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.

 

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!