Context:

The Income-tax Bill, 2025 was recently introduced in Lok Sabha on February 15, 2025. The Bill aims to simplify India’s tax system by removing outdated provisions, making laws easier to understand, and reducing legal complexity. It will replace the Income-tax Act of 1961 and is expected to come into effect from April 1, 2026.

Key highlights of the Bill: 

·        A Shorter and Simpler Tax Law: The new Bill reduces the word count by half, making it more concise and user-friendly. The number of chapters has been cut from 47 to 23, and sections reduced from 819 to 536. Instead of lengthy explanations, important details like deductions, exemptions, and tax rates are now presented in tables, making them easier to understand.

·        New "Tax Year" Concept: The Bill replaces the old Assessment Year (AY) system with a "Tax Year", which aligns with the financial year. This change simplifies tax filing and makes it easier for individuals and businesses to track their tax periods. For businesses or newly established professions, the tax year will start from their date of setup and end with that financial year.

·        Digital Transactions and Cryptocurrency Regulations: To keep up with modern financial activities, the Bill expands the definition of "virtual digital space" to include email servers, social media, cloud storage, online banking, and digital investment platforms. This allows tax authorities to monitor and investigate transactions in the digital space.

o   Additionally, cryptocurrencies and other digital assets are now officially classified as property and will be subject to capital gains tax, just like real estate, stocks, and gold.

 Changes in Capital Gains Tax and Deductions:

Some outdated provisions, such as capital gains exemptions on property transfers before 1992, have been removed. Deductions for salary components like standard deduction, gratuity, and leave encashment are now presented in a structured format, making them easier to understand.

·        Faster and Clearer Dispute Resolution:

The Bill improves the Dispute Resolution Panel (DRP) by clearly outlining how decisions are made and communicated. This is expected to speed up tax dispute settlements and reduce litigation.

Challenges & Future Implications

o   No Major Structural Reforms:The Bill simplifies provisions but does not introduce major changes to tax rates, penalties, or compliance mechanisms. Experts suggest further reforms for a more taxpayer-friendly system.

o   Transition Challenges: Taxpayers and businesses need time to adapt to the ‘tax year’ concept. Financial professionals must update tax strategies and systems.

Conclusion:

For years, India’s tax laws have been complex and difficult to navigate. Previous attempts to simplify them, such as in 2010 and 2018, were not fully implemented. The Income-tax Bill, 2025 takes a major step toward a clearer, more efficient and transparent tax system by removing unnecessary provisions, simplifying language, and making tax rules easier to follow.