New Income Tax Bill 2025: Stricter Rules For Virtual Digital Assets, Simple Terms And More

The proposed law replaces the term 'previous year' used in the Income Tax Act, 1961, with 'tax year.' Additionally, the concept of the assessment year has been eliminated

After its introduction, the bill is expected to be referred to a parliamentary standing committee for review

Source : ABPLIVE AI

The new income tax bill is expected to be introduced in Parliament on Thursday, 13 February. The bill will introduce a new concept of a 'tax year,' defined as the 12 months starting from April 1. For businesses or newly established professions, the tax year will begin from the date of establishment and end with the financial year. After the introduction of the new bill, income tax will be assessed based on the economic activity and income earned during the 'tax year.'

The proposed law replaces the term 'previous year' used in the Income Tax Act, 1961, with 'tax year.' Additionally, the concept of the assessment year has been eliminated.

Currently, income tax operates on the concept of an assessment year, which assesses tax on income earned during the previous financial year. For example, income earned in the financial year 2024-25 (from April 1, 2024, to March 31, 2025) will be assessed in the assessment year 2025-26 (beginning April 1, 2025).

The new 622-page Income-Tax Bill, 2025 features simplified language, the removal of provisos and explanations, and a shift in tax reporting terminology to 'tax year' and 'financial year,' replacing the assessment year. It also includes stricter tax provisions for virtual digital assets.

Virtual digital assets (VDAs) have been included in the provisions for searches, making them part of any undisclosed income, alongside existing categories such as money, bullion, and jewellery. VDAs are digital representations of value that can be stored, transferred, or traded electronically. This category includes cryptocurrencies, non-fungible tokens (NFTs), and other types of tokens.

Implications For Financial Institutions

The bill includes specific references to ‘Finance Companies’ and ‘Finance Units’ regarding dividends, which may affect taxation policies for financial institutions and investors.

Updated Tax Slabs Under New Tax Regime

Income up to Rs 4 lakh – No tax

Income between Rs 4 lakh and Rs 8 lakh – 5 per cent

Income between Rs 8 lakh and Rs 12 lakh – 10 per cent

Income between Rs 12 lakh and Rs 16 lakh – 15 per cent

Income between Rs 16 lakh and Rs 20 lakh – 20 per cent

Income between Rs 20 lakh and Rs 24 lakh – 25 per cent

Income above Rs 24 lakh – 30 per cent

Salary Deductions and Compliance Reforms

The bill proposes maintaining the standard deduction of Rs 50,000 for salaried individuals under the old tax regime. Additionally, taxes paid by employees under Article 276(2) of the Constitution, which governs professional tax, will be fully deductible. A new Taxpayer’s Charter is also being introduced to improve transparency and protect taxpayer rights, ensuring fair treatment and reducing bureaucratic challenges. Furthermore, the bill includes provisions that could classify foreign companies as Indian tax residents, potentially impacting global businesses operating in the country.

More Structured Approach To Tax Administration

Experts believe that the change in terminology could lay the foundation for a more streamlined income tax reporting system in the years to come.

AMRG & Associates Senior Partner Rajat Mohan told PTI, “This increase in sections reflects a more structured approach to tax administration, incorporating modern compliance mechanisms, digital governance, and streamlined provisions for businesses and individuals. The new law introduces 16 schedules and 23 chapters.”

The proposed law includes clearer tax treatment for stock options (ESOPs) to reduce tax disputes and incorporates judicial pronouncements from the past 60 years for greater clarity.

CBDT To Establish Tax Administration Rules

Under the new law, Clause 533 empowers the Central Board of Direct Taxes (CBDT) to establish tax administration rules, implement compliance measures, and enforce digital tax monitoring systems without the need for frequent legislative amendments.

"A key departure from the Income-Tax Act, 1961, is that previously, the Income Tax Department had to approach Parliament for various procedural matters, tax schemes, and compliance frameworks. Now, CBDT has been empowered to introduce such schemes independently, significantly reducing bureaucratic delays and making tax governance more dynamic," he said.

After its introduction, the bill is expected to be referred to a parliamentary standing committee for review.

Budget 2025

In her July 2024 budget speech, Finance Minister Nirmala Sitharaman announced a comprehensive review of the six-decade-old Income Tax Act, aiming to reduce disputes and litigation while offering greater tax certainty to taxpayers. Subsequently, the CBDT formed an internal committee and 22 specialized sub-committees to examine various aspects of the Act. Public input was sought on issues like language simplification, litigation reduction, compliance easing, and the removal of redundant provisions, leading to over 6,500 suggestions from stakeholders.