This article is part of the UPSC Daily Editorial Analysis, covering The Hindu editorial – "Little has changed in the Income-Tax Bill, 2025," published on 5^th March by the best UPSC coaching in Kolkata.

Syllabus: UPSC Mains General Studies Paper-III (GS-III): Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

The Income-Tax Bill, 2025, set to replace the 1961 Act, aims to simplify tax laws, enhance compliance and regulate Virtual Digital Assets (VDAs). It introduces a unified "Tax Year," digital compliance, streamlined capital gains taxation and broader powers for tax authorities. Expected from April 1, 2026, it seeks a fairer and more efficient tax system while under Parliamentary review.

What is in News?

The Income-Tax Bill, 2025, was introduced in February 2025 with the objective of replacing the Income-Tax Act, 1961. The primary aim of this bill is to simplify tax laws, enhance compliance mechanisms and minimize legal disputes related to taxation in India.

What is the Income-Tax Bill, 2025?

The Income-Tax Bill, 2025, seeks to streamline and modernize the taxation system by simplifying tax provisions, eliminating outdated clauses and updating the language of the law to make it more comprehensible. However, despite these structural modifications, the Bill retains most of the provisions of the 1961 Act, including those related to tax rates, definitions, offences and penalties. The proposed implementation date for the new bill is April 1, 2026.

Objectives of the Income-Tax Bill, 2025

The key objectives of the Income-Tax Bill, 2025, include:

• Simplification of tax provisions to ensure greater clarity and ease of compliance for taxpayers.
• Reduction in tax rates and enhancement of rebates to increase disposable income, which in turn is expected to boost savings and economic growth.
• Minimization of legal disputes by removing ambiguities and strengthening the mechanisms for tax dispute resolution.
• Improvement in tax compliance mechanisms through streamlined processes and reduction in bureaucratic documentation requirements.
• Formal recognition of Virtual Digital Assets (VDAs), including cryptocurrencies, to provide a clearer framework for their taxation and regulation.

Scope of the Income-Tax Bill, 2025

The tax liability of an individual under the Income-Tax Bill, 2025, is primarily determined based on their residential status. The taxability criteria are as follows: 

Income Type	Resident & Ordinarily Resident (ROR)	Resident but Not Ordinarily Resident (RNOR)	Non-Resident (NR)
Income received in India	Taxable	Taxable	Taxable
Income accrued in India	Taxable	Taxable	Taxable
Income accrued outside India (controlled from India)	Taxable	Taxable	Non-taxable
Income accrued outside India (controlled from outside India)	Taxable	Non-taxable	Non-taxable
Past foreign income remitted to India	Non-taxable	Non-taxable	Non-taxable

Key Features of the Income-Tax Bill, 2025

The Income-Tax Bill, 2025, introduces several key features aimed at making tax laws more transparent and efficient:

• Direct tax remains the liability of the taxpayer and is not transferable.
• The administration of income tax laws will continue under the authority of the Central Government.
• Expanded scope of taxation for Virtual Digital Assets (VDAs), ensuring better regulation of cryptocurrencies and other digital assets.
• Implementation of digital compliance and online dispute resolution mechanisms to reduce paperwork and improve efficiency.
• Revised and relaxed tax slab rates to offer greater relief to taxpayers, particularly in the lower and middle-income groups.
• Progressive tax structure, ensuring that individuals in higher income brackets are taxed at proportionally higher rates.
• Capping of deductions available per financial year, streamlining tax benefits while maintaining fiscal discipline.
  

Important Provisions of the Income-Tax Bill, 2025

Several significant provisions have been introduced in the Income-Tax Bill, 2025, including:

• Replacement of "Previous Year" and "Assessment Year" with the new term "Tax Year" to simplify tax filing terminology.
• Introduction of digital compliance mechanisms to ensure more efficient tax collection and recovery.
• Amendments to the return taxation process under Section 267, providing clearer guidelines for taxpayers.
• Simplified assessment procedures to reduce delays and administrative burdens.
• Expanded definition of Virtual Digital Assets (VDAs) under Section 2(111) to include various forms of digital currencies and tokens.
• Consolidation of Tax Deducted at Source (TDS) provisions under a single section for better clarity and ease of compliance.

Treatment of Capital Gains under the Income-Tax Bill, 2025

While the Bill retains the fundamental framework of capital gains taxation, it introduces simplified provisions for easier understanding. The relevant clauses include:

Clause	Description
Clause 67	Definition of Capital Gains
Clause 196	Short-term Capital Gains applicable to Equity Shares, Equity-Oriented Funds and Business Trusts
Clause 197	Long-term Capital Gains applicable to Non-Equity Long-term Assets
Clause 198	Long-term Capital Gains applicable to Equity Shares, Equity Mutual Funds and Business Trusts

Additionally, the Bill removes certain exemptions under Section 47 of the Income-Tax Act, 1961, including those related to industrially sick companies and stock exchange demutualization. Moreover, cryptocurrencies and other Virtual Digital Assets (VDAs) are now formally classified as taxable capital assets.

