New Income-Tax Bill 2025: A Comprehensive Overhaul of India’s Tax System

The Indian government has presented a major overhaul to its tax framework with the introduction of the Income-tax Bill, 2025, aimed at replacing the decades-old Income-tax Act of 1961. The new Bill, approved by the Union Cabinet on February 7, 2025, marks a significant shift in the country’s taxation system. This updated legislation, expected to come into effect on April 1, 2026, seeks to streamline tax procedures, reduce legal disputes, and offer greater clarity and simplicity for taxpayers.

This comprehensive Bill, which is a result of the government’s initiative announced during the 2024 Budget, is set to repeal the 1961 Act, which had 298 Sections and 14 Schedules. In contrast, the proposed Bill is significantly more detailed, with 536 clauses and 16 Schedules. These additions demonstrate the government's intent to create a more thorough and modern tax code.

One of the major updates in the new Bill is the broadening of the definition of “books or books of account.” The revised definition now includes digital data, encompassing information stored on cloud platforms, as well as on electromagnetic devices such as floppy disks, tapes, external hard drives, and memory cards.

In line with current global financial trends, the Bill also introduces the term “crypto assets” to its legal framework. This move reflects India’s growing recognition of digital currencies and assets.

Another significant feature of the Bill is the introduction of a “Taxpayer’s Charter,” which will be overseen by the Central Board of Direct Taxes (CBDT). This Charter aims to improve transparency and protect the rights of taxpayers. The CBDT will be empowered to issue guidelines, rules, and enforcement measures to ensure compliance with the Bill’s provisions, particularly in digital tax monitoring.

The Bill also makes it clear that tax audits will be conducted exclusively by Chartered Accountants, narrowing the scope of those eligible to carry out such audits. Additionally, the traditional use of “assessment year” and “financial year” has led to confusion among taxpayers, prompting the introduction of a new term, "tax year." This new definition will align with the calendar year, starting from April 1.

Reorganization of Tax Categories

The Bill retains the three existing categories for individual tax residency status: Ordinarily Resident, Non-Ordinarily Resident, and Non-Resident. However, it streamlines the filing process by consolidating all salary-related deductions in one location for the benefit of taxpayers.

Tax Deduction at Source (TDS) is also reorganized under Chapter XIX, which now clearly specifies all the relevant compliances and conditions for TDS. Two distinct tables have been created to differentiate between cases of no deductions and declarations for tax deduction at source.

Structure and Key Provisions of the New Bill

The Bill is organized into 23 Chapters and covers a range of essential tax concepts. These include income computation, loss carryovers, deductions, tax rebates, anti-tax avoidance measures, and tax collection mechanisms. The chapters are designed to facilitate a clearer understanding of taxation for businesses and individuals, outlining provisions for special tax cases, penalties, and prosecutions.

In addition to regular taxation practices, the Bill introduces provisions for digital monitoring of taxes and sets clear guidelines for refunds, tax recovery, and appeals. It is designed to provide a more robust structure to tackle tax evasion and ensure that all taxpayers comply with their obligations in a transparent and efficient manner.

Once passed, the Income-tax Bill, 2025, will modernize India’s tax regime and offer a more user-friendly and transparent system for taxpayers. This overhaul represents a significant step in simplifying the nation’s tax framework, with an emphasis on digitalization and ease of understanding.