Income Tax Bill 2025: A Fresh Take on India’s Tax System

The Income Tax Bill, 2025 was introduced in the Lok Sabha on February 13, 2025, with the purpose of replacing the old Income Tax Act of 1961. This new bill does not make major changes to tax rates or rules for individuals or companies. Instead, it focuses on making the law easier to read, understand, and follow.

Most of the main rules, definitions, and tax structures from the 1961 Act are still in place. The government plans to start using the new law from April 1, 2026.

Why Was This Bill Introduced?

In the 2024 Union Budget, Finance Minister Nirmala Sitharaman said that the government wanted to take a fresh look at the old tax law. The idea was to make the law shorter, clearer, and easier for taxpayers to understand.

The minister explained that one of the biggest goals is to reduce confusion and disputes. With simpler laws, people will make fewer mistakes, and the number of court cases related to taxes should go down. This would save time for both taxpayers and the tax department.

After this announcement, the government invited feedback from the public. Taxpayers were allowed to share their suggestions and ideas for improving the new law. This showed a more open and inclusive approach to policy-making.

Main Benefits of the New Tax Bill

Here are some of the key benefits expected from the new law:

Easier to follow: Complicated sections and unnecessary clauses have been removed or rewritten in simpler words.
Better compliance: With fewer confusing rules, people are more likely to file their taxes correctly and on time.
Taxpayer-friendly: The new law helps individuals keep more money in their hands by sticking to the current liberal tax structure.
Less legal trouble: Clearer rules mean fewer legal battles between taxpayers and the tax department.

Key Features and Updates in the Bill

Filing Tax Returns and TCS on Money Sent Abroad

In an earlier draft of the bill, there was a rule that said refunds could only be claimed if the return was filed on time. This rule has now been removed. Taxpayers will still need to file on time, but they won’t lose their right to claim a refund if they miss the deadline under special circumstances.

Also, when money is sent abroad under the Liberalised Remittance Scheme (LRS) — especially for educational purposes — and is paid through a financial institution, no tax (TCS) will be collected.

Rules for Companies and LLPs

Companies that receive dividends from other companies and are using special lower tax rates had some confusion in the draft. This has now been cleared.
For Limited Liability Partnerships (LLPs), the Alternative Minimum Tax (AMT) has been revised. LLPs that don’t claim certain tax breaks will now pay 12.5% tax instead of 18.5%, making the tax fairer.
There are also clearer rules for carrying forward losses, transfer of shares, and defining who actually owns a company.
For non-profit organisations (NPOs), the new law now allows them to keep 5% of all donations tax-free, not just anonymous donations. This makes it easier for them to operate and receive support.

Simpler Structure and Fewer Sections

The new bill has reduced the number of chapters from 47 to 23, and the number of sections has come down from 819 to 536. It also removed outdated language and old rules that no longer apply. This makes the entire law easier to read and navigate.
A new term called “tax year” has also been introduced. It means a 12-month period starting from April 1, which is already the financial year followed in India.

Focus on Digital Assets and Virtual Transactions

The bill keeps the strict rules around virtual digital assets like cryptocurrency. Now, if someone hides income in the form of digital tokens, virtual currencies, or assets stored online, the tax department can search and collect details from:

Email accounts
Social media profiles
Online banking and investment platforms
Cloud servers
Other digital apps or websites

This shows that the government is taking digital finance and online money movement seriously and wants to bring it under clear tax rules.

Taxation Laws (Amendment) Bill, 2025

Along with the main bill, the government also introduced a new Taxation Amendment Bill, which makes two important changes:

The Public Investment Fund of Saudi Arabia will not have to pay tax on income from dividends, interest, capital gains, or other investments made in India.
A new pension plan called the Unified Pension Scheme (UPS) will now enjoy the same benefits as the National Pension System (NPS). Retired individuals can withdraw up to 60% of their savings tax-free.

Central Government’s Power to Create Schemes

The new bill continues to give the central government the authority to launch new schemes related to tax filing and administration. These schemes will focus on:

Using technology to reduce human contact
Improving efficiency and accountability

Any new schemes created must be presented in Parliament before being implemented.

Settlement of Disputes

For special cases, like those involving foreign companies or complex international transactions, the bill allows these to be reviewed by a Dispute Resolution Panel (DRP). This panel can guide the assessing officer and make the process fairer and more transparent. It must also provide clear reasoning for the decisions it makes.

International Tax Treaties

The bill keeps the rule that the Indian government can enter agreements with other countries to avoid double taxation. If a term used in such a treaty is not clearly defined, the government can clarify it through a formal notification or use the meaning found in other Indian laws.

Final Thoughts

The Income Tax Bill, 2025 does not change much in terms of tax rates or who has to pay how much. However, it brings in a more organized, simplified, and modern structure. The number of sections has been reduced, complex language has been removed, and clarity has been improved across various areas.

The government has made sure to include all updates from the Union Budget 2025 in this new bill. This move shows that while the foundation of the tax law remains the same, the way it is written and implemented is being brought up to date, making it more taxpayer-friendly and less confusing.