agricultural boards. One schedule explains deductions allowed under Clause 123 (corresponding to section 80C of the ITA), another outlines the rules related to recognised provident funds or approved superannuation funds or gratuity funds, and the final schedule details the forms and modes of investment or deposits permitted for charitable and religious trusts (corresponding to section 11(5) of the ITA).

Both the ITA and ITB outline their respective definitions in section 2. Under the ITB, the charging provisions are covered in Clause 15 (income from salary), Clause 20 (house property), Clause 26 (business or profession), Clause 67 (capital gains), and Clause 92 (other sources). Clubbing provisions are addressed in Clauses 96 to 100, while Clauses 108 to 121 govern the set-off and carry forward of losses.

Deductions are explained in Clauses 122 to 154, and transfer pricing regulations are codified in Clauses 160 to 177. Special tax rates are stipulated under Clauses 190 to 198, and new tax regimes are introduced in Clauses 199 to 205. The taxability of non-residents and foreign companies is covered in Clauses 207 to 220, whereas Clauses 263 to 286 outline procedures for income-tax returns and assessments, supplemented by search-related assessment provisions in Clauses 292 to 301. A newly introduced Chapter XVII-B (Clauses 332 to 355) specifically addresses the taxability of non-profit organisations. Appellate mechanisms are outlined in Clauses 356 to 374. Notably, while the ITA features over 65 provisions for Tax Deducted at Source (TDS) and Tax Collected at Source (TCS), the ITB consolidates these into nine Clauses (390 to 398). Lastly, penalties and prosecutions are detailed in Clauses 439 to 498 of the ITB.

The key differences in all important provisions of the Income-tax Act, 1961 as amended by the Finance (No. 2) Act, 2024, in comparison to the Income-tax Bill, 2025, have been explained in the subsequent chapters. Certain amendments proposed by the Finance Bill 2025 have also been explained in the relevant paragraphs.

2. Basics

2.1 Definitions [Clause 2 of the ITB/Section 2 of the ITA]

• Consolidated in one place – Clause 2 of the ITB consolidates the meaning of specific terms in one place. Previously, some of these terms were included in the relevant provisions, such as meaning of accountant, convertible foreign exchange, currency, etc.
• Change in the meaning of certain terms – The ITB makes a change in the meaning of the following terms, such as:

1. 1. Charitable purpose [see Registered NGOs]
   2. Clause 2(13) of ITB provides that “assessment” includes reassessment and recomputation, while clause 2(8) of ITA provides that “Assessment” includes reassessment.

2.2 “Previous Year” is Replaced with “Tax Year” [Clause 3 of the ITB/Section 3 of the ITA]

• For the purposes of this Bill, the expression “previous year” has been replaced with the expression “tax year”. This means the 12-month period of the financial year commences on the 1st day of April.

2.3 Residential Status [Clause 6 of the ITB/Section 6 of the ITA]

Income-tax Act, 1961, provides that the condition of stay in India for 60 days or more in the current year does not apply to a citizen of India who leaves India “for the purpose of employment outside India”. Income-tax Bill, 2025 proposes to replaces this expression with “for employment outside India”.

2.4 Mere Export of Goods Shall Not be Considered As ‘Significant Economic Presence’ [Clause 9 of ITB/Section 9 of ITA]

Section 9 of the ITA specifies the income deemed to accrue or arise in India. Section 9(1)(i) states that all income accruing or arising, whether directly or indirectly, through or from any business connection in India shall be deemed to accrue or arise in India. Explanation 2A of section 9(1)(i) provides that the ‘significant economic presence of a non-resident in India shall constitute a “business connection” in India, and it also describes what “significant economic presence” means. The ITB proposes that the transactions or activities that are confined to the purchase of goods in India for the purpose of export shall not constitute significant economic presence in India.

Sidebar – The Finance Bill 2025 has already proposed inserting a second proviso to Explanation 2A of Section 9(1)(i) that the transactions or activities of a non-resident in India, which are confined to the purchase of goods in India for the purpose of export, shall not constitute a significant economic presence of such non-resident in India. This amendment aligns it with Explanation 1 to section 9(1)(i) concerning business connections.

3. Salary

3.1 Meaning of Perquisite [Clause 17 of the ITB/Section 17(2) of the ITA]

The value of perquisites provided by an employer to his employee is included in the salary income of the employee. Following are the key changes in the proposed provision relating to the taxability of perquisite:

• Threshold for specified employees – When an employer makes certain benefits or amenities available to its employees (such as gas, electricity, water, etc.), the value of such benefits is taxable only in the hands of the specified employees. An employee is deemed to be a ‘specified employee’ for this purpose if his monetary income (i.e., income excluding the value of non-monetary perquisites) under the head ‘salaries’ exceeds ` 50,000. The ITB proposed to remove this threshold limit from the provision and empowers the CBDT to prescribe this threshold limit.

Note – The Finance Bill, 2025 has already proposed this amendment to section 17(2) of the ITA, which empowers the CBDT to notify the limit in this regard.

• Travel for medical treatment outside India – Any sum incurred by the employer for the medical treatment of an employee or his family member outside India is taxable as perquisite only if it exceeds the limit prescribed by the Reserve Bank of India. Further, the sum incurred on the stay of the employee or any family member or attendant accompanying the patient for treatment outside India shall be taxable as a perquisite only if it exceeds the limit permitted by the RBI. However, the cost of travelling by an employee or any of his family members or any attendant who accompanies the patient for treatment outside India shall be taxable as a perquisite if the gross total income of the employee, without including the expenditure on travelling, exceeds ` 2,00,000. The ITB removes this threshold limit from the provision and empowers the CBDT to prescribe this threshold limit.

Note – The Finance Bill, 2025 has already proposed this amendment to section 17(2) of the ITA, which empowers the CBDT to notify the limit in this regard.

• Medical treatment for prescribed diseases or ailments in approved hospitals – Medical treatment provided to an employee or his family members in India is not considered a perquisite if it is provided in a hospital approved by the Principal Chief Commissioner of Income Tax (PCCIT) or Chief Commissioner of Income Tax (CCIT) for the treatment of prescribed diseases or ailments. Under the ITA, the employee was required to attach a certificate from the hospital (specifying the disease or ailment treated) and the payment receipt along with their income tax return. However, this condition is now irrelevant as income tax returns are filed electronically (paperless), and no physical attachments can be submitted. To address this issue, the ITB has proposed to remove this condition.

3.2 No Deduction for Entertainment Allowance

The entertainment allowance received by an employee is a taxable allowance. However, a Government employee is allowed a deduction under section 16(ii), which shall be lower of the following:

• Actual amount of entertainment allowance received during the previous year;
• 20% of salary exclusive of any allowance, benefit or other perquisite;
• ` 5,000.

The ITB does not allow any deduction for the entertainment allowance.

4. Income from House Property

4.1 House Property Used for Business or Profession [Clause 20 of the ITB/Section 22 of the ITA]

The annual value of a property is taxable under the head “income from house property”. However, where the owner occupies any portion of the property for his business or profession, the annual value of such property is not chargeable to tax under the head ‘house property’ provided the profits of such business or profession are chargeable to income tax.

Section 22 of ITA excludes the taxability of income from house property under this head if the owner occupies it for the purposes of any business or profession carried on by him, the profits of which are chargeable to income tax. The provision uses the words ‘may occupy’ to exclude such income from the taxability under the head of house property. It gives the impression that uninterrupted occupation of the property is not necessary to make an asset a business asset^[1]. Thus, if a business asset is temporarily let out, it will not cease to be a business asset as the owner may otherwise occupy it for business or profession at any time in the future. This is supported by the Supreme Court^[2]. It held as follows:

“if the business assets are let out temporarily, while the assessee is carrying on his other business activities, then it is a case of exploiting the business asset otherwise than employing them for his own use for making a profit for that business; but if the business never started or has started but ceased with no intention to be resumed, the assets also will cease to be business assets and the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets”.

The ITB replaces ‘may occupy’ with the term ‘occupied’, which may indicate the actual and current use of the property for business or profession. Thus, if an assessee owns a property and uses it for business or profession, it would qualify for the exception. However, a vacant property or a property not actively used for business may not qualify for exclusion from the taxability under the head of the house property.

4.2 Treatment of Vacancy Allowance [Clause 21 of the ITB/Section 23 of the ITA]

The ITB retains the charging provision for taxability under this heading, which states that the annual value of any house property is deemed to be the higher of expected rent or actual rent.

