The much-awaited Income-tax Bill, 2025 (Bill) which is proposed to be effective from April 1, 2026, has been laid before the Parliament on February 13, 2025, which is guided by the following core principles:
1. Textual and structural simplification for improved clarity and coherence.
2. No major tax policy changes to ensure continuity and certainty.
3. No modifications of tax rates, preserving predictability for taxpayers.
At a broad level it will lead to substantial reduction in text while retaining the existing taxation principles as follows:
Having set the context, we shall now discuss certain key points emanating from the Bill:
1. Language and structural improvements
a. Long winding sentences, explanations, provisos, etc. under the existing ITA are now structured in a better framework by way of sub-sections, clauses, sub-clauses, etc.
b. Omitted / obsolete provisions historically retained in the existing ITA have been deleted in the Bill (for e.g. profit linked deduction for housing projects, certain qualifying exports, etc. have been deleted).
c. Formulas and tables have been introduced for various provisions for better readability implementation e.g. computation of advance tax liability, interest on refunds, computation of presumptive tax, cost of acquisition, computation of gratuity exemption, withholding tax provisions, etc.
d. Exemption provisions now form part of schedules instead of appearing in the main section.
e. The concept of a ‘tax year’ as unit period for taxation has been introduced, replacing the dual references to ‘assessment year’ and ‘previous year’ in the existing ITA which aligns with global best practices and streamlines all compliances and procedural matters.
2. Certain relief to taxpayers
a. Tax deduction / collection (TDS / TCS) provisions: Under the existing TDS / TCS provisions, a taxpayer can approach tax authorities for lower TDS / TCS certificate only for select payments / receipts (such as payments for interest, royalty) to the exclusion of certain payments (such as TDS on payments for benefit or perquisite and TCS on receipts for remittance, overseas tour package, etc.). As per the New Bill a taxpayer can make an application for lower TDS/ TCS for all payments.
b. No adjustment for mismatch with Form 26AS: While processing tax return for arithmetical adjustments, adjustment is not required for mismatch with Form 26AS. This would avoid unnecessary adjustments / litigation.
c. Transfer pricing range: The applicability of tolerance range of +/- 3%, in case of only one comparable price has been a subject matter of dispute. The bill seeks to clarify that the benefit of the tolerance range will be available if there is only one comparable price.
d. Forex fluctuation benefit: Currently, non-residents are not entitled to claim forex fluctuation benefit on sale of unlisted shares of an Indian company. It appears that the Bill now allows non‑residents to claim such a benefit.
3. Expansion / tightening of certain provisions
a. Deduction for investment in residential house: Currently, an individual / HUF can claim deduction from certain capital gains if the same are invested in purchasing a residential house property, subject to satisfaction of conditions. However, this benefit is not available, inter alia, if the said individual invests in another residential house within one year which is proposed to be extended to two years by the Bill.
b. Set-off of dividend: In case of certain domestic companies availing concessional tax rate, benefit of set-off of qualifying dividend income against dividends distributed will not be available. This seems to be unintentional.
Many times, simplification efforts could enhance litigation, however, the balancing act done by the government by simplifying the law yet retaining the intent is commendable. One can hope that this exercise will not enhance any litigation. One would now need to wait for the steps which would be taken by the select committee and the notification of the rules / guidelines which may follow.
(Hiren Shah is Executive Director, Deloitte India)