A Comprehensive Comparison of the Income Tax Bill, 2025 and the Income Tax Act, 1961
Introduction
India’s tax system is undergoing a significant transformation with the introduction of the Income Tax Bill, 2025. The bill aims to simplify tax laws, incorporate modern economic developments, and make tax compliance easier for individuals and businesses. This article provides a detailed comparison of the new provisions with the existing Income Tax Act, 1961, highlighting key changes, their rationale, and their impact on taxpayers.
1. Basis of Charge
Income Tax Act, 1961 (Section 4): Income tax is charged for a financial year at rates
specified in the Finance Act.
Income Tax Bill, 2025 (Clause 4): Introduces the term "tax
year", which aligns with the financial year but simplifies
terminology.
Key Change:
Uniform terminology – Ensures consistency and clarity in tax
computation.
2. Definition of Key Terms
The Income Tax Bill, 2025 introduces new definitions to align with technological and economic advancements:
Income Tax Act, 1961: Defined terms like "assessee,"
"assessment year," and "previous year" but lacked
provisions for digital transactions.
Income Tax Bill, 2025:
Virtual Digital Asset (VDA) – Includes cryptocurrencies, NFTs, and
other digital assets.
Electronic Mode – Recognizes digital payments, e-wallets, and online
transactions.
Tax Year – Standardizes terminology for ease of understanding.
Impact:
Makes taxation more comprehensive by including digital transactions.
Reduces ambiguity in defining taxable income sources.
3. Scope of Total Income
Income Tax Act, 1961 (Sections 5 & 9): Residents
are taxed on global income, while non-residents are taxed only on income
accrued in India.
Income Tax Bill, 2025 (Clauses 5 & 9): Maintains
similar rules but explicitly defines deemed income (e.g., payments to
specified persons and accrual sources).
Key Change:
More clarity for non-residents and cross-border transactions.
Better-defined scope for taxation of foreign incomes.
4. Residence Criteria
Income Tax Act, 1961 (Section 6): A person is a tax
resident if they stay in India for at least 182 days in a financial year
(or 60 days in specific cases).
Income Tax Bill, 2025 (Clause 6):
Retains similar residency rules but adds special provisions for complex
cases (e.g., individuals with multiple citizenships, business travelers).
Impact:
Addresses tax residency issues for global Indians and NRIs.
Reduces confusion regarding dual residency status.
5. Heads of Income & Taxation
The five existing heads of income remain, but with key enhancements:
|
Category |
Income Tax Act, 1961 |
Income Tax Bill, 2025 |
Key Change |
|
Salaries |
Includes wages, annuities, commissions, perquisites |
Similar structure, but excludes work-related digital assets from taxable perquisites |
Exempts work-use laptops, software |
|
House Property |
Annual value of property taxed |
Retains similar rules but defines digital rent payments |
Recognizes digital transactions |
|
Business/Profession |
Covers business profits, deductions |
Retains structure but modernizes digital business taxation |
New incentives for startups, digital enterprises |
|
Capital Gains |
Taxes gains from asset sales |
Expands scope to include cryptocurrencies, NFTs |
New rules for digital assets |
|
Other Sources |
Covers lotteries, dividends, etc. |
Retains scope but clarifies winnings from online gaming |
Tax on e-sports winnings |
6. Deductions & Exemptions
Income Tax Act, 1961: Includes deductions under Sections
80C to 80U, covering investments, donations, education expenses, and more.
Income Tax Bill, 2025: Consolidates deductions and introduces
new exemptions, such as:
Startup incentives – 100% tax exemption for three consecutive years
within the first 10 years.
Renewable energy incentives – Tax benefits for solar, wind, and green
energy investments.
Digital economy deductions – Incentives for IT infrastructure &
e-commerce businesses.
Impact:
Boosts entrepreneurship & innovation.
Encourages sustainable investments.
7. Capital Gains Taxation
Income Tax Act, 1961 (Sections 45-55A): Classifies
gains as short-term or long-term based on holding periods.
Income Tax Bill, 2025 (Clauses 67-91):
Retains categorization but adds specific rules for virtual digital assets.
Adjusts holding periods for certain asset classes.
Clarifies reinvestment exemptions.
Impact:
Eliminates ambiguity in digital asset taxation.
Aligns taxation with modern investment practices.
8. Administrative & Compliance Reforms
Income Tax Act, 1961 (Sections 139-158): Covers tax
audits, return filing, and assessments.
Income Tax Bill, 2025 (Clauses 263-389):
Faceless Assessments – Fully automated, AI-driven scrutiny process.
Mandatory E-filing – No paper-based submissions.
Reduced human intervention in tax assessments.
Impact:
Speeds up processing & reduces manual errors.
Enhances transparency & minimizes corruption.
9. Anti-Tax Avoidance Measures
Income Tax Act, 1961 (Sections 95-102): Contains
General Anti-Avoidance Rules (GAAR).
Income Tax Bill, 2025 (Clauses 178-184):
Expands GAAR to cover digital transactions.
Introduces stricter rules for impermissible arrangements.
Impact:
Closes loopholes used for tax evasion.
Prevents artificial income shifting.
10. Impact on Non-Profit Organizations
Income Tax Act, 1961 (Sections 11-13): Provides tax
exemptions for charities.
Income Tax Bill, 2025 (Clauses 332-355):
Defines stricter compliance measures for NGOs.
Prevents misuse of tax-exempt status for commercial activities.
Impact:
Ensures genuine charitable work benefits.
Reduces tax evasion through non-profits.
Conclusion
The Income Tax Bill, 2025
modernizes India’s tax framework, making it more efficient, transparent, and
business-friendly. Key improvements include:
Inclusion of digital transactions & virtual assets.
Simplified tax administration & compliance.
Stronger anti-avoidance rules & enhanced transparency.
Stay Informed! These changes will impact
individuals, businesses, and investors. Adapting to the new provisions will
help optimize tax benefits and ensure compliance.
What are your thoughts on the new tax bill? Let us know
in the comments!
