The Union Government today tabled the Income-tax Bill, 2025 in the Lok Sabha, setting the stage for a complete revamp of India’s direct tax framework from April 1, 2026.
The proposed legislation seeks to replace the Income-tax Act, 1961, with modernised provisions aimed at simplifying compliance, widening the tax base, and addressing emerging economic realities such as digital assets and cross-border transactions.
New Terminology & Scope: The Bill introduces the concept of a “tax year” in place of the traditional “assessment year” and defines “total income” with clearer rules on the taxation of residents and non-residents, including global income provisions.
Expanded Definitions: Updated definitions cover cloud-based records, business trusts, and other modern entities.
Exempt Incomes: Specific categories of income — including those of certain political parties, electoral trusts, and entities listed in dedicated schedules — are excluded from total income.
Heads of Income Simplified: Income remains classified under five heads — salaries, house property, business/profession, capital gains, and other sources — but computation rules have been streamlined.
Anti-Avoidance Measures: Several clauses deem certain receipts, such as assets transferred between related entities, as taxable income to prevent abuse.
Special Provisions for Goa and Union Territories: Income apportionment rules are laid down for spouses governed by the Portuguese Civil Code.
Disallowances on Exempt Income Expenses: Mirroring existing anti-avoidance rules, expenses linked to tax-free income will not be deductible.
Clear Deduction Rules: Detailed provisions govern allowable deductions for business expenses, depreciation, bad debts, and employee welfare contributions, alongside strict lists of non-deductible items such as fines and penalties.
The Finance Ministry said the new Bill is intended to “reduce ambiguity, improve ease of doing business, and align the law with current economic practices.” Once enacted, the provisions will apply from the tax year commencing April 1, 2026, with transitional rules to manage the shift from the 1961 Act.
Parliamentary debate on the Bill is expected to focus on the widened tax net for non-residents, the removal or narrowing of certain exemptions, and the compliance implications for individuals and corporates alike.
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Amit Sharma is the Content Editor at JurisHour. He has been writing about the Indian legal market. He has covered tax & company litigation stories from the Supreme Court, High Courts and Various Tribunals. Amit graduated from MLSU Law College with B.A.LL.B. and also holds an LL.M. from MLSU, Udaipur, Rajasthan. An Advocate in Taxation, and practised in Tribunals as well as Rajasthan High Court and pursued Masters in Constitutional Law. He started out small with little resources but a big plan to take tax legal education to the remotest locations across India and eventually to the world. His vision is to make tax related legal developments accessible to the masses.
