Tax:

A simplified and crisp language, removal of provisos and explanations, change in tax reporting terminology to ‘tax year’ and ‘financial year’, doing away with assessment year, along with tighter tax provisions for virtual digital assets are part of the features of the new 622-page Income-Tax Bill, 2025.

The Bill, which is Likely to be introduced in Parliament on Thursday, has now defined a new concept of ‘tax year’ as the 12-month period beginning from April 1. In case of a business or a newly set up profession, the tax year will begin from the date of setting up of such business of profession, and will end with the said financial year. In other words, income tax will be levied on the basis of the economic activity and income earned in a ‘tax year’.

At present, income tax has the concept of assessment year which assesses tax on income earned in the previous financial year. For instance, income earned in financial year 2024-25 (April 1, 2024 to March 31, 2025) will be assessed in assessment year 2025-26 (beginning April 1, 2025).

The change in terminology might build base for a more fluid income tax reporting regime in the coming years, experts said.As the new Income-Tax Bill has more simplified language, this has resulted in a reduction in the length of legislation from 823 pages to 622 pages. Even as the number of chapters remain the same at 23 chapters in both new Income-Tax Bill, 2025 and the old Income-tax Act, 1961, the sections have increased to 536 sections from 298 sections and schedules have increased to 16 from 14 schedules at present.

Virtual digital assets have been included in the provisions for searches to count it as part of any undisclosed income along with existing categories of money, bullion, jewellery.

The various explanations and provisos in the current Income-tax Act have been removed from the new Income-Tax Bill.

There are new sections covering revenue recognition for service contracts, valuation of inventory at lower of cost or net realisable value.

Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP said income not forming part of total income have now been moved to schedules to simplify the statute. “Deductions from salaries such as standard deduction, gratuity, leave encashment etc, have now been tabulated at one place, instead of being scattered over different sections and rules,” he said.

The new Income-Tax Bill was cleared by the Cabinet on Friday. It will be introduced in Lok Sabha this week, after which it will be referred to a parliamentary committee. The committee will give its recommendations, it will then come back and the government through the Cabinet will take a call on whether these amendments will be included or more need to be added. After this, the Bill will return to the Parliament, and then the government will take a call on its rollout date.

In October last year, the Income Tax department had announced the formation of an internal committee to review the Income-tax Act and invited public inputs and suggestions on four key areas — simplification of language, litigation reduction, compliance reduction, and obsolete provisions. It had then received around 6,500 inputs and suggestions from the public.

Before this, the government has attempted to simplify the Income-tax Act several times. In 2018, a task force was formed to draft a new direct tax law that submitted its report in 2019.

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