Centre introduces new Income Tax Bill, 2025 to simplify tax laws and promote digital economy

New Delhi, Feb 13: The union government on Thursday introduced the New Income Tax Bill, 2025, which seeks to streamline tax regulations, modernize definitions, and enhance clarity in tax-related matters.

Join the Whatsapp Channel to Get News updates in english

Presented in the Lok Sabha by Finance Minister Nirmala Sitharaman, the bill aims to replace the current Income Tax Act of 1961 and bring about significant reforms affecting individuals, businesses, and non-profit organizations.

After tabling the bill, the Finance Minister requested the Lok Sabha Speaker to appoint members for a standing committee to review the newly proposed legislation. A key highlight of the new bill is its use of simplified language and updated terminology. It replaces outdated terms and introduces new ones, ensuring that tax laws align with the current economic landscape. Notably, the bill adopts the term "tax year" instead of the traditional "financial year" and "assessment year" used previously. Additionally, it introduces definitions for "virtual digital asset" and "electronic mode" to reflect the increasing significance of digital transactions and cryptocurrency in the financial sector.

The new bill also brings more clarity regarding the scope of total income while maintaining the core principles of the existing tax framework. Under the previous law, Sections 5 and 9 of the Income Tax Act, 1961, stipulated that Indian residents were taxed on global income, while non-residents were taxed only on income earned in India. The updated bill retains this rule in Clauses 5 and 9 but offers clearer definitions of deemed income, such as payments made to specific individuals, making tax rules more transparent for non-residents.

Changes have been introduced in deductions and exemptions as well. Previously, Sections 10 and 80C to 80U allowed deductions for investments, donations, and specific expenses. In the new bill, Clauses 11 to 154 consolidate these provisions and introduce new measures to support startups, digital businesses, and investments in renewable energy.

The capital gains tax framework has also been updated. While the old law classified capital gains as short-term or long-term based on holding periods, with distinct tax rates for securities, the new bill maintains this classification in Clauses 67 to 91. However, it introduces specific provisions for virtual digital assets and revises tax rates to cover cryptocurrency under the appropriate tax structure.

For non-profit organizations, the previous law (Sections 11 to 13) granted income tax exemptions for charitable activities but lacked detailed compliance guidelines. The new bill, through Clauses 332 to 355, offers a more comprehensive framework that clearly defines taxable income, compliance requirements, and restrictions on commercial activities. This strengthens the compliance regime while providing well-defined exemptions.

In summary, the Income Tax Bill, 2025, is designed to simplify tax laws, promote digital and startup investments, and improve clarity in taxation policies for businesses and non-profits. The government believes that these changes will facilitate easier tax compliance across sectors.

(With agency inputs)