Here's how the new Income Tax Bill will change the rules for taxpayers

One of the fundamental objectives of the new Bill is to modernise the language and terminology used in the tax code, making it more intuitive and globally aligned. For instance, the Bill replaces the term “previous year” with “tax year”, a shift aimed at reducing ambiguity and bringing India’s tax system in line with international standards.

This change is expected to simplify tax filing procedures, particularly for businesses and foreign investors who are accustomed to the globally recognised term “tax year”.

The Income Tax Bill, 2025, places strong emphasis on digital integration in tax administration, by introducing provisions that grant tax authorities broader access to taxpayers’ electronic records, cloud-based storage, and electromagnetic data storage devices including email, social media accounts and online investment accounts during investigations.

This approach is designed to curb tax evasion in an era where financial transactions are increasingly conducted online.

Also read: New Income Tax Bill: No changes in capital gains tax structure, but language simplified

Ease of compliance 

Taxation

The new Bill clarifies that expenses incurred by an employer for providing transport services will not be considered a taxable perquisite.

This includes expenses related to office shuttles or company-sponsored transport for employees commuting between their residence and workplace. Previously, there was ambiguity regarding whether such employer-sponsored benefits should be taxed. With this change, employees will not face additional tax liability for employer-provided transport, making it a cost-effective commuting solution for many.

The tax treatment of capital gains reinvested in bonds has been modified to provide more investment choices. Currently, only investments in National Highways Authority of India (NHAI) and Rural Electrification Corporation (REC) bonds qualify for exemption under Section 54EC.

The new Bill removes these specific references and allows the government to notify any five-year bond that meets specified conditions, including potential investment limits.

While this change offers greater flexibility and diversification opportunities, it also creates uncertainty as taxpayers will have to wait for the government to notify the eligible bonds.

To ensure a smooth transition, it is essential that these investment options are clearly communicated well before the new Bill comes into effect.

Also read: New Income Tax Bill: Section 80C tax-saving deductions now under clause 123

Compliance reforms

Currently, even if an individual’s total income does not exceed the basic exemption limit, they must still file an income tax return if they meet certain high-value transaction criteria. These include having large, fixed deposits, incurring significant foreign travel expenses, or paying electricity bills beyond a specified threshold.

The new Bill proposes that such categories of individuals required to file returns will be notified separately by the government.  While this provides greater flexibility in updating filing requirements, it also introduces uncertainty for taxpayers, as future changes to notification criteria could bring more individuals under the mandatory return filing category.

Simplified tax procedures

Another notable reform in the Bill is the streamlining of withholding tax (TDS) provisions. TDS compliance has historically been complex due to varying rates, multiple thresholds, and frequent disputes between taxpayers and authorities.

The new Bill seeks to reduce this complexity by consolidating TDS provisions, clarifying rates, and simplifying thresholds. By making TDS compliance more straightforward, the government aims to enhance the ease of doing business.

The digital approach outlined in the Income Tax Bill, 2025, represents a paradigm shift from the existing framework. The integration will allow real-time monitoring and compliance enforcement, ensuring that tax authorities can track transactions more effectively. This transition is expected to enhance tax collection efficiency while reducing the scope for manipulation.

Enhanced enforcement and privacy concerns

Beyond accessing digital records, the Bill also expands the investigative powers of tax authorities. Under the proposed framework, tax officials will have greater latitude to conduct searches, surveys, and investigations with fewer procedural hurdles.  These provisions are intended to enhance tax collection efficiency and deter evasion.

A significant aspect of the Income Tax Bill, 2025, is its stringent measures to curb tax avoidance and black money circulation. The Bill proposes stricter compliance norms, making tax evasion harder while promoting fair taxation.

These measures align with the government’s ongoing efforts to strengthen tax enforcement and reduce the scope for illicit financial activities.

The Income Tax Bill, 2025, marks a pivotal moment in India’s tax evolution. By introducing modernised language, digital-first enforcement, and clear regulations for digital assets, the government is striving to create a more transparent, efficient, and globally aligned tax system.

However, the true impact of these reforms will depend on how effectively they are implemented and whether adequate safeguards are put in place to protect taxpayers’ interests.

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