The Income Tax Bill, 2025, as modified by the Select Committee of Parliament, represents a landmark moment in India's tax reform trajectory. It is not a routine amendment but a comprehensive structural revision aimed at rewriting the foundational architecture of income tax law. The Committee’s recommendations reflect a strong commitment to simplification, fairness, modernization, and alignment with international best practices.
This post offers a section-wise analysis of the major recommendations, interpreting both the intent and the practical impact on income tax assessees, including individuals, small businesses, digital asset holders, and non-profit entities.
Structural Simplification of the Tax Code
Reduction in Volume and Complexity
One of the most notable recommendations is the consolidation of provisions. The proposed legislation reduces the number of chapters and sections by nearly 50 percent, removing over 300 obsolete clauses. This rationalization is not merely cosmetic; it fundamentally enhances the readability and accessibility of the law, reducing dependence on intermediaries for basic compliance.
Use of Plain Legal Language
The Bill introduces a shift in legislative drafting—moving away from legalistic expressions to clearer, unambiguous language. This initiative is expected to reduce misinterpretation, ensure consistency in enforcement, and support genuine self-compliance by assessees.
Procedural Modernization and Alignment
Replacement of “Assessment Year” and “Previous Year” with “Tax Year”
The adoption of a single term—Tax Year—in place of the dual terminology of “assessment year” and “previous year” is a significant structural and procedural change. It aligns Indian law with global norms and simplifies the compliance cycle, especially for multinational taxpayers and cross-border businesses.
Statutory Recognition of Faceless Schemes
The recommendations empower the Central Government to implement faceless schemes for assessment, appeal, rectification, and other proceedings. By legislatively embedding these frameworks, the Bill institutionalizes a technology-driven, impersonally administered tax environment that reduces discretion and enhances consistency.
Targeted Relief Measures for Assessees
House Property Income – Rationalization of Standard Deduction
The Bill clarifies that the 30 percent standard deduction under the head “Income from House Property” will be computed on the net annual value, after deducting municipal taxes. This is a long-standing ambiguity that has now been resolved, ensuring uniform computation and reducing tax liability for property owners.
Restoration and Clarity of Personal Deductions
Several deductions under Chapter VI-A, including those related to savings, insurance premiums, health expenditure, and education loans, are restored with clarity. This move ensures predictability in personal tax planning and preserves long-standing relief mechanisms for the middle class and small businesses.
Refund Mechanism Simplification for Non-Taxable Individuals
The Bill proposes that individuals with income below the basic exemption limit