Status and Background

• Passed by both Houses of Parliament in 2025.
• Seeks to replace the Income Tax Act, 1961, which had become complex due to decades of amendments.
• Part of a broader push towards tax certainty, simplification, and compliance-based governance.

Objectives of the Income Tax Bill, 2025

• Simplify and rationalise income tax law.
• Reduce length, ambiguity, and litigation.
• Align tax administration with the digital economy.
• Improve voluntary compliance while strengthening enforcement.
• Modernise provisions to reflect new income forms and technologies.

Structural and Conceptual Changes

1. Introduction of a Uniform “Tax Year”

• Replaces the dual concepts of:
  • Previous Year
  • Assessment Year
• Introduces a single Tax Year:
  • Defined as 1st April to 31st March.
• Purpose:
  • Removes confusion for taxpayers.
  • Simplifies filing, assessment, and compliance timelines.

Digital Economy and Enforcement Provisions

2. Virtual Digital Space (New Definition)

• Broadly defined to include:
  • Email accounts
  • Social media profiles
  • Online user accounts
  • Cloud servers
  • Websites and digital platforms
• Recognises digital footprints as potential sources of taxable income.

3. Powers of Tax Authorities

• Authorities may:
  • Access digital environments during search and investigation.
  • Bypass passwords if required to detect tax evasion or undisclosed income.
• Companies and intermediaries may be legally required to:
  • Provide technical assistance.
  • Facilitate lawful access to digital records.

Significance

• Reflects shift from physical to data-driven tax enforcement.
• Raises concerns related to privacy, proportionality, and safeguards.

Key Provisions on Tax Deduction and Collection

4. Liberalised Remittance Scheme (LRS)

• No Tax Collected at Source (TCS) on LRS remittances:
  • When funds are sent for education purposes
  • Provided the remittance is financed by a financial institution
• Aims to reduce financial burden on students and families.

5. Nil TDS Certificate

• Individuals with no tax liability can:
  • Apply in advance for a Nil TDS certificate
• Prevents unnecessary deduction and later refund claims.
• Improves cash flow for small taxpayers.

Alternate Minimum Tax (AMT)

6. Alignment of AMT for LLPs

• AMT provisions for Limited Liability Partnerships (LLPs) aligned with existing Income Tax framework.
• Purpose of AMT:
  • Ensures that entities availing large deductions and exemptions pay a minimum effective tax.
• Prevents aggressive tax planning while preserving incentive structures.

Income Tax: Core Concept

• Type: Direct tax.
• Levied on income earned by:
  • Individuals
  • Companies
  • Firms and other entities.
• Based on progressive tax slabs for individuals.
• Operates under:
  • Old tax regime (deductions-based).
  • New tax regime (lower rates, fewer exemptions).

Revenue and Fiscal Context

• As per Central Board of Direct Taxes (CBDT):
  • Gross direct tax collections (FY 2025–26): ₹7.99 lakh crore
  • Decline of 1.9% compared to ₹8.14 lakh crore in FY 2024–25.
• Indicates:
  • Slower revenue growth.
  • Importance of widening tax base and compliance.

Broader Significance

• Marks a shift towards:
  • Rule clarity over discretion.
  • Digital-first tax administration.
• Supports India’s transition to a formalised and data-driven economy.
• Likely to influence future debates on:
  • Privacy vs enforcement.
  • Ease of doing business.
  • Trust-based taxation.