ITA vs. ITB: Key Changes under Income Tax Bill, 2025

The progressive tax system of India has undergone a major transformation leading to the introduction of the Income Tax Bill, 2025 (i.e., ITB). This transition from ITA (i.e., Income Tax Act, 1961) to ITB signifies a comprehensive reform designed to simplify and modernize India’s tax system. However, the proposed bill is intended to bring a more efficient and transparent tax regime, benefitting both individuals and business entrepreneurs.

Income Tax Bill 2025: A Modern Approach to Taxation

On February 13, 2025, the Finance Minister Smt. Nirmala Sitharaman tabled a new Income Tax Bill, 2025 proposing changes in the age-old Income Tax Act, 1961. The bill, considered a modern approach to taxation, aims to bring wholesome changes underlining India’s financial rules. However, the Central government has retained the legacy of the Income Tax Act along with structural adjustments made to the Income Tax Bill, 2025.

The Income Tax Bill, 2025 is further designed to simplify the structure, remove redundancies, and replace provisions of ITA. The changes proposed by the Central government ensure alignment to ease the administrative aspects of doing business and commitment towards the tax department.

Reasons for Introducing the Income Tax Bill 2025

The Budget Speech for the Income Tax Bill, 2025, announced the replacement of the decades-old Income Tax Act, 1961, with a new tax system. This change aims to make tax laws more concise, clear, and easier to understand. Have a look over some of the key reasons for introducing the Income Tax Bill, 2025, as discussed below:

• To reduce the scope for legal tax disputes by removing ambiguities
• To encourage voluntary tax compliance across the board
• To simplify the lengthy and complex provisions of the existing Act
• To reduce the complexity of the current tax system
• To eliminate or delete the redundant provisions
• To minimize cross references and consolidate applicable provisions in one place
• To incorporate tech-driven modern taxation principles
• To promote digital and automated tax administration
• To address emerging economic and global trends
• To guide the taxability of income streams emerging from new-age businesses, such as digital assets
• To reduce income tax rates in order to promote higher demand for goods and services.

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ITA vs. ITB: Key Changes under Income Tax Bill, 2025

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Scope of Income Tax Bill, 2025

The scope or extent of the tax implications imposed under the Income Tax Bill, 2025, which is a set of regulations proposed to levy, administer, collect, and recover direct taxes in India, are as discussed below:

• Income received or deemed to be received in India is taxable for Resident and Ordinarily Resident (ROR), Resident but non-Ordinarily Resident (NROR), and Non-Resident (NR).
• Income accrued in India is taxable for Resident and Ordinarily Resident (ROR), Resident but non-Ordinarily Resident (NROR), and Non-Resident (NR).
• Income accruing from outside India, but profession or business is setup or controlled from India is taxable for both Resident and Ordinarily Resident (ROR), Resident but non-Ordinarily Resident (NROR) and non-taxable for Non-Resident (NR).
• Income accruing from outside India, but the profession or business is setup in or controlled from outside India is taxable for Resident and Ordinarily Resident (ROR), and not taxable for both Resident but Not Ordinarily Resident (RNOR) and Non-Resident (NR).
• The untaxed past foreign income remitted (brought back) to India is non-taxable for Resident and Ordinarily Resident (ROR), Resident but non-ordinarily Resident (NROR), and Non-Resident (NR).

Key Changes in Income Tax Bill 2025

The key changes enacted to transform changes through the Income Tax Bill 2025 represent a significant shift towards a more streamlined, tech-driven, and tax-friendly ecosystem. Have a look over some of the major changes that replaced the complex provisions, as explained below:

The shift from Assessment Year to Tax Year

The Income Tax Bill, 2025 (i.e., ITB) proposes replacing the existing system of Assessment Year (AY) and Financial Year (FY) with a single Tax Year that aligns directly with the financial year. Under the new framework, the tax year covers a period of 12 months, starting from April 1st and ending on March 31st of the following year. In the case of new businesses or new sources of income, the tax year begins from the date of business existence or income generation and ends on March 31st of that financial year.

Interpretation of Certain Terms in Tax Treaty

The Income Tax Bill, 2025, proposed the manner of interpreting India’s tax treaties. It clarifies that the term ‘business connection in India’ will include any business activities conducted within the country. Additionally, the bill proposes replacing the phrase ‘for the purpose of employment outside India’ under Section 6 with a more concise term, ‘for employment outside India’.

Taxation of NPOs/ Trusts/ NGOs

The Income Tax Bill, 2025 established a detailed framework for non-profit organizations (NPOs), replacing the existing provisions applicable to trusts. However, the IBO contains more than 20 provisions covering the application for registration, computation and taxation of income of registered NPOs.

Revised Income Tax Slabs

According to the proposed provisions of the ITB, income up to Rs. 12 lakhs is now exempted from taxation, with a standard deduction of Rs. 75000, effectively making income up to Rs. 12.75 lakh tax-free for salaried individuals. However, the proposal of revising the income tax slabs and higher exemption limits mainly provides for securing middle-class money, potentially boosting consumers’ spending and saving options.

