FM Nirmala Sitharaman shakes up Lok Sabha with new income tax bill—What’s in store for you?

n February 13, 2025, Finance Minister Nirmala Sitharaman introduced the Income Tax Bill, 2025, in the Lok Sabha, aiming to replace the six-decade-old Income Tax Act of 1961. This initiative seeks to simplify the tax code, reduce litigation, and make compliance more straightforward for taxpayers.

Key features of the Income tax bill, 2025

Streamlined Provisions: The new bill reduces the length of the tax law from over 800 pages to 622 pages by eliminating outdated sections and presenting tax rates in tabulated forms. This restructuring aims to make the law more accessible and understandable. 

Clarity and Compliance: By replacing complex provisions with clearer ones, the bill aims to reduce legal disputes and encourage voluntary tax compliance among citizens. 

Historical Context: This effort follows a 2017 initiative by Prime Minister Narendra Modi's administration, which saw the formation of a review committee to revamp direct tax laws. However, the recommendations from that period were not implemented. 

the Income Tax Bill, 2025, reflects the government's commitment to modernizing India's tax framework, making it more taxpayer-friendly, and reducing the burden of compliance.

Changes To be brought by the new bill

- Under the previous law, Sections 5 and 9 of the Income Tax Act, 1961, stated that Indian residents were taxed on their global income, while non-residents were taxed only on the income they earned in India. The new bill, in Clauses 5 and 9, retains this rule but provides a clearer definition of deemed income, such as payments made to specific individuals, making tax rules more transparent for non-residents.

- The bill also brings changes to deductions and exemptions. Earlier, Sections 10 and 80C to 80U of the Income Tax Act, 1961, allowed deductions for investments, donations, and specific expenses.

- The new bill, under Clauses 11 to 154, consolidates these deductions and introduces new provisions to support startups, digital businesses, and renewable energy investments.

- previous law, Sections 45 to 55A categorized capital gains into short-term and long-term based on holding periods, with special tax rates for securities.

- The new bill, in Clauses 67 to 91, keeps the same categorization but introduces explicit provisions for virtual digital assets and updates beneficial tax rates. This ensures that digital assets, such as cryptocurrency, are covered under a proper tax framework.