News and developments
The Proposed Structure of India’s New Income-tax Bill, 2025
Background
In July 2024, India’s Finance Minister announced that a comprehensive review of the existing Income-tax Act, 1961 (the “IT Act”) would be undertaken with the intent to make the tax law simple and to minimize tax controversy. The Finance Minister introduced the Income-tax Bill, 2025 (the “Tax Bill”) in Parliament on February 12, 2025. Once enacted, the Tax Bill will become effective from April 1, 2026 and replace the IT Act that has been in place for over sixty (60) years.
A Parliamentary Select Committee (the “Committee”) will be formed to deliberate on the Tax Bill, and the Committee will be required to submit its report on the first day of the next parliamentary session (i.e., July 2025). The Indian government will consider the Committee’s report to revise the Tax Bill, which will then proceed to Parliament for approval in both houses, followed by the President’s assent to become law.
Overall structure of the Tax Bill
We have summarised below some of the key features of the Tax Bill.
A. Chapters and sections:
B. Obsolete sections: Various outdated sections have been removed, such as those related to investment allowances on new plant and machinery, fringe benefits tax, dividend distribution tax, pre-emptive purchase of immovable property by the Indian government, etc.
C. Tax Deduction at Source: Presently, as per the IT Act, there are various provisions relating to tax deduction at source (“TDS”) wherein different rates and thresholds have been provided depending on the nature of payment or status of payees. The Tax Bill proposes to comprehensively overhaul the structure by consolidating them into a single section (except for TDS on salary) wherein all TDS provisions are categorized into three broad heads as follows: (i) TDS on payments to residents; (ii) TDS on payments to non-residents; and (iii) TDS on payments to any person (residents, non-residents or both). For each category, TDS provisions have been consolidated into a single table for ease of identification of the applicable rates, thresholds, payees, and the nature of payments on which TDS will get attracted.
D. Tax in special cases: Certain chapters relating to the determination of tax in special cases, minimum alternate tax, and tax on shipping companies, have been combined into one chapter.
E. Exempt incomes: Certain provisions relating to tax exempt incomes, including the existing Section 10 of the IT Act, have been moved into six (6) different schedules.
F. Tax rates, computation of Income: The tax rates, computation of business profits, the capital gains tax regime, and the taxation of mergers and acquisitions are largely aligned with current provisions of the IT Act.
G. Amendments proposed by the Finance Bill, 2025: Most of the amendments proposed by the Finance Bill, 2025, have been incorporated into the Tax Bill, with a few exceptions. One notable exception is the proposed extension of the sunset date for tax neutral relocation of offshore or original funds to resultant funds in the IFSC, which has not been included and remains set at March 31, 2025.
H. New tax rules to be specified: Many provisions in the Tax Bill will require specific rules to be prescribed, which are likely to be released separately.
I. Transfer pricing: Except for a few clarificatory modifications to the language, the transfer pricing framework remains the same. No changes have been proposed in the timelines, compliances, procedural aspects, and penalty provisions. The Finance Minister, in her Budget speech, had stated that the safe harbour rules will be expanded to reduce litigation and enhance certainty. However, no amendments have been made to the safe harbour provisions in the Tax Bill.
Our comments
The Tax Bill broadly aligns with the existing provisions of the IT Act. The FAQs released along with the Tax Bill are welcome and provide much-needed clarity and simplify the tax provisions. The consolidation of definitions, elimination of redundant provisions, and extensive use of tables and formulae enhance the tax law’s readability and understanding. A detailed comparative analysis of the provisions proposed in the Tax Bill may reveal certain interpretative issues, which will have to be addressed in the future. It will be interesting to see how notifications or circulars that were issued under the IT Act, as well as decisions rendered by various courts, will apply to provisions in the Tax Bill that are worded in an identical or similar fashion.
Authors: Ravi S. Raghavan, Partner, Tax and Private Client Group, Majmudar & Partners, India