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The Indian taxation landscape is on the brink of a significant transformation with the introduction of the Income Tax Bill 2025. This bill, presented by Finance Minister Nirmala Sitharaman, seeks to replace the Income Tax Act of 1961, which has become highly complex due to decades of amendments and modifications. The proposed legislation aims to streamline tax laws, simplify compliance, and create a more business- and taxpayer-friendly environment.
ICAI’s Role in Reviewing the Bill
The Finance Ministry has enlisted the Institute of Chartered Accountants of India (ICAI) to meticulously review the new bill and provide suggestions for improvement. A five-member expert group has been formed to evaluate the bill on a section-by-section basis, ensuring that it meets the needs of both businesses and individual taxpayers. The Central Board of Direct Taxes (CBDT) has also sought detailed feedback to enhance the bill's effectiveness.
ICAI has previously recommended a special tax regime for partnership firms, advocating a 12% surcharge on incomes over ₹1 crore. Their proposals also include streamlining tax registration for charitable trusts, establishing clear timelines for appeals, and improving grievance redressal mechanisms. Their review of the Income Tax Bill 2025 will be instrumental in refining its provisions before it is enacted.
Key Changes in the Income Tax Bill 2025
The new bill is designed to cut through the clutter of outdated provisions and unnecessary explanations. The amended Income Tax Act of 1961 currently spans 823 pages, whereas the new Income Tax Bill 2025 trims this down to 622 pages, reducing ambiguity and improving clarity.
1. Introduction of the ‘Tax Year’
One of the significant changes in the bill is the replacement of the term ‘Assessment Year’ with ‘Tax Year’. This modification aims to make the tax system more intuitive and aligned with international tax practices. For new businesses, the tax year will begin from their date of establishment, ensuring flexibility and convenience.
2. Structural Revisions to Key Sections
The bill seeks to resolve longstanding uncertainties surrounding Sections 44AD, 44AE, and 44ADA, which primarily affect professionals and small businesses. The introduction of the term “profit claimed to have been actually earned” ensures a more precise computation of taxable income, reducing ambiguity in tax assessments.
3. Digital Privacy Concerns and Tax Authority Powers
While the bill simplifies tax compliance, it also introduces provisions granting tax authorities extensive powers to access electronic records, including emails, social media accounts, and online banking information during tax investigations. Experts have raised concerns over the potential infringement on taxpayer privacy and have urged the government to include clear safeguards to prevent misuse of these powers.
Income Tax Slabs: A Major Shift
The bill proposes significant adjustments to income tax slabs, which will provide much-needed relief to taxpayers. Some key highlights include:
Income up to ₹12 lakh will be completely tax-free.
A new 25% tax slab has been introduced for incomes between ₹20 lakh and ₹24 lakh.
The highest 30% tax rate will now apply to incomes above ₹24 lakh, instead of the earlier threshold of ₹15 lakh.
These changes are expected to increase disposable income for the middle class, thereby stimulating economic growth through higher consumption, savings, and investments.
Impact on Government Revenues
The tax cuts introduced in the Income Tax Bill 2025 are projected to reduce Treasury revenues by approximately ₹1 trillion annually. However, the government hopes that this will be compensated by increased economic activity, voluntary tax compliance, and broader taxpayer participation.
What Happens Next?
Following its introduction in Parliament, the bill has been referred to a Select Committee of the Lok Sabha for a thorough review. The committee is expected to submit its report in the next Lok Sabha session, after which the bill may undergo further modifications before being passed into law. If enacted, the Income Tax Bill 2025 will come into effect on April 1, 2026.
Conclusion: A Step Towards Simplification?
The Income Tax Bill 2025 represents a bold attempt to make tax laws more accessible, efficient, and transparent. By reducing unnecessary provisions, clarifying ambiguous terms, and revising tax slabs, the bill seeks to ease compliance burdens and encourage voluntary tax payments.
However, concerns regarding privacy, tax authority powers, and implementation challenges remain. As the bill undergoes further scrutiny, legal experts, businesses, and taxpayers alike will be watching closely to see whether it truly delivers on its promise of simplification.
Sources Referred-
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