At the time of tabling the Union Budget 2024 in July 2024, the Hon’ble Finance Minister Smt. Nirmala Sitharaman (Hon’ble FM) had announced that Income-tax Act, 1961 (IT Act) will undergo comprehensive review. The purpose of the review was to make the IT Act concise, lucid, easy to read and understand. With this background, taxpayers were allowed to submit their suggestions on the Income-tax portal in the following areas:

1. Simplification of Language;
2. Litigation Reduction;
3. Compliance Reduction; and
4. Redundant/ Obsolete Provisions 

Post this, in her Budget Speech for the Finance Bill, 2025, Hon’ble FM announced that the new tax law will be tabled soon. On 7 February 2025, the Cabinet approved the Income-tax Bill, 2025 (IT Bill) and it was tabled by Hon’ble FM in the Lok Sabha (Lower House) on 13 February 2025. 

For simplifying the existing provision, following changes are undertaken:

• Elimination of redundant provisions to reduce its length by nearly half;
• Change in drafting style to make the provisions easy to understand;
• Minimisation of cross references and consolidation of applicable provisions at one place; and
• Incorporation of tables and formulas for ease in presentation.

The IT Bill is proposed to be effective from 1 April 2026 and has kept the tax rates untouched.

The Hon’ble FM has requested that a select Committee be formed to vet the IT Bill and submit its report on the first day of the monsoon session of Parliament. 

We, at BDO in India, have summarised key changes proposed by the IT Bill:

A. Simplification

• Deletion of redundant provisions – In the IT Act many sections which were not applicable, have been removed in the IT Bill. In this context, approximately 900 explanations and 1200 provisos have been removed. Below table depicts key statistics of IT Act vis-à-vis IT Bill:

B.Other key changes

• Introduction of Tax Year – Currently, the IT Act has a concept of previous year and assessment year. This has often led to confusion for the taxpayers. In order to address this issue, it is proposed to introduce the concept of ‘Tax Year’. A tax year is defined to mean twelve months period of the financial year commencing on 1 April. Further, where a new business is set up or a new source of income comes into existence, the tax year will commence from the date of setting up of business or date on which source of income comes into existence (as the case may be) and will end on 31 March.

• Interpretation of certain terms in treaty – IT Bill proposes following manner of interpreting India’s tax treaty:
  • If a term is defined in tax treaty and the IT Bill, it will follow the meaning given in the tax treaty;
  • If a term is defined in the IT Bill but not in tax treaty, it will follow the meaning in the IT Bill or any explanation by the Central Government;
  • If a term is not defined in the tax treaty or the IT Bill, it will follow the meaning in any notification by the Central Government; and
  • If a term is not defined in the tax treaty, the IT Bill, or any notification, it will follow the meaning in any relevant tax law or other Central Government law.
• Royalty payment between non-residents – As per the IT Act, royalty payment between two non-residents shall be taxable in India only if :
  • it pertains to business carried out in India; or
  • for the purpose of making or earning any income from any source in India. 

• Applying for Lower Tax Withholding (TDS)/ Tax Collected at Source (TCS) – Currently, a taxpayer can approach tax officer for a lower TDS/ TCS for specified type of transactions/ income only. IT Bill proposes to remove this restriction and thereby a taxpayer can approach tax officer for any type of transaction/ income on which TDS/ TCS is applicable.
• Withdrawal of deduction for inter-corporate dividends in respect of certain companies – Currently, Indian companies opting for tax rate of 22% are permitted to deduct inter-corporate dividend, subject to fulfilment of specified conditions. As per the IT Bill, this deduction for inter-corporate dividend is not available in case the company has opted for the tax rate of 22%.
• Tax Return by specified individual taxpayers – Currently, IT Act provides for filing of tax return by taxpayers who satisfy certain prescribed conditions (e.g. deposit of INR 10mn and above in bank, expenditure incurred on foreign travel). The IT Bill has not included such provision and accordingly tax return filing may not be mandated in such cases.
• Tax Regime for Non Profit Organisation (NPO) – The tax framework for NPO has been consolidated into one Chapter. The framework covers registration, taxation of income, donation, application and accumulation of income and compliances.
• Claim for Tax Refund – Currently, the taxpayer is eligible to claim refund of tax in its return of income even if it is not filed within the due date for filing the original tax return. The IT Bill proposes that the refund claim can be made in a tax return only if it is filed within the due date of filing original tax return.
• Reassessment – The IT Bill proposes to bring the following within the reassessment framework where the tax officer has received:
  • directions from the Approving Panel declaring the arrangement as an impermissible avoidance arrangement; and
  • findings or direction contained in an order passed by any authority in any proceeding under the IT Bill by way of appeal, reference or revision or by a Court in any proceedings under any other law. 

• Penalty – In respect of certain penalties, the mandatory requirement of giving an opportunity of being heard is removed (e.g. failure to furnish the data).
• Dispute Resolution Panel (DRP) – The IT Bill proposes that DRP directions should include points of determination, decision thereon and the reasons for such decision. Thus, DRP order is expected to now give more reasoned directions. 
• Savings clause - The IT Bill includes a Savings clause for application of certain provisions for the continuity of existing proceedings under the IT Act.

BDO India Insights
The IT Bill makes an attempt to simplify the Income-tax law and make it reader friendly. No major substantive changes seem to have been made vis-à-vis the existing law. The IT Bill is a good starting point and now the Indian Government should focus on addressing the key areas of reducing the compliances and existing litigation. Above steps would go a long way in meeting India’s aspirations for improving ease of doing business.