Select Committee Reviews New Income Tax Bill 2025: Key Changes and Implications

A meeting of the Select Committee of the Lok Sabha is currently underway at the Parliament House Annexe in New Delhi. This 31-member committee, chaired by BJP MP Baijayant Panda, has been tasked with reviewing the Income Tax Bill 2025, which proposes major reforms in tax laws, definitions, and compliance frameworks.

Objective of the Income Tax Bill 2025

The Income Tax Bill 2025, introduced in Lok Sabha on February 13, 2025, by Finance Minister Nirmala Sitharaman, aims to replace the existing Income Tax Act, 1961. The bill intends to:

• Modernize tax laws to reflect the evolving economic landscape
• Simplify terminology to enhance clarity and reduce ambiguities
• Introduce digital-focused tax policies, recognizing the rise of cryptocurrency and digital transactions
• Support startups, renewable energy investments, and digital businesses through tax incentives
• Ensure stricter compliance for non-profits while defining tax exemptions more clearly

Key Reforms Proposed in the New Bill

1. Simplified Terminology and Modern Definitions

The bill replaces outdated tax terms to make tax laws more accessible and transparent. Some notable changes include:

• The term "tax year" will replace the financial year and assessment year system.
• Clear definitions for "virtual digital asset" (cryptocurrency and NFTs) and "electronic mode" have been introduced to account for modern financial transactions.

2. Scope of Total Income: Clarification for Residents and Non-Residents

Under Sections 5 and 9 of the Income Tax Act, 1961, tax liabilities were based on residency:

• Indian residents were taxed on global income
• Non-residents were taxed only on Indian income

The new bill retains this rule under Clauses 5 and 9 but provides a clearer definition of deemed income for non-residents. This ensures greater transparency in cross-border taxation.

3. Capital Gains Tax Updates: Digital Assets Included

Under Sections 45 to 55A of the previous law, capital gains were categorized into short-term and long-term based on holding periods.

• New bill (Clauses 67-91): Retains this system but adds explicit tax provisions for digital assets like cryptocurrency, ensuring they are covered under a proper tax framework.

4. Deduction and Incentives for Startups and Digital Businesses

Clauses 11 to 154 consolidate previous deductions and introduce new incentives for:

• Startups
• Digital and tech-based businesses
• Investments in renewable energy

This move is expected to boost entrepreneurship and encourage green energy initiatives.

5. Stricter Compliance for Non-Profit Organizations

The previous Sections 11 to 13 provided tax exemptions for charitable organizations but had limited compliance guidelines.

• New bill (Clauses 332-355):
  • Clearly defines taxable income for non-profits
  • Introduces stricter compliance rules
  • Limits commercial activities under non-profit status

This ensures that only genuine charities benefit from tax exemptions while preventing misuse of non-profit status for commercial gains.

Impact of the Income Tax Bill 2025

• Greater Tax Clarity: Businesses and individuals will experience simpler, more structured tax compliance.
• Digital Economy Growth: New provisions on cryptocurrency and digital transactions will bring legitimacy to digital finance.
• Boost to Startups & Renewables: Targeted tax incentives will encourage growth in innovation-driven industries.
• Better Compliance & Transparency: Clearer guidelines for non-profits and foreign transactions will prevent tax evasion and fraud.

Next Steps: Review and Implementation

The Lok Sabha Select Committee will continue its review of the Income Tax Bill 2025 before presenting a final report. Once passed, this bill is expected to streamline India’s tax system, making it more efficient, transparent, and aligned with global best practices.