Income Tax Bill 2025 Introduces New Tax Year Concept

The new 622-page Income-Tax Bill, 2025 introduces key changes, including the removal of provisos and explanations, a shift in tax reporting terms to ‘tax year’ and ‘financial year’, and the elimination of the assessment year. It also includes stricter tax provisions for virtual digital assets.

The Bill, expected to introduce the concept of a ‘tax year’ as a 12-month period starting from April 1, will be presented in Parliament on Thursday. For businesses or newly established professions, the tax year will start from their setup date and end with the financial year. This means income tax will be based on economic activity and income earned within the ‘tax year’.

Currently, income tax uses the assessment year concept, where taxpayers assess tax on income earned in the previous financial year. For example, taxpayers will assess income earned in the 2024-25 financial year (April 1, 2024 to March 31, 2025) in the 2025-26 assessment year (beginning April 1, 2025).

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Key Features of the Income-Tax Bill 2025

The new Bill features simplified language, reducing the length of the legislation from 823 pages to 622 pages. While the number of chapters remains the same at 23 in both the 2025 Income-Tax Bill and the 1961 Act, the number of sections has increased to 536 from 298, and the number of schedules has risen to 16 from 14.

The new provisions include virtual digital assets in searches, treating them as undisclosed income along with money, bullion, and jewellery. The new Bill has also removed the various explanations and provisos found in the current Act.

The new Income Bill introduces sections on revenue recognition for service contracts and the valuation of inventory based on the lower of cost or net realizable value.

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Changes in the Income-Tax Bill 2025 Simplification, Cabinet Approval, and Public Feedback

Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP, said that the new approach moves income not included in total income to schedules for simplification. “The new structure organizes deductions from salaries, like standard deduction, gratuity, and leave encashment, in one section instead of spreading them across different sections and rules,” he explained.

The Cabinet approved the new Income Bill on Friday, and the government will present it in the Lok Sabha this week. The Bill will then go to a parliamentary committee for review.. After receiving the committee’s recommendations, the government, through the Cabinet, will decide whether to incorporate the amendments or make additional changes. Following this, the Bill will return to Parliament, and the government will finalize the date for its implementation.

In October of the previous year, the Income department announced the creation of an internal committee to review the Income Act and sought public feedback on four main areas: simplifying the language, reducing litigation, minimizing compliance burdens, and eliminating outdated provisions. The department received approximately 6,500 public inputs and suggestions.

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