Some taxation experts are calling the recently-tabled new tax bill a significant reform that will help modernize and simplify India’s tax framework. The new Income Tax Bill 2025 will replace the 65-year old Income Tax Act of 1961 to become the new Income Tax Act, 2025. The bill has restructured provisions by increasing the number of sections, while reducing overall length, thus enhancing clarity and ease of interpretation.
“The bill has removed redundant, obsolete and unnecessary provisions. The bill also formally classifies virtual digital assets, such as cryptocurrencies, under taxable income, eliminating ambiguity. The tax slabs and rates are now structured in tabular format to improve accessibility. With a strong emphasis on digital compliance, the bill streamlines tax filing, dispute resolution, and assessment procedures, reducing litigation risks,” an tax expert said.
The new tax bill contains 2.56 lakh words, almost 50 percent less than the existing Income Tax Act, that has half a million words. Despite the significant reduction in the legislation’s size, its essence has been retained, taxation experts said.
The legacy of the existing Income Tax Act has been retained in the new bill, with structural adjustments, in order to prevent any disruption. The Act had gained certainty after thousands of amendments through 80+ Finance and Amendments Acts over the decades.
The structure of capital gain taxation too has been retained in new tax bill, even after simplification in language and changes in sections, said experts.
Under the new tax bill, Clause 67 provides for capital gains and also the chargeability of income tax under the head ‘capital gains’ for various kinds of transfer of capital assets.
Clause 196 of the new bill provides for taxation of short-term capital gains in case of a transfer of short-term capital asset, an equity share in a company, unit of an equity-oriented fund or the unit of a business trust, subject to conditions.
Clause 197 provides for taxation of long-term capital gains, where the capital gains arise from the transfer of a long-term capital asset (other than an equity share in a company, or a unit of an equity-oriented fund, or a unit of a business trust).
Lastly, Clause 198 provides for taxation of long-term capital gains where the capital gains arise from the transfer of a long-term capital asset being an equity share in a company, or a unit of an equity-oriented fund, or a unit of a business trust.
As per Section 47 of the existing Income Tax Act provides a list of transactions not treated as transfers for the purpose of capital gains. The new bill proposes to remove redundant clauses given for the transfer of land of an industrially sick company, and transfer in the course of demutualisation or corporatisation of a recognised stock exchange.
“The provisions for the taxation of charitable trusts, amended by more than 20 Finance Acts since 1961, have found a successor, a new name, and a dedicated chapter. Chapter XVII-B encompasses all provisions related to non-profit organisations in one place, including registration, computation, accreted tax, and more,” another tax expert said.
Broadly, the taxation of equity mutual funds and shares remains the same.
Short-term capital gains (STCG) apply when equity shares or equity mutual fund units are sold within 12 months of purchase. Previously taxed at 15 percent, Income Tax Act 2024 had increased the STCG tax rate to 20 percent.
Further, long-term capital gains (LTCG) taxation applies when equity assets are held for more than 12 months. The LTCG tax rate is 12.5 percent, increased from 10 percent. Additionally, the exemption limit was raised from Rs 1 lakh to Rs 1.25 lakh, meaning gains up to this amount are not taxed.
“Despite all the changes, the overall scheme and structure of the law in the new bill remains largely consistent with the extant Income Tax Act, 1961, ensuring continuity of key aspects. While certain issues require more consideration, this balanced approach would maintain familiarity for stakeholders while adapting to contemporary economic realities,” another tax expert said.
