New Income Tax Bill 2025 – 10 Important Changes

Last Updated onMay 16, 2025 2:48 pm

The New Income Tax Bill 2025 was introduced by the Finance Minister Nirmala Sitharaman in the Parliament on 13^th February, 2025 to replace the six decades old Income Tax Act of 1961. The bill has now been sent to the Standing Committee for review and a report on the bill is expected to be presented by the committee on the 1^st day of the next session. Let us now understand the 10 major changes introduced in the new Income Tax Bill 2025 in comparison to the existing direct tax law contained in the Income Tax Act, 1961.

Concept of Tax Year introduced

In the existing Income Tax Act, 1961, the terms “previous year” and “assessment year” were used to denote the period for which the income tax was being computed. However, in the new Income Tax Bill 2025, the concept of “tax year” has been introduced to replace the terms “previous year” and “assessment year”. The term “tax year” has been defined in Clause 3 of the Income Tax Bill 2025 as –

“(1) For the purposes of this Act, “tax year” means the twelve months period of the financial year commencing on the 1st April.

(2) In the case of a business or profession newly set up, or a source of income newly coming into existence in any financial year, the tax year shall be the period beginning with—

(a) the date of setting up of such business or profession; or

(b) the date on which such source of income newly comes into existence, and,

ending with the said financial year.”

Change in determination of residential status

Clause 6 of the new Income Tax Bill 2025 deals with the rules for determination of residential status. An important change in the new law as compared to the existing law is stated in Clause 6 sub-clause 3 i.e.

“(3) The provisions of sub-section (2)(b) shall not apply in the case of an individual who is a citizen of India and leaves India in any tax year––

(a) as a member of the crew of an Indian ship, as defined in section 3(18) of the Merchant Shipping Act, 1958; or

(b) for employment outside India.”

Previously, individuals leaving India “for the purpose of employment” benefited from a relaxed residency requirement—they were classified as non-residents if they spent less than 182 days in India during the financial year, compared to the 60-day rule applicable to others. However, under the new bill, this phrase has been revised to “for employment outside India.” Individuals planning to move abroad may need to strategize their relocation carefully and ensure they have official employment proof before leaving India. Without this, they could unexpectedly fall under India’s tax residency laws despite spending most of their time overseas.

Certain transfers removed for capital gains

Since the existing Income Tax Act, 1961 is a six decades old law, there were certain redundant concepts in the law that have now been removed completely from the new Income Tax Bill, 2025. Two such changes are the removal of the transfer of land of an industrially sick company and the removal of transfer in course of demutualisation or corporatisation of a recognized stock exchange from the purview of transactions eligible for capital gains. This has been done to remove redundant provisions to simplify and streamline the law.

Deduction of 80C and 80CCD now covered in Schedule XV

As per the new Income Tax Bill, 2025, Schedule XV contains the deductions with respect to the following:-

• Life insurance premium
• Contribution to Provident Fund
• Subscription to certain equity shares

amongst other deductions that were primarily covered u/s 80C and 80CCD in the existing Income Tax Act, 1961.

Deduction for Entertainment allowance not allowed

As per the existing Income Tax Act, 1961, Section 16 includes deduction for entertainment allowance to be deducted from income from salary for government employees. However, as per the new Income Tax Bill, 2025, no such entertainment allowance deduction will be available for government employees.

Tax exemption in case of receipt of gifts

Under Section 56(2)(x) of the existing Income Tax Act, gifts received by an individual from their direct ancestors or descendants, including those related to their spouse, are exempt from income tax. However, the proposed Income Tax Bill, 2025, has now clarified that these lineal relatives may belong to either the maternal or paternal side of the family as per the definition of relative in Clause 92(5)(g) of the new Income Tax Bill, 2025.

Deduction of TDS/TCS at lower rates

As per Clause 395 of the new Income Tax Bill, 2025 the assessee can apply for a lower rate of deduction of TDS/TCS to the Assessing Officer and the AO can issue a certificate for such low/nil deduction of TDS/TCS. Clause 395 states that –

 “(1) Where tax is required to be deducted on any income or sum under this Chapter, then subject to the rules made under this Act,—

(a) the payee may make an application before the Assessing Officer for deduction of tax at a lower rate; and

(b) the Assessing Officer on being satisfied that the total income of the payee justifies a lower deduction, shall issue a certificate as appropriate; and

(c) when a certificate is issued under clause (b), the person responsible for paying the income or amount shall deduct the tax at the rate specified in such certificate till its validity.”

Under Section 197 of the existing Income Tax Act, 1961 a taxpayer can apply to the Assessing Officer for a certificate allowing nil or reduced TDS deduction. However, this benefit is only available for specific types of payments outlined in the section. The Income Tax Bill, 2025 extends this provision, enabling individuals to request a lower TDS certificate for all payment categories.

Definition of books of accounts – Search and Seizure cases

The new Income Tax Bill, 2025, has revised the phrase “any books of account or other documents” to now include “any books of account, other documents, or any information stored in electronic media or a computer system.” This change broadens the scope to cover digital records in addition to physical documents.

Access in case of search and seizure

Section 132 of the Income Tax Act grants an authorized officer the power to act when there is reason to believe that books of accounts or assets are stored in a building, vehicle, vessel, aircraft, or other locations. Among these powers is the authority to break open locks on doors, safes, lockers, or any secured storage if the keys are unavailable. The new Income Tax Bill,2025 expands this provision by allowing officials to bypass access codes to computer systems or virtual digital spaces when the required credentials are not accessible.

“Virtual Digital Asset” Introduced

As per Clause 2 sub-clause 111 of the new Income Tax Bill, 2025, a new term “virtual digital asset” has been introduced and defined as –

“Virtual digital asset” means—

• any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, called by any name, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically;
• a non-fungible token or any other token of similar nature, bywhatever name called;
• any other digital asset, as the Central Government may, bynotification, specify,
• any crypto-asset being a digital representation of value thatrelies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions, whether or not such asset is included in sub-clause (a) or (b) or (c),”

Thus, Virtual Digital Assets (VDAs) include cryptocurrencies, NFTs and other digital currencies that will now be categorised as assets such as paintings, jewellery and shares for taxation purposes.