New Income Tax Bill 2025: Key changes explained

The Income Tax Bill 2025 has been tabled in Lok Sabha, marking a step toward restructuring India's tax framework. The bill, set to replace the Income Tax Act of 1961, introduces 536 sections compared to the existing 819 sections. Here are some of the key takeaways from the new bill:

1. 'Tax year' to replace 'assessment year' and 'previous year'

Currently, India's tax system works on two different time periods:

• Previous year - The financial year (April 1 to March 31) in which income is earned.
  
• Assessment year - The year following the previous year in which the taxpayer files a return and pays taxes on the income earned.

The new bill eliminates this dual system and introduces a single term - 'tax year', which will follow the financial year from April 1 to March 31. This aims to reduce confusion.

2. Simplification of language and structure

The new bill has been designed to reduce complexity and improve readability. It is said that the length has been reduced by half.

3. Clarity on taxation of virtual digital assets (VDAs)

While cryptocurrency taxation was introduced in 2022, the new bill formally defines Virtual Digital Assets (VDAs) and their tax treatment. This ensures that cryptocurrencies, NFTs and other digital assets are covered under a specific legal framework, bringing certainty to their taxation and compliance requirements.

4. Retention of Existing Income categories

The five existing income tax heads remain unchanged: Salaries; Income from house property; Profits and gains from business or profession; Capital gains; Income from other sources.

5. Provisions for Non-Profit Organisations

A more detailed framework is established for non-profit organizations, clearly defining taxable income, compliance rules and restrictions on commercial activities.

Implementation timeline

The bill is now under discussion in Parliament, and further details will emerge as deliberations continue. If passed, the Income Tax Bill 2025 will come into effect from April 1 2026, replacing the Income Tax Act of 1961.

Also read: Budget 2025 and you: How it impacts your money next financial year