Highlights of the Income-Tax Bill, 2025

• Simplified tax structure, reducing the number of sections from over 700 to 536.
• Unified "Tax Year" system, set from April 1 to March 31.
• Consolidation of all TDS provisions under Section 393, improving accessibility and consistency.
• Broadened definition of Virtual Digital Assets (VDAs) to encompass all cryptographic assets.
• Removal of redundant provisions to make tax laws more taxpayer-friendly.
• Implementation Date: If approved by Parliament, the Bill will come into effect on April 1, 2026.

Power to Frame Schemes

The Income-Tax Bill, 2025, maintains provisions for the faceless collection of tax-related information and assessments, aimed at enhancing efficiency and transparency. Additionally, the Central Government has been empowered to frame new schemes that:

• Reduce direct interactions between taxpayers and authorities through technological interventions.
• Optimize resource utilization by leveraging economies of scale and functional specialization.
• Ensure that all schemes are presented before Parliament for scrutiny and approval, maintaining legislative oversight.

Expansion of Undisclosed Income Definition

The Income-Tax Bill, 2025, expands the definition of undisclosed income to include:

• Money, bullion, jewellery and other tangible assets.
• Cryptographic tokens, digital codes, or digital assets used in online transactions.
• Assets exchanged in digital transactions, ensuring taxation on digital wealth accumulation.

This amendment aligns with similar provisions proposed in the Finance Bill, 2025.

Regulation of Virtual Digital Space

The Bill grants income tax authorities additional powers for search and seizure operations, extending their authority to virtual digital spaces such as:

• Email servers and social media accounts.
• Online trading and investment platforms.
• Websites storing digital asset ownership details.

Authorities now have the power to override access codes and encryption to access these digital spaces during investigations.

Conclusion

The Income-Tax Bill, 2025, is a significant step towards modernizing India's tax framework. While it introduces structural reforms and procedural simplifications, some concerns remain, particularly regarding legal clarity, reassessment powers and the discretionary authority of tax officials. As the Bill undergoes Parliamentary scrutiny, it is crucial to strike a balance between tax revenue collection, taxpayer rights and economic growth to ensure a fair and efficient tax system. 

PRACTICE QUESTION Q. The Income-Tax Bill, 2025, seeks to simplify tax laws. Critically analyze its key features and challenges. (250 words)

1. What is the Income-Tax Bill, 2025?
The Income-Tax Bill, 2025, is a proposed law aimed at replacing the Income-Tax Act, 1961, to simplify tax provisions, improve compliance and reduce legal disputes.

2. When will the Income-Tax Bill, 2025, come into effect?
If approved by Parliament, the Bill will be implemented from April 1, 2026.

3. What are the key objectives of the new Income-Tax Bill, 2025?
The bill aims to simplify tax laws, enhance compliance mechanisms, reduce tax disputes and formalize taxation on Virtual Digital Assets (VDAs) like cryptocurrencies.

4. How does the Income-Tax Bill, 2025 impact taxpayers?
It introduces relaxed tax slab rates, streamlined compliance processes, digital dispute resolution and caps on deductions to improve efficiency.

5. What changes does the Income-Tax Bill, 2025 introduce in tax terminology?
The terms “Previous Year” and “Assessment Year” are replaced with “Tax Year” for easier understanding.

6. How does the Income-Tax Bill, 2025 address capital gains taxation?
It retains the existing capital gains structure but simplifies provisions and removes certain exemptions related to industrially sick companies and stock exchange demutualization.

7. How does the Income-Tax Bill, 2025 regulate Virtual Digital Assets (VDAs)?
It broadens the definition of VDAs, making cryptocurrencies and digital tokens taxable under capital gains.

8. What are the powers granted to tax authorities under the Income-Tax Bill, 2025?
Authorities gain enhanced search and seizure powers in virtual digital spaces, including email servers, social media accounts and online trading platforms.

9. How does the Income-Tax Bill, 2025 promote digital tax compliance?
It introduces faceless tax assessments, online dispute resolution and reduced documentation requirements for better efficiency.

10. What are the major highlights of the Income-Tax Bill, 2025?
It reduces the number of tax sections from 700+ to 536, consolidates TDS provisions, introduces a "Tax Year" system and removes outdated provisions for a more taxpayer-friendly framework.