The Indian government is introducing a new Income Tax Bill, 2025, which aims to simplify tax laws and make tax filing easier. The new bill, which is expected to be introduced in Parliament this week, has several changes, including a shift in tax reporting terminology, tighter rules for digital assets, and a reduction in complex explanations.

Key Changes in the New Income Tax Bill

The Income Tax Bill 2025 introduces a major change by replacing the 'assessment year' with a 'tax year.' Currently, income tax is calculated based on the income earned in the previous financial year and assessed in the next year. For example, income earned between April 1, 2024, and March 31, 2025 (Financial Year 2024-25) is assessed in Assessment Year 2025-26. The new bill removes this system and introduces the 'tax year,' which will always start from April 1 of the same year. If a business or professional starts in the middle of the year, their tax year will begin from that date and end with the same financial year. This change is expected to simplify tax filing and reduce confusion. The bill is also written in simpler language, making it easier to understand, and has been reduced from 823 pages to 622 pages.

Even though the number of chapters in the new Bill remains the same as in the old Income Tax Act, 1961 (23 chapters), the number of sections has increased from 298 to 536. Additionally, the number of schedules has increased from 14 to 16 to include new provisions.

Stricter rules for virtual digital assets and other changes

The new Income Tax Bill, 2025, also introduces stricter tax regulations for virtual digital assets like cryptocurrency and NFTs (non-fungible Tokens). These assets will now be considered part of undisclosed income during tax searches, just like money, bullion, and jewellery. This means that if someone holds digital assets without declaring them, they can be taxed heavily.

The bill also removes various explanations and provisos from the current Income Tax Act, 1961, making it more straightforward. Other important updates include:

  • New sections for revenue recognition for service contracts.
  • Inventory valuation rules to calculate the lower of cost or net realisable value.
  • Simplification of salary deductions, such as standard deduction, gratuity, and leave encashment, which are now listed in one place instead of being spread across multiple sections.

Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP, commented that the income not forming part of total income has now been moved to schedules to simplify tax laws.

Approval and next steps

The Income Tax Bill, 2025, was approved by the Cabinet and will now be introduced in the Lok Sabha (the lower house of Parliament) for discussion. After this, it will be sent to a parliamentary committee for review. The committee will suggest changes, and the government may modify the bill before presenting it again for final approval and implementation.

In October 2023, the Income Tax department asked the public for suggestions on simplifying tax laws. It received 6,500 suggestions on reducing compliance, removing outdated rules, and making legal language easier to understand.

This is not the first attempt to simplify tax laws. In 2018, a task force was formed to draft a new Direct Tax Law, and a report was submitted in 2019. Earlier, the UPA I government proposed a Direct Taxes Code (DTC) in 2009 and revised it in 2012 and 2014, but it was never implemented as the 15th Lok Sabha dissolved before its approval.

Now, with the Income Tax Bill, 2025, the government is once again making efforts to modernise and simplify India’s tax system.

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