Section 23(1)(c) of the ITA provides relief to the assessee in situations where the actual rent is lower than the expected rent due to vacancy. In such cases, the actual rent is considered the annual value of the property. To fall under the provisions of section 23(1)(c), the following requirements must be met:

• The property, or any part thereof, must be let;
• The property should have been vacant during the whole or any part of the previous year; and
• Actual rent must be lower than the expected rent owing to such vacancy.

Several issues arise when applying this provision. For instance,

• What if the property has been let out in the past but not in a relevant year?
• What if there is a vacancy for an entire year between two tenancies?
• What if the property is meant or assigned for letting but could not actually be let out during the year?
• What if actual rent is lower than expected rent, partly because of vacancy and partly because of other reasons like unrealised rent, self-occupancy, etc.?

Following judicial pronouncements have attempted to provide clarity on the first three issues.

• If the property has been let out for a part of the previous year, it can be vacant only for the part of the previous year for which the property was let out and not beyond. The vacancy allowance shall be allowed only in respect of the period during which the property was let out and remained vacant [Vivek Jain v. Asstt. CIT [2011] 14 taxmann.com 146 (AP)]
• Where house properties were not at all let out for any previous years, there would be no question of availing vacancy allowance [Ansal Housing & Construction Ltd. v. ACIT [2018] 89 taxmann.com 238 (Delhi)]
• Annual value of properties that admittedly remained vacant throughout previous year would be determined notionally [Susham Singla v. CIT [2016] 76 taxmann.com 349 (Punjab & Haryana)]
• Where the assessee could not find a suitable tenant for his house property despite writing various letters to the concerned builder, he was eligible to claim vacancy allowance [Sachin R. Tendulkar v. DCIT [2018] 96 taxmann.com 253 (Mumbai – Trib.)]

The answer to the fourth question (i.e., whether the shortfall in actual rent can be due to vacancy as well as other reasons like unrealised rent, self-occupancy, etc.) has not yet been addressed in judicial pronouncements or departmental clarifications. However, Clause 21(2) of ITB deals with this aspect. It provides that in case the property or any part of it is let in the normal course and was vacant for the whole or any part of the tax year, the annual value of such property shall be computed as per sub-section (1)(b) which refers to actual rent received or receivable by the owner. Consequently, in the ITB, if the property is let in the normal course and remains vacant for any period during the tax year or for the entire tax year, the actual rent will be treated as the annual value of the property, with no comparison to the expected rent. This applies regardless of whether the shortfall in rent is solely due to vacancy or results from other factors as well. In other words, a property lying vacant and a deficit in the actual rent over the expected rent due to the vacancy are two different aspects. The ITA requires the fulfilment of both conditions, while the ITB focuses only on the first condition. As long as the property remains vacant at any time during the year, only the actual rent will be considered for taxability, even if the expected rent is higher than the actual rent.

4.3 Annual Value of Self-Occupied Houses [Clause 21 of the ITB/Section 23 of the ITA]

As per sub-sections (2), (3) and (4) of section 23 of the ITA, if an assessee owns more than two houses, he can consider the annual value of any two houses as ‘nil’. This option can be exercised for the following types of houses (hereinafter referred to as self-occupied houses):

• House property occupied by the assessee for his own residence; or
• House property that the assessee cannot actually occupy due to employment, business or profession at any other place, provided he resides at that other place in a building not belonging to him.

This benefit is available only if the selected properties were not let out at any time during the previous year and no other benefit was derived from them. If the assessee owns more than two self-occupied houses, the annual value of the remaining houses (beyond the two chosen) will be determined as if they were let out.

The provision allowing ‘nil’ annual value of two houses was introduced considering taxpayers who need to maintain a family at different locations. However, the requirement that the house could not be occupied due to employment, business, or profession at another place created difficulties for taxpayers in availing of this benefit.  For instance, if an assessee owns two houses, one for his own residence and another occupied by his parents, the second house may not qualify as self-occupied. This is because it does not meet the condition that the assessee is unable to occupy it due to employment or business at another place.

The phrase “occupied for own residence” is not explicitly defined in the Act. Courts and Tribunals have ruled that a house occupied by parents or children does not qualify as self-occupied. The Mumbai ITAT in the case of Dy. CIT v. Deepak Shashi Bhusan Roy [2018] 96 taxmann.com 648 (Mumbai – Trib.)  held that a house occupied by the assessee’s daughter was deemed let out. The Gujarat High Court, in the case of Smt. Jashvidaben C. Mehta v. CIT [1988] 37 Taxman 249 denied self-occupied status for a house occupied by the assessee’s cousin. As a result, many taxpayers could not claim the nil annual value benefit if the second house was occupied by family members or left vacant for any other reason.

Clause 21 of the ITB has removed the requirement that a house must be unoccupied due to employment or business at another place to address these issues. Now, if a house cannot be occupied by the assessee for any reason, its annual value can still be considered nil.

Thus, the ITB allows the annual value of up to two houses to be treated as nil, regardless of whether they are occupied by the assessee or his family members or left vacant for any reason.

Sidebar – The Finance Bill, 2025 has already proposed this amendment to section 23(2) of the ITA that the annual value of up to two house properties shall be nil if the owner occupies the house for his own residence or cannot occupy it for any reason.

5. Profits and Gains of Business or Profession

5.1 Rent, Repairs, Insurance, etc., of Business Assets [Clause 28 of the ITB/Sections 30 & 31 of the ITA]

Section 30 of the ITA provides that all revenue expenses incurred in respect of a premise used for business are allowed as a deduction in accordance with this provision. These expenditures include rent, rates, taxes, repair, and insurance for a premise. In respect of repair expenses, only current repair expenses shall be allowed as a deduction. Similarly section 31 provides deduction in respect to repairs & insurances of machinery, plant or furniture. The following are the key changes introduced in the ITB:

• Merger of sections 30 and 31 – Clause 28 of the ITB proposes to combine the provisions of sections 30 and 31, allowing deductions for expenses related to premises, machinery, plant or furniture used wholly and exclusively for the purpose of the business or profession.
• Fair proportionate deduction – The ITB introduces a new sub-section allowing fair and proportionate deductions when premises, machinery, plant, or furniture are partially used for business or professional purposes. The Assessing Officer is empowered to determine the appropriate proportion of deductions based on the extent of business use.

5.2 Actual Cost of Assets Used for Business or Profession [Clause 39 of the ITB/Section 43(1) of the ITA]

As per Section 43(1) of ITA, the actual cost of an asset shall mean the cost incurred by the assessee to bring the asset to its present location as reduced by that portion of the cost which is met directly or indirectly by any other person. In certain circumstances, the actual cost of an asset is substituted by its ‘notional cost’.

Clause 39 of the ITB broadens the scope of special circumstances related to asset acquisition and cost determination. The following changes have been made in the provisions:

• It has been provided in the ITB that Goods and Services Tax (GST) paid shall be excluded from the cost if the assessee has claimed an Input Tax Credit (ITC).
• If a subsidy/grant is not directly linked to an asset, the exclusion amount is calculated using the following formula:

5.3 Maintenance of Accounts [Clause 62 of the ITB/Section 44AA of the ITA]

Section 44AA of the ITA requires the assessee to prepare and maintain books of account if his income or gross turnover or receipts, as the case may be, exceeds the prescribed threshold limit. The books of account and documents should be kept and maintained by the assessee at the place where he is carrying on the profession. The prescribed books of account should be kept and maintained for a period of 6 years from the end of the relevant assessment year.

“Information Technology” and “Company Secretary” have been explicitly included in the list of specified professions, which were previously notified separately. Further, authorised representative and firm artist have been proposed to be removed.

5.4 Presumptive Taxation for Non-Resident Providing Services for Electronic Manufacturing Facility [Clause 61 of the ITB]

The ITB proposes a new presumptive tax scheme. It would apply to non-residents providing services or technology to a resident company in India to set up an electronics manufacturing facility or manufacture/produce electronic goods. Under this scheme, 25% of the total amount paid or payable to the non-resident for such services or technology would be deemed presumptive income. It is proposed that the resident company setting up or running an electronics manufacturing facility or a related unit for producing electronic goods in India should be under a scheme notified by the Central Government (Ministry of Electronics and Information Technology) and must meet the conditions specified in the rules.

Sidebar – The Finance Bill, 2025, has already proposed to insert a new presumptive scheme under section 44BBD to the ITA with effect from the assessment year 2026-27.

6. Capital Gains

6.1 Removal of Certain Transactions From the List of Transactions Not Considered as ‘Transfer’ [Clause 70 of the ITB/Section 47 of the ITA]

In section 47 of ITA, the following transactions are not treated as transfers for the purpose of capital gains:

• Any transfer of land of an industrially sick company is not treated as a transfer if the specified conditions are satisfied [Section 47(xii)];
• Where an AOP or BOI transfers any capital asset to a company in the course of demutualisation or corporatisation of a recognised stock exchange in India and, accordingly, it is succeeded by such company, such transaction has been excluded from the purview of a transfer if the specified conditions are satisfied [Section 47(xiii)];
• Any transfer of a membership right by a member of a recognised stock exchange in India for the acquisition of shares and trading or clearing rights in that stock exchange in accordance with a scheme for demutualisation or corporatisation approved by the SEBI is not treated as transfer [Section 47(xiiia)].

In the ITB, the above transactions are removed from the list of “transactions not regarded as transfer”.

7. Income from Other Sources

7.1 Gift From Lineal Ascendant or Descendant [Clause 92 of the ITB/Section 56 of the ITA]

As per section 56(2)(x), the gifts received by an individual from his lineal ascendants or descendants (or those of his spouse) are not chargeable to income tax. In the ITB, it is explicitly mentioned that a lineal ascendant or descendant can be maternal or paternal.

8. Clubbing of Income

8.1 Non-Applicability of Clubbing Provision if Spouse Possesses Technical or Professional Qualification [Clause 99 of the ITB/Section 64 of the ITA]

As per clause (ii) of sub-section (1) of section 64 of the ITA, where an individual has a substantial interest in a concern, any income from that concern by way of salary, commission, fees, or any other form of remuneration paid to the spouse of the said individual is included in the total income of such individual. The proviso to this clause provides immunity from the clubbing provision. It provides that no clubbing will be done where the spouse possesses technical or professional qualifications, and the income is solely attributable to applying his or her technical or professional knowledge and experience.

Thus, to get immunity from the clubbing of income in this case, the following two conditions must be satisfied:

• The spouse possesses ‘technical or professional qualifications’; and
• The income is solely attributable to the application of his or her technical or professional knowledge and experience.

The above two conditions are cumulative and not alternative. They deal with two aspects: one pertains to the spouse’s qualification, and the other relates to the income qualifying for exclusion from clubbing. Both are relevant and equally important. There is no scope for mixing up the two and diluting the first condition relating to the spouse’s qualification by reference to the expression ‘knowledge and experience’ in the second condition. Thus, in order to avoid clubbing of income, both conditions must be satisfied. However, it must be noted that the first condition relates to the spouse of the individual who must possess ‘technical or professional qualifications’. If this condition is not satisfied, the proviso will not apply and reference to the second requirement will be unnecessary^[3].

Under clause 99 of the ITB, the first condition has been removed, and instead, the term “qualification” is included in the second condition alongside knowledge and experience. Thus, income could be attributable to the application of technical or professional knowledge, experience, and qualifications, but it does not explicitly say that the spouse must possess such qualifications. Thus, the ITB will potentially cover cases where a spouse applies technical or professional knowledge and experience without formal qualifications.

9. Set-off and Carry Forward of Losses

9.1 Set Off and Carry Forward of Losses of Demerged or Amalgamating Co. [Clause 114 of the ITB/Sections 72A and 72AA of the ITA]

Sections 72A and 72AA of the ITA relate to carry forward and set-off of accumulated loss and unabsorbed depreciation allowance in cases of amalgamation or business reorganisation as specified therein. They allow the accumulated losses of the amalgamating or predecessor entity to be carried forward to the amalgamated or successor entity for the year of amalgamation. In the ITB, the carry forward of a predecessor entity’s loss to the successor entity is restricted to a maximum of eight assessment years.

Sidebar – The Finance Bill, 2025 already proposed this amendment to sections 72A and 72AA of the ITA to limit the carried forward loss of a predecessor entity to be set-off by the successor entity for a maximum of eight assessment years.

10. Deductions and Relief

10.1 Deduction for Investments, Insurance, etc. [Clause 123 of the ITB/Section 80C of the ITA]

The investments and expenditures eligible for deduction are outlined in section 80C
of the ITA are now prescribed in Schedule XV of the ITB. This schedule also
includes two new provisions.

¹.  Tracstar Investments (P.) Ltd. v. DCWT, (2005) 1 SOT 115 (Mumbai).

².  Universal Plast Ltd. v. CIT [1999] 103 Taxman 493 (SC).

³.  Dr. J.M. Mokashi v. CIT [1994] 72 Taxman 98 (Bombay)