The Finance Bill, 2025 (the Bill) was introduced by the Hon’ble Finance Minister in the Lok Sabha on 1 February 2025. The Hon’ble Finance Minister (FM), Nirmala Sitharaman, has proposed amendments to the Bill which were tabled before and passed by Lok Sabha on 25 March 2025. Further, the FM has provided additional clarifications on the proposed amendments through Frequently Asked Questions (FAQs) dated 25 March 2025.

The key amendments proposed by the notice of amendments are summarised hereunder:

DIRECT TAX RELATED 

Non-resident Related

1. Abolition of equalisation levy 

It is proposed that equalisation levy on online advertisements (commonly known as Google tax), which attracted 6%, shall not apply with effect from 1 April 2025.

A consequential amendment is proposed in section 10(50) of the Income-tax Act, 1961 (IT Act) to remove the exemption available on such online advertisement services, with effect from 1 April 2025.

2. Relaxation to the non-residents providing services or technology for setting up an electronics manufacturing facility in India

The Bill has proposed to introduce presumptive taxation for non-residents who provide services or technology to Indian residents for setting up an electronics manufacturing facility in India. It is now proposed that the provisions of Section 44DA¹ and Section 115A²  of the IT Act shall not apply to profits and gains of such non-resident taxpayers.

IFSC Related

1. Relaxation for eligible investment fund/ eligible fund manager

The Bill proposed that the Central Government may by notification in the Official Gazette, relax all the conditions for eligible investment fund/ eligible fund manager except the condition of aggregate participation or investment in the fund, directly or indirectly, by persons residing in India does not exceed 5% of the corpus of the fund. It is now further proposed to restore the power to relax or modify this condition where Central Government may find it necessary to relax the condition.

Further, the requirement of considering indirect holding for the purpose of determining 5% of the corpus is also proposed to be removed.

2. Amendment in definition of capital asset

The Bill has proposed to bring the securities (investment into which is made in accordance with SEBI regulations) held by Category I or Category II Alternative Investment Fund within the definition of capital asset. It is now proposed to cover even those securities which are invested in accordance with IFSCA regulations.

3. Time limit for commencement of operations by investment division of an offshore banking unit, to qualify as specified fund extended 

The Bill proposed that a fund in order to qualify as a specified fund should commence the operations on or before 31 March 2030. However, the time limit for commencement of operations by investment division of an offshore banking unit were not extended. Hence, to maintain parity for all specified funds, it is proposed to extend the time limit for commencement of operations from 31 March 2025 to 31 March 2030. 

4. Power of CBDT to specify conditions for claiming exemption in respect of retail funds and ETF withdrawn 

The Finance (No. 2) Act 2024 had extended the exemption under section 10(4D) of the IT Act to the retail funds and Exchange Traded Funds (ETF) in International Financial Services Centre (IFSC) which have been granted a certificate under the relevant regulations, subject to the satisfaction of the conditions as may be prescribed. The Bill now proposes to apply this exemption if such retail funds and ETF satisfies the conditions laid down for such funds or schemes in the IFSCA³  regulations. Thus, no separate conditions will be prescribed for claiming exemption under section 10(4D) of the IT Act.

5. Distribution of income derived by non-residents on over-the counter derivatives to be exempt

It is proposed that any income accrued/ arise or received by non-resident from Overseas Banking Units or Foreign Portfolio Investors (FPIs) operating in an IFSC, as result of distribution of income on Over-the Counter derivatives shall be exempt from tax.

6.Exemption on proceeds from LIP issued by IFSC Insurance Offices

The Bill proposed to amend section 10(10D) of IT Act so as to provide that proceeds received on a life insurance policy issued by an IFSC insurance intermediary office shall be exempted without the condition related to the maximum premium payable on such policy. It is now proposed to replace the word “IFSC Insurance Intermediary” with “IFSC Insurance Offices”.

Other Direct Tax Proposals

1. Adjustment on account of information in the tax return of earlier years can be made in the intimation of current year 
- It is proposed to insert a new clause in section 143(1)(a)⁴  of the IT Act to provide that the total income or loss shall be computed after making adjustments for any inconsistency in the tax return, with respect to information in the tax return of any preceding fiscal year. The inconsistency for which adjustment may be made is to be prescribed. This amendment is proposed to be effective from 1 April 2025.

2. Amendments proposed in relation to block assessment & Search and Seizure
Finance (No. 2) Act, 2024, had revamped the provisions relating to Block Assessment with effect from 1 September 2024. It is proposed that in case of assessment of total income as a result of search or in case of block assessment of search cases, the words “total income” shall be substituted by “total undisclosed income”, effective from 1 September 2024. 

It is proposed to provide that the total undisclosed income for the purpose of assessment as a result of search shall be the aggregate of the following:

• Undisclosed income declared in the return furnished under section 158BC of the IT Act;
• Undisclosed income determined by the tax officer under section 158BB(2) of the IT Act.

The tax shall be charged on the “total undisclosed income”.

3. Exclusions while computing undisclosed income
It is proposed that following income shall not be included while computing total undisclosed income of the block period.

(a) Income determined under section 143(1), 143(3), 144⁵ , 147⁶ , 153A⁷ , 153C⁸ , 158BC⁹ , 245D¹⁰  etc shall not be included in total undisclosed income of the block period.
(b) Total income declared in the return filed under section 139¹¹  or in response to a notice under section 142(1)¹²  of the IT Act;
(c) Income computed by the taxpayer for the specified period based on books of account maintained in the normal course;
(d) Total income referred to in section 115A(5), section 115G¹³ , or section 194P(1)¹⁴  of the IT Act

4. Procedure for block assessment
•  In relation to procedure for block assessment, it is proposed that effective from 1 September 2024, the time allowed for furnishing a tax return under block assessment may be extended by a further period of 30 days subject to fulfilment of following conditions:
(a) The due date for furnishing the tax return has not expired prior to the date of initiation of such search or requisition;
(b) The taxpayer was liable for audit under section 44AB¹⁵  of the IT Act for such FY;
(c) The accounts (maintained in normal course) of such FY have not been audited on the date of issuance of such notice; and
(d)  the taxpayer requests in writing for an extension of time for furnishing such return to get such accounts audited.

• The tax officer shall determine the total “undisclosed” income of the block period and pass an assessment or reassessment order.

• In order to bring clarity with respect to the undisclosed income of any other person, undisclosed income in relation to the person in respect of whom search was made shall be referred as “specified person” and any undisclosed income that belongs to or pertains to any person other than specified person shall be referred to as the "other person”.
In this regard, the following clarifications are proposed in relation to block period:

• Where there is one specified person, relevant to such other person, the block period for such other person shall be the same as that for the specified person; and
• Where there is more than one specified person relevant to such other person, the block period for such other persons shall be the same as that for the specified person in whose case the block period ends on a later date.

INDIRECT TAX RELATED

In order to harmonise certain entries with the Harmonised System of Nomenclature (HSN), new tariff lines with respect to certain entries were proposed to be introduced and revision of rates on certain tariff items was proposed to be made in the First Schedule to the Customs Tariff Act, 1975. These changes, introduced vide the Third Schedule appended to the Finance Bill, 2025, were proposed to be made effective from 1 May 2025. The amendments proposed by the Lok Sabha to the Third Schedule of the Finance Bill, 2025, are tabulated below:

SR No	Particulars	Original Phrase	Proposed Phrase
1.	Supplementary Note 5 to Chapter 29: Coverage of tariff item 2924 21 40	Sulfosulfuron, Teflubenzuron, Triafamone, Triasulfuron	Teflubenzuron
2.	Supplementary Note 14 to Chapter 29: Coverage of tariff item 2933 39 23	Fluopyram and its metabolite	Fluopyram
3.	Supplementary Note 14 to Chapter 29: Coverage of tariff item 2933 69 60	Pymetrozin (FI), TIM	Pymetrozin
4.	Supplementary Note 2 to Chapter 38: Coverage of tariff item 3808 91 42	Pymetrozin (FI), TIM (with content by mass greater than 90%)	Pymetrozin (with content by mass greater than 90%)
5.	Supplementary Note 11 to Chapter 38: Coverage of tariff item 3808 92 80	Fluopyram and its metabolite (with content by mass greater than 90%)	Fluopyram (with content by mass greater than 90%)

BDO India comments:

The key amendments made in the Finance Bill include abolition of equalisation levy, transition from "total income" to "total undisclosed income" in block assessments, relaxation of investment conditions for eligible funds and refinements in tax exemptions for IFSC-based transactions. With a view to clarify these amendments, an FAQ has been issued. 

The equalisation levy was introduced by India to address the tax challenges posed by the digital economy. The withdrawal of equalisation levy demonstrates India’s commitment to OECD’s global tax framework. With the Pillar 1 and Pillar 2 yet to be adopted by India, it will be worthwhile to see how the abolition of EL will affect India’s exchequer.

Further, modifications in block assessment procedures and search assessments focusing on undisclosed income instead of total income is a paradigm shift where the main objective of a search or requisition is to identify income that has not been disclosed. Additionally, in case of block assessment, a new provision has been introduced providing extension in furnishing of tax return subject to fulfilment of certain conditions.
 

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¹ Section 44DA of the IT Act provides for the mechanism for computing income by way of royalties, or fees for technical services in case of non-residents.
² Section 115A of the IT Act provides the rate of tax on dividends, royalty and technical service fees in the case of foreign companies.
³ International Financial Services Centres Authority Act, 2019
⁴ Section 143 of the IT Act prescribes the manner in which tax return shall be processed. 
⁵ Section 144 of the IT Act provides that if a taxpayer fails to furnish the tax return or fails to comply with the terms of notice, the tax officer, shall, make the assessment of the total income or loss to the best of his judgment.
⁶ Section 147 of the IT Act provides that if any income chargeable to tax has escaped assessment for any FY, the tax officer may assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such FY.
⁷Section 153A of the IT Act provides for assessment in search cases
⁸ Section 153C of the IT Act provides for assessment of income of person other than the person referred to in  Section 153A of the IT Act.
⁹ Section 158BC of the IT Act provides the procedure for conducting block assessment.
¹⁰ Section 245D of the IT Act provides the procedure where an application is received for settlement of cases.
¹¹ Section 139 of the IT Act provides for the time limit for filing tax return.
¹² Section 142 of the IT Act provides that the tax officer may serve a notice for the purpose of making an assessment under the IT Act on any person who has filed tax return section 139 of the IT Act or where the time allowed under section 139(1) of the IT Act has expired. 
¹³ Section 115G of the IT Act provides that in certain cases, a non-resident Indian shall not be required to furnish tax return under section 139(1) of the IT Act.
¹⁴ Section 194P of the IT Act provides that, in case of a specified senior citizen, the specified bank shall, after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A of the IT Act, compute the total income of such specified senior citizen and deduct income tax on such total income.
¹⁵ Section 44AB of the IT Act provides that subject to prescribed conditions, certain persons carrying on business or profession shall get their accounts audited.