Finance Minister Nirmala Sitharaman on Thursday introduced the New Income Tax Bill, 2025, in the Lok Sabha, proposing a comprehensive revamp of tax laws, redefinitions of key terms, and a structured taxation system for digital assets, including cryptocurrency.
The proposed legislation, aimed at replacing the existing Income Tax Act, 1961, seeks to simplify tax compliance, modernise definitions, and bring clarity to various aspects of taxation.
The Finance Minister, after tabling the bill, urged the Lok Sabha Speaker to nominate members for a standing committee to review the proposed reforms.
Among the most significant changes in the bill is the introduction of simplified language and updated terminology to reflect contemporary economic realities.
It replaces the conventional financial year and assessment year system with the term “tax year.”
Furthermore, the bill formally defines "virtual digital assets" and "electronic mode," acknowledging the growing prominence of digital transactions and cryptocurrency in financial systems.
While the fundamental tax principles remain unchanged, the bill seeks to provide greater transparency, particularly in matters concerning global and domestic taxation.
Under the previous legal framework, Sections 5 and 9 of the Income Tax Act, 1961, stipulated that Indian residents were taxed on their global income, while non-residents were subject to tax only on income earned in India.
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The new bill, under Clauses 5 and 9, retains these provisions but introduces precise definitions of deemed income, including payments made to specific individuals, to enhance clarity for non-resident taxpayers.
Additionally, the bill consolidates deductions and exemptions under Clauses 11 to 154, streamlining provisions previously spread across Sections 10 and 80C to 80U of the 1961 Act.
Notably, it introduces incentives for startups, digital businesses, and renewable energy investments.
With regard to capital gains taxation, Clauses 67 to 91 of the new bill maintain the existing classification of gains as short-term or long-term based on holding periods.
However, explicit provisions for virtual digital assets have been introduced, updating tax rates applicable to digital holdings. This marks a significant step in formalising the taxation of cryptocurrencies and other digital financial instruments.
For non-profit organisations, the new bill establishes a more rigorous compliance regime.
Whereas Sections 11 to 13 of the Income Tax Act, 1961, provided income tax exemptions for charitable activities but lacked detailed compliance requirements, Clauses 332 to 355 of the new bill set out a structured framework defining taxable income, regulatory compliance, and limitations on commercial activities.
The government asserts that the New Income Tax Bill, 2025, will simplify tax compliance while ensuring a fair and transparent taxation structure.
By modernising tax laws and recognising digital financial assets, the bill is expected to streamline tax governance, incentivise investment in the digital economy, and reinforce regulatory oversight.
The bill is now set to be examined by a standing committee before its further progression in Parliament.
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