The Income Tax Bill, 2025 aims to modernize and consolidate India’s income tax laws, replacing the 1961 Act. It defines key terms, outlines tax liabilities, income classifications, and introduces updated exemptions, deductions, and computation methods. Anti-avoidance provisions like GAAR and transfer pricing rules enhance transparency. Special regimes cover non-residents, new companies, trusts, and funds. The Bill streamlines tax administration with faceless assessments and structured appeals. Strict penalties and prosecution measures address non-compliance. It empowers the government to frame rules, manage transitions, and ensure efficient enforcement, aiming to improve compliance, clarity, and fairness in the taxation system.
Overview and Objectives
The Income Tax Bill, 2025 aims to consolidate and comprehensively reform the legal framework governing income tax in India. It is designed to replace the existing Income-tax Act, 1961, bringing greater clarity, structure, and modernization to tax laws. The bill seeks to improve compliance, promote fairness, and align the tax system with current economic realities.
Structure of the Bill
The Bill is organized into 23 chapters and multiple schedules. It covers all aspects of taxation, including definitions, basis of charge, computation of income, deductions, tax administration, penalties, and prosecution. Each chapter is subdivided into clauses addressing specific issues such as different heads of income, capital gains, and treatment of special entities.
Definitions and Key Concepts
The Bill begins with an extensive list of definitions critical to its interpretation. These include terms like “assessee,” “capital asset,” “business trust,” “amalgamation,” and “demerger.” It redefines “income” to include various forms of receipts and benefits, ensuring broader tax coverage and clarity regarding taxable entities and events.
Scope and Basis of Taxation
The Bill outlines who is liable to pay tax and on what income. It classifies income into various heads such as salaries, house property, business or profession, capital gains, and income from other sources. Provisions regarding residency status, deemed receipts, and scope of income accruing or arising in India are clearly laid out.
Exemptions and Deductions
Various exemptions are proposed for political parties, electoral trusts, and certain classes of income. The Bill also includes detailed provisions on allowable deductions—for example, under sections pertaining to insurance premiums, contributions to provident funds, health expenses, interest on loans, and donations to approved institutions.
Computation and Taxation Mechanism
Income computation is defined for different income types with accompanying deductions and allowances. Specific mechanisms are provided for computing depreciation, bad debts, foreign exchange fluctuations, and presumptive taxation. Special provisions deal with capital gains, especially under circumstances like compulsory acquisition and investments in residential properties.
Anti-Avoidance and Transfer Pricing
The Bill introduces detailed measures to curb tax avoidance, including general anti-avoidance rules (GAAR) and specific rules for international and specified domestic transactions. It introduces the concept of “arm’s length price,” requires documentation and reporting for transfer pricing, and empowers authorities to make adjustments accordingly.
Special Tax Regimes and Entities
Provisions are included for special regimes like Minimum Alternate Tax (MAT), Alternate Minimum Tax (AMT), and tax on new manufacturing companies. Entities like non-residents, foreign companies, venture capital funds, and shipping companies are provided specific tax treatments. Pass-through taxation is recognized for certain trusts and funds.
Administration, Compliance, and Appeals
The Bill revamps the structure of income-tax authorities and introduces faceless assessments and audits. It also strengthens compliance mechanisms with mandatory PAN, tax audits, and electronic modes of communication. A structured appeals process is laid out with routes through Commissioner (Appeals), Appellate Tribunal, High Courts, and the Supreme Court.
Penalties, Prosecutions, and Miscellaneous Provisions
Severe penalties are prescribed for underreporting, misreporting, non-filing, and falsification of records. Provisions are included for prosecution in cases of willful evasion or fraud. The Bill concludes with miscellaneous provisions addressing transitional arrangements, refunds, immunity schemes, and powers of the Central Government and Board to make rules and resolve ambiguities.
The Official Copy can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2025/07/The-Income-Tax-Bill-2025-as-amended.pdf
