Income Tax Bill 2025: What’s new, what may change, and what we can expect? | Mint

An important piece of law – encapsulating 298 sections – which determines the major sources of income for the fifth largest economy in the world was passed in 1961. 

In the next 64 years, the Income Tax Act has undergone a flurry of changes almost every year. From tweaks in the tax rates to the introduction of new provisions; from bringing a new exemption to the scrapping of old ones – this Act has seen a lot in the past six decades and counting.

Over these years, the Income Tax Act has undergone so many revisions that it arguably looks very different from the shape and form it carried when it was a new legislation.

For a long time now, tax experts and taxpayers have felt the need for a new law which is written on a clean slate, subsuming all the current provisions and beyond.

And it is set to happen now.

From plan to announcement

During the Budget speech in 2024, Finance Minister Nirmala Sitharaman announced that the government will carry out a comprehensive review of the Income Tax Act, 1961 to make the act more concise, and easy to read and understand.

One of the key goals – she mentioned — is to reduce disputes and litigation, thereby providing tax certainty to the taxpayers. That time she mentioned that it was meant to be completed in six months i.e., before Jan 23, 2025.

Thereafter, the income tax website started inviting suggestions from the public with regards to changes they expect from the new law. Interestingly, the window of giving suggestions

Cut to 2025 Budget. Ms Sitharaman mentioned that the new income tax bill will soon be introduced. It will carry forward the same spirit of Nyaya (Hindi word for justice) which was carried in Bharatiya Nyaya Sanhita that replaced Indian Penal Code (1860) in July 2024.

The new tax bill will be clear and direct in text with nearly half of the same provisions as the existing law, the Finance Minister said in Parliament on Feb 1, during her budget speech.

It will be simple to understand for taxpayers and tax administration and expected to tax certainty and less litigation, she added.

Need for the new tax law

One of the criticisms of existing law is that it has become quite complex as a result of a series of amendments and changes over the years.

“Over the years, things have become very complicated. Topics like Residential Status of a person, Capital Gain charged on different capital assets, Definition of property have become a complex subject. To simplify them, it is better to write them fresh with a new perspective and simplicity,” says Prof Saumya Aggarwal, Assistant Professor, Shri Ram College of Commerce (SRCC), University of Delhi.

“Things have changed. The Act was written in 1961. Now, technology has changed overtime and so has the income level of people. Certain things have to be redefined. Concepts like taxation of virtual assets need more clarity and attention,” she adds.

Rajul Kothari, Partner, Capital League, echoes the same sentiments. “The frequent and complicated tweaks to personal tax and capital gains tax provisions have created complexity and confusion. With multiple asset classes and product categories, the constant changes have made it challenging for taxpayers to navigate. Grandfathering existing investments, unless new rules are more beneficial, would provide much-needed confidence, predictability and remove uncertainty,” he says.

Provisions that require clarity

There are a number of provisions that require more clarity such as taxation of income of non-residents, payment for licensing of software, income of remote workers and gig workers, say experts.

Dipesh Jain, partner at Economic Laws Practice, a law firm, says that there are certain provisions such as payment of software licensing wherein different high courts have different interpretations, which calls for a law that is written on a clean slate.

“The rules and laws regarding taxation of incomes of non-resident should be simplified. We now live in a global village. Income from foreign assets and holdings is quite normal. So, the taxation of these types of incomes should be more simple, clear, and transparent,” opines Prof Aggarwal.

She further adds that the Act should adapt itself to the changing world where a lot of work force is working in the hybrid mode. The Income Tax Act should define and include such incomes.

“Several aspects should be rewritten such as definition of a specified employee for the taxation of perquisites, medical treatment outside India, clubbing of income of a minor child,” she adds.