Clause-by-Clause Analysis of the Income Tax Bill, 2025
The Income Tax Bill, 2025 proposes a significant revamp of India's tax system by streamlining definitions, modernizing provisions, and aligning tax laws with the digital economy. Below is a detailed breakdown of each key clause.
1. General Provisions (Clauses 1-3)
Clause 1 – Short
title, extent, and commencement.
Clause 2 – Defines various terms used in the legislation.
Clause 3 – Introduces the term "Tax Year", aligning it
with the financial year.
Key Change: Standardizes terminology for consistency.
2. Charge of Income Tax (Clauses 4-6)
Clause 4 –
Specifies the charge of income tax for individuals and entities.
Clause 5 – Defines scope of total income for residents and
non-residents.
Clause 6 – Defines residential status rules, with additional
conditions for complex cases (e.g., multiple citizenships).
Key Change: Simplifies taxability rules for different residency statuses.
3. Income Classification & Exemptions (Clauses 7-14)
Clause 7 –
Covers income deemed to be received, such as employer contributions.
Clause 8 – Taxability of capital assets received by specified
persons.
Clause 9 – Defines deemed income from business connections and
sources like royalties, fees, dividends.
Clause 10 – Portuguese Civil Code: Income apportionment rules for
Goa.
Clause 11 – Defines incomes not included in total taxable income.
Clause 12 – Exempts political parties & electoral trusts from
taxation.
Clause 13 – Defines different heads of income.
Clause 14 – Disallows certain expenditures related to exempt
incomes.
Key Change: Provides clarity on exemptions, deductions, and taxable categories.
4. Income from Salaries (Clauses 15-19)
Clause 15 –
Defines salary income, including arrears.
Clause 16 – Taxability of wages,
annuities, pensions, gratuities, perquisites.
Clause 17 – Excludes certain
benefits from taxable perquisites (e.g., work-related digital assets).
Clause 18 – Defines "profits
in lieu of salary", including compensations.
Clause 19 – Allows salary
deductions, including ₹75,000 standard deduction.
Key Change: Modernized to include digital compensations & increase deductions.
5. Income from House Property (Clauses 20-25)
Clause 20 –
Defines taxable house property income.
Clause 21 – Method for computing annual
value of a property.
Clause 22 – Deductions for
municipal taxes, loan interest (₹2 lakh cap remains).
Clause 23 – Taxation of arrears/unrealized
rent.
Clause 24 – Co-owners
taxed separately.
Key Change: Retains most existing provisions with simplified computation rules.
6. Income from Business & Profession (Clauses 26-66)
Clause 26 –
Defines business profits.
Clause 27 – Rules for computing
business income.
Clause 28-29 – Deductions
for rent, insurance, employee welfare.
Clauses 30-32 – Covers bad
debts, depreciation, capital expenses.
Clause 33 – Defines tangible
& intangible assets for depreciation.
Clause 34-36 – Non-allowable
deductions for tax evasion prevention.
Clause 37-42 – Foreign exchange
fluctuations, depreciation rules.
Clause 43-46 – Scientific
research & skill development deductions.
Clause 47-50 – Agriculture
& mineral exploration incentives.
Clause 58 – Presumptive
taxation for small businesses.
Clause 59-65 – Non-resident
taxation, digital business rules.
Key Change: Recognizes digital transactions, improves startup incentives.
7. Capital Gains Tax (Clauses 67-91)
Clause 67 – Defines
capital gains taxation.
Clause 68-70 – Rules for share
buybacks & liquidations.
Clause 72-75 – Holding period
changes for different assets.
Clause 76-77 – New taxation rules
for digital assets & market-linked debentures.
Clause 83-86 – Exemptions for agricultural
land, SEZ investments.
Clause 91 – Fair market
valuation for taxation.
Key Change: Includes crypto & digital asset taxation, updates reinvestment rules.
8. Income from Other Sources (Clauses 92-105)
Clause 92 – Chargeability
of non-classified income (dividends, lotteries, online gaming).
Clause 93-94 – Allowable deductions
& disallowed expenses.
Clause 95-96 – Clubbing income
to prevent tax avoidance.
Key Change: Includes e-sports, digital earnings, cryptocurrency winnings.
9. Anti-Tax Avoidance Measures (Clauses 178-184)
Clause 178-179
– General Anti-Avoidance Rule (GAAR) expansion.
Clause 180-181 – Defines impermissible
transactions.
Clause 182-184 – Covers tax
treaty abuse, shell companies.
Key Change: Stronger measures against tax evasion.
10. Administrative & Compliance Reforms (Clauses 263-389)
Clause
263-267 – E-filing & faceless assessments.
Clause
268-273 – Scrutiny, dispute resolution improvements.
Clause
274-289 – Time limits for audits, reassessments.
Key Change: Automates assessments, reduces manual intervention.
11. Penalties & Prosecutions (Clauses 439-498)
Clause 439-449
– Under-reporting penalties.
Clause
450-465 – Penalties for false statements, non-filing.
Clause
475-486 – Prosecution for tax evasion, fake accounts.
Key Change: Strengthens penalties for digital & corporate tax frauds.
Conclusion: Key Takeaways from the Income Tax Bill, 2025
Modernization
– Includes digital assets, online businesses, & cryptocurrency
taxation.
Simplification – Clearer definitions, deductions, & compliance
rules.
Anti-evasion Strengthening – GAAR, digital tax audits, & enhanced
scrutiny.
Automation – Faceless assessments, AI-driven processing, and e-filing
mandates.
What’s next?
These changes will impact individuals, startups, digital businesses, & NRIs. Understanding the reforms will help optimize tax planning & compliance.
