Finance Minister Nirmala Sitharaman presented the Income Tax Bill 2025 in the Lok Sabha on Thursday, February 13. The proposed bill aims to replace complex terminologies such as “assessment” and “previous year” with the more straightforward term “tax year.” This effort is part of a broader initiative to simplify tax laws by removing unnecessary clauses and explanations.
The 622-page bill comprises 536 sections, 23 chapters, and 16 schedules. It does not impose any new taxes but seeks to simplify the language of the existing Income Tax Act of 1961, which currently has 298 sections and 14 schedules.
Key Highlights of the Income Tax Bill 2025
Easier Interpretation, Fewer Legal Disputes
With the bill’s simplified wording, tax authorities as well as taxpayers are supposed to benefit from less tax appeals. Mumbai financial consultant Balwant Jain said, “Furthermore, the language used in the bill is simple relative to current legislation, which might be hard to interpret and so open to different interpretations.”
Wider Impact on Different Taxpayer Categories
Finance Minister Sitharaman’s fresh legislation offers changes that impact people, companies, and non-profit organizations.
Jain commented, “Given my quick review of the new income tax legislation, I think it is just decent editing of the present Income Tax Act. The legislation does not suggest any significant changes. It’s entirely Babu’s product.”
Reduced Page Count and Simplified Structure
The new tax bill condenses the present 1,647-page Income Tax Act into only 622 pages.
“Against 298 current sections, the latest bill has 536 sections; it seems complicated provisions have been divided into smaller and simpler ones for easier interpretation and execution. The legislation now has only 23 chapters instead of 52, indicating that redundant ones have been removed, and related topics have been merged to simplify them,” Jain explained.
Revised Tax Slabs and Exemptions
For salaried individuals, the first ₹75,000 regular deduction increases income up to ₹12 lakh tax-free. This essentially exempts revenue up to ₹12.75 lakh from taxes. These changes should boost disposable income and possibly motivate savings and consumer spending.
Simplification of Tax Laws
By 25-30 percent, the new legislation aims to cut down on the volume of sections and therefore make tax rules more understandable and accessible. The new format aims to reduce disagreements and improve adherence. Sections pertaining to deductions and exemptions under the previous law, such as Sections 10 and 80C to 80U, have also been rearranged.
Extended Timeframe for Filing Updated Returns
Four years, rather than two, have been given to taxpayers to submit revised income tax returns. This shift is intended to give more time for correcting errors or omissions, therefore simpler compliance with a just tax system.
Introduction of ‘Tax Year’ Terminology
The bill replaces traditional terms like “financial year” and “assessment year” with the more straightforward term “tax year.” While maintaining existing tax principles, it clarifies the scope of taxable income.
Under the previous law, Sections 5 and 9 of the Income Tax Act, 1961, taxed Indian residents on their global income, while non-residents were taxed only on their Indian earnings. These provisions remain unchanged.
Defined Taxation for Digital Assets
Clauses 67 to 91 of the bill introduce explicit provisions for virtual digital assets, ensuring they are taxed under a well-defined framework. This includes cryptocurrencies and other digital assets. Additionally, the bill provides clear definitions for key terms such as “virtual digital asset” and “electronic mode,” acknowledging the growing importance of digital transactions.
Stricter Compliance Rules for Non-Profits
The former tax code (Sections 11 to 13) offered deductions for some charitable activities but was short on specific compliance directions. The new bill establishes a more organized structure, obviously outlines taxable income, compliance criteria, and commercial activities limitations under Clauses 332 to 355. This sets up a more disciplined but also more obvious compliance policy.
Incentives for Startups and Renewable Energy Investments
Clauses 11 to 154 bring fresh incentives for renewable energy projects, digital businesses, and startups and combine current deductions. Capital gains taxes have also seen modification. Sections 45 to 55A under the previous legislation divided capital gains according on holding times with distinct tax rates for securities.
Next Steps for the Income Tax Bill 2025
Sitharaman asked Speaker Om Birla to forward the draft legislation to a select committee during bill presentation; this committee would study the legislation and present its findings ahead of the coming parliament session. The Speaker will establish the last composition and procedural regulations of the committee.
Union Budget 2025 and Tax Reforms
The Union Budget, presented on February 1, 2025, introduced key tax reforms, with the new Income Tax Bill focusing on simplifying the taxation system and providing relief to taxpayers.
Disclaimer: The opinions and recommendations mentioned above are those of individual analysts and do not reflect the views of TDG. Investors are advised to consult certified experts before making any financial decisions.