Income Tax Bill 2025: 10 Fundamental Changes Every Taxpayer Must Understand
Analysis of India's new simplified income tax legislation replacing the 1961 Act, structural changes, and transition provisions
Written by
CA Ashama Rajawat
After 64 years, the Income Tax Act of 1961 is being replaced by the Income Tax Bill 2025. This isn't just a name change - it's a complete structural overhaul simplifying India's tax code.
Why Replace the 1961 Act?
The 1961 Act has 298 sections, 23 chapters, 14 schedules, 5,000+ amendments over 6 decades. Even CAs struggle to interpret it.
Written in 1960s legal jargon. Modern concepts like cryptocurrency, e-commerce, digital income poorly addressed.
Ambiguous provisions lead to 5 lakh+ pending cases in Income Tax Tribunals and courts.
Change #1: Simplified Structure
| Feature | 1961 Act | 2025 Bill |
|---|---|---|
| Total Sections | 298 | 200 33% reduction |
| Chapters | 23 | 15 |
| Language | Legal, complex | Plain English |
| Word Count | ~4.5 lakh words | ~3 lakh words |
Change #2: Logical Rearrangement
Old Act: Scattered Provisions
Related topics spread across different chapters. Example: TDS rules in 5 different sections.
New Bill: Topic-Wise Grouping
• Chapter 1-3: Basics (definitions, residence, scope)
• Chapter 4-6: Income computation (salary, business, capital gains)
• Chapter 7-9: Deductions & exemptions
• Chapter 10-12: TDS & compliance
• Chapter 13-15: Assessment, appeals, penalties
Change #3: Plain Language (Finally!)
Old Act (Section 10):
"In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included..."
New Bill (Section equivalent):
"The following types of income are tax-exempt:"
Change #4: Digital-First Approach
E-Assessment Default
All assessments to be conducted online via faceless system. Physical hearings only in exceptional cases.
Digital Documentation
Electronic records given same validity as paper. Digital signatures mandatory for all filings.
Real-Time Compliance
Pre-filled returns, AIS (Annual Information Statement), and real-time TDS matching built into law.
Change #5: Crypto & Digital Assets
1961 Act had no mention of cryptocurrency. New Bill has dedicated provisions:
- Clear definition of Virtual Digital Assets (VDA)
- 30% tax on VDA gains (from amendment, now in main law)
- TDS provisions for crypto exchanges
- Reporting requirements for overseas crypto holdings
Change #6: What Stays the Same
- Income tax slabs (new vs old regime)
- Deductions (80C, 80D, etc.) remain
- Capital gains rules (LTCG/STCG)
- TDS rates and thresholds
- ITR forms and filing process
- Assessment and appeal procedures
Bottom line: This is simplification, not new taxation. Your tax liability won't change.
Change #7: Reduced Litigation
Clear Definitions: Ambiguous terms redefined with examples
Dispute Resolution: Mandatory pre-litigation mediation for disputes under ₹50 lakh
Timelines Codified: Strict timelines for department actions (assessment within 9 months)
Safe Harbor Rules: Expanded safe harbor provisions to reduce transfer pricing disputes
Change #8: Penalties Rationalized
| Offense | Old Penalty | New Penalty |
|---|---|---|
| Late ITR filing | ₹5,000 (below ₹5L), ₹10,000 (above) | Same (unchanged) |
| Underreporting (genuine error) | 50% of tax | 25% (reduced) |
| Willful concealment | 200% of tax | 200% (unchanged) |
Change #9: Transition Provisions
Effective Date: April 1, 2026
New Bill applies from AY 2026-27 onwards
Old Cases Grandfathered
Assessments for AY 2025-26 and earlier will continue under 1961 Act
No Retrospective Changes
New provisions apply prospectively only
Change #10: Impact by Taxpayer Type
Minimal impact. Same slabs, deductions, ITR forms. Simpler language helps understanding.
Positive: Clearer depreciation rules, reduced transfer pricing disputes, faster assessments.
Neutral: VDA taxation already exists via amendments. Now formally codified in main law.
Steep learning curve initially, but long-term benefit: less ambiguity, easier client advice.
What You Need to Do
FY 2024-25 (AY 2025-26): File ITR as usual under 1961 Act. No change.
FY 2025-26 (AY 2026-27): First year under new Bill. Same tax rates, same process, new section numbers.
Action Required: Minimal. Tax software will update section references automatically.
Conclusion
The Income Tax Bill 2025 is the most significant tax reform since Independence, replacing a 64-year-old law with modern, simplified legislation. For taxpayers, this is good news: clearer rules, less litigation, digital-first compliance. Tax liability remains unchanged—only the packaging improves. The transition starts April 1, 2026. Until then, business as usual.