Income-tax Bill 2025 | A New Era of Simplified Taxation

The Income Tax Bill 2025 ('ITB') marks a significant overhaul of India’s tax framework, replacing the six-decade-old Income Tax Act of 1961 ('ITA'). Announced during the Budget Speech in July 2024, the ITB aims to simplify tax laws, enhance clarity, and minimize litigation. This legislative reform restructures provisions, reduces redundancy, and introduces a streamlined framework while preserving the core principles of the ITA. From redefining key terms to consolidating complex provisions, the ITB seeks to modernize India’s tax system and ensure greater efficiency for taxpayers and administrators alike.

Table of Contents

1. Budget Announcements & Legislative Timeline
2. A Concise Overhaul – Replacing the 1961 Act
3. Streamlined Structure and Definition Revisions
4. Preserving Legacy with Targeted Reforms for Non-Profits
5. Expanded Schedules – Mapping Exemptions and Provisions
6. Comprehensive Clause Breakdown – Charging, Deductions, and Enforcement

By CA Naveen Wadhwa – Vice President | Taxmann Advisory & Research

1. Budget Announcements & Legislative Timeline

During the Budget Speech on 23rd July 2024, Finance Minister Smt. Nirmala Sitharaman announced a comprehensive review of the Income Tax Act 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.

2. A Concise Overhaul – Replacing the 1961 Act

When passed, the 600+ pages Income Tax Bill will replace the 65-year-old Income Tax Act of 1961 and become a new Income Tax Act of 2025. However, it will apply from 1st April 2026. The Income-tax Bill 2025 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 ITA’s redundant and omitted provisions, and replaces the Provisos and Explanations of ITA with sub-sections, clauses, or sub-clauses.

3. Streamlined Structure and Definition Revisions

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”.

4. Preserving Legacy with Targeted Reforms for Non-Profits

With structural adjustments, the ITA’s legacy has been retained in the ITB to prevent unsettling the ITA, which has gained certainty after more than thousands of amendments through the 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.

5. Expanded Schedules – Mapping Exemptions and Provisions

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 Section 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).

6. Comprehensive Clause Breakdown – Charging, Deductions, and Enforcement

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. Clauses 263 to 286 outline procedures for income 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, the ITB details penalties and prosecutions in Clauses 439 to 498.