Simplifies TDS/ TCS Applicability

The Income Tax Bill, 2025 further aimed at simplifying the structure of Tax Deducted at Source (i.e., TDS) and Tax Collected at Source (i.e., TCS). The bill now consolidated all 13 sections under the sections 393 and 394 of the Bill. However, the TDS rates for interest, income, rent, etc., remain the same as mentioned under the previous Act of 1961.

Substituted Term Beneficially Held by Beneficial Owner

The Income Tax Bill, 2025 proposed to replace the yardstick of ‘shares beneficially held’ as appearing in few provisions of ITA 1961 with the phrase’ beneficial owner’ of shares in the corresponding provisions of ITB 2025 as a measure of simplification of language.

Integrated Virtual Digital Assets and Cryptocurrency Transactions

According to the Income Tax Bill, 2025 virtual digital assets, including cryptocurrencies are now classified as assets under clauses 67 to 91 of the new tax regime. This simply means that they are taxed similar to other assets like property, jewellery, and shares. The bill also defined the term virtual digital assets and electronic mode, reflecting the growing importance of digital transactions and cryptocurrencies in the modern financial landscape.

Provision for Startups

The Income Tax Bill under clauses 11 to 154 proposed to introduce specific provisions to support startups, digital business, and renewable energy investments. The bill further contributed and explored a deep tech fund of funds supporting next-generation start-ups, with a window to claim tax holidays until 31st March 2030.

New Regulation on Business Income Deductions

The investments and expenditures eligible for deduction as outlined under Sections 80C of the ITA are now proposed in Schedule XV of the Income Tax Bill, 2025. However, the bill further proposed to consolidate salary deductions including standard deduction, gratuity in a single section, rather than multiple sections. Also, the ITB ceases deduction for inter-corporate dividend, in case the company has opted for the tax rate of 22%.

Claim for Capital Gains

The Income Tax Bill, 2025, proposed to remove the redundant clause 47 of the ITA. The amendment proposed for transfer of land of an industrially sick company and transfer in the course of demutualization or corporatisation of a recognized stock exchange. However, the bill introduced specific provisions for calculating capital gains on market-linked debentures.

Amendments to Indirect Transfer Provisions

The Income Tax Bill, 2025 now provides that income arising both ‘from’ or ‘through’ the transfer of capital assets situated in India is to be deemed to accrue or arise in India. The provisions for capital assets situated in India and attribution of Income are amended

Revised Assessment, Reassessment, and Tax Compliance

The Income Tax Bill, 2025 revised the assessment, reassessment, and tax compliance farmwork where the officer received directions from the Approving Panel declaring the arrangement as an impermissible avoidance arrangement. The bill further proposed to receive findings or direction contained in an order passed by any authority by way of appeal, reference, or revision by a court in any proceeding under other law.

Broad Access to Taxpayers’ Devices & Social Media Accounts

The new Income Tax Bill proposed sweeping powers and authorities to access taxpayers’ email servers, online investment information, digital application servers, trading, banking, and social media accounts in searches. Moreover, the taxpayer on whom the search is being conducted must provide access to their electronic records and virtual digital space, a concept not covered under a decades-old tax regime.

Other Miscellaneous Changes

The other miscellaneous changes as proposed under the Income Tax Bill, 2025 are as outlined below:

• Removed the mandatory requirement of giving the opportunity to be heard.
• The proposed inclusion of points of determination, decision, reasons thereof, in the DRP principles.
• Introduced formulas and an additional 39 tables covering information on salary perquisites, presumptive taxation, tax deduction/ collection at source rates, threshold, etc.
• Simplified cross-referencing between different provisions such as section 133(1)(b)(ii).
• Removed outdated sections that are no longer applicable, such as investment allowance on new plant and machinery, fringe benefits, pre-emptive purchase of immovable property by the government, etc.
• Introduced provision to clarify that GST paid on cost of assets, credit of which is allowed and claimed under the applicable law, shall not be considered in computing the actual cost of assets.
• Expanded the scope of export incentives for taxation under profits and gains of business or profession (PGBP).
• No exemption from minimum alternate tax on fair valuation gains of units of business trusts in hands of the sponsor.

Comparative Analysis Between ITA and ITB

Have a look over the below-mentioned tabular comparison highlighting the key differences between the decade-old Income Tax Act, 1961, and the recently proposed Income Tax Bill 2025:

Conclusion

The Income Tax Bill 2025 is a proposal drafted in an attempt to simplify the decade-old Income Tax Act 1961. The bill, which simplifies the existing ITA, is further expected to carry forward the spirit of ‘Navya’ as mentioned in the Budget 2025 speech. Simply, the bill demonstrates the government’s dedication to fostering a transparent and efficient tax ecosystem in India.

Are you ready to explore the key differences between the Income Tax Act (ITA) and the Income Tax Bill 2025? Visit our official website at https://corpbiz.io/ to explore the most important changes, compare provisions, and learn how the new bill impacts taxpayers and businesses! Also, get expert assistance in ITR filing with our seasoned professionals.

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