New Income-Tax Bill,?2025: Major Reforms and Structural Changes

The upcoming Income-Tax Bill, 2025, set to be introduced in Parliament this week, marks a significant step toward modernizing India's tax system. The bill aims to enhance transparency, ease compliance, and align with global tax standards while ensuring a more taxpayer-friendly approach. A major highlight is the introduction of the 'tax year' concept, simplifying tax assessment and reporting.

Key Changes in the Bill:

1. Introduction of 'Tax Year': Replacing the concept of the assessment year, tax will now be levied based on income earned in a 'tax year,' making tax filing more intuitive and aligned with economic activities.
2. Simplified Language and Reduced Complexity: The bill streamlines legal language, cutting down its length from 823 pages to 622 pages, eliminating obsolete provisions, and making tax laws more accessible.
3. Structural Improvements: (I) Sections increased from 298 to 536 (II) Schedules expanded from 14 to 16. (III) Chapters remain at 23.
4. Regulation of Virtual Digital Assets (VDA): VDAs, such as cryptocurrencies, will now be subject to search provisions and considered part of undisclosed income alongside cash, bullion, and jewelry.
5. Clearer Tax Deductions: Salary deductions, including standard deduction, gratuity, and leave encashment, have been consolidated into one section for better clarity and ease of reference.
6. Revenue Recognition and Inventory Valuation: New provisions cover revenue recognition for service contracts and require inventory valuation at the lower of cost or net realizable value.
7. Facilitated Litigation Management: The bill aims to reduce tax disputes by incorporating precise tax provisions and promoting statutory certainty.
8. ‘Trust First, Scrutinize Later’ Approach: This reform emphasizes reduced scrutiny, enhancing taxpayer confidence while ensuring compliance through modernized tax collection mechanisms.
9. Alignment with Global Tax Standards: The new framework ensures India’s tax system meets international taxation norms, boosting investor confidence and attracting foreign and domestic investments.
10. Rationalized TDS/TCS and Compliance Measures: Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) rates will be rationalized to reduce compliance burdens.

Legislative Process and Timeline:

• The Bill was approved by the Cabinet.
• It will be introduced in the Lok Sabha this week and subsequently referred to a parliamentary committee for recommendations.
• After review, the government will decide on amendments before finalizing the rollout date.

Expected Benefits for Taxpayers and the Economy:

(A) For Businesses and Corporations:

• Higher tax certainty, enabling better financial planning.
• Reduced compliance burden with clearer tax laws.
• Improved ease of doing business through global tax alignment.

(B) For Individual Taxpayers:

• Faster tax refunds due to efficient assessment mechanisms.
• Reduced tax disputes with well-defined provisions.
• Easier tax filing with structured and logical statutes.

(C) For the Indian Economy:

• A fairer taxation framework encouraging voluntary compliance.
• Increased tax base by bringing more entities from the informal sector under taxation.
• Boosted investor confidence leading to higher economic growth.

The Income-Tax Bill, 2025, represents a transformative shift in India’s taxation landscape, ensuring a fairer, simpler, and more efficient system for all stakeholders.