The Hindu: Published on 18th Feb 2025:
Why in News?
The Income Tax Bill, 2025, was introduced by Finance Minister Nirmala Sitharaman in the Lok Sabha on February 13, 2025. The bill aims to simplify and modernize India's direct tax system, replacing the Income Tax Act of 1961, which has become cumbersome due to numerous amendments over the years. The government argues that the new law will make tax provisions concise, lucid, and easy to comprehend, thereby reducing disputes and litigation.
Purpose of the New Bill
The primary objective of the new Income Tax Bill is to make the law more accessible, efficient, and compliant-friendly by:
Simplifying language to make tax provisions easier to understand.
Reducing redundancies and reorganizing sections for better navigation.
Standardizing terminology, such as replacing “financial year” and “assessment year” with “tax year.”
Reducing litigation by minimizing scope for multiple interpretations.
Enhancing digital scrutiny to tackle tax evasion in virtual spaces, including cryptocurrency transactions.
Key Features and Reforms
(a) Simplified Language and Structure
The bill removes repetitive and outdated provisions.
Uses tables and formulae for better clarity, especially for TDS (Tax Deducted at Source) provisions.
Consolidates 43 TDS sections into a single provision with categorized payees (residents, non-residents, and all others).
(b) Introduction of “Tax Year”
Replaces the dual terms “financial year” and “assessment year” with a single “tax year”.
Aims to reduce confusion regarding tax liability periods.
Aligns with international tax systems (e.g., UK, Australia).
(c) Addressing Virtual Digital Assets (VDAs) and Digital Transactions
Introduces a “virtual digital space” concept, extending tax authorities’ search and seizure powers beyond physical assets to digital assets.
Includes cryptocurrency under taxable virtual digital assets (VDAs).
Allows authorities to block crypto transfers suspected of tax evasion.
Potential Benefits
Less Litigation: Simplified language will lead to fewer disputes and better compliance.
Easier Compliance: Businesses and individuals will find it easier to navigate the tax laws.
Better Tax Administration: Reduced complexity will improve tax governance.
Stronger Digital Regulation: Enhanced scrutiny of cryptocurrency and digital assets will help in preventing tax evasion.
Challenges and Concerns
No Policy Changes: The bill does not introduce structural tax policy reforms.
Potential Ambiguities: Despite simplification, some terms may still require further clarification.
Crypto Regulation: Taxing VDAs without comprehensive crypto laws may create grey areas in enforcement.
Transition Issues: Shifting from the existing framework to a new one may create short-term confusion.
Historical Context: Past Attempts at Tax Reforms
2009: The Direct Tax Code was proposed but not enacted.
2019: A task force submitted recommendations, but no substantial action was taken.
2025: The latest attempt aims at improving clarity and reducing litigation rather than changing tax rates or structures.
Conclusion
The Income Tax Bill, 2025, is a significant step toward making India’s direct tax regime simpler and more transparent. While it does not introduce policy changes, its focus on simplification and digitization is expected to improve compliance and reduce disputes. The impact of these changes will depend on how effectively the new provisions are implemented and whether they genuinely make taxation easier for businesses and individuals. The Select Committee’s recommendations will be crucial in shaping the final version of the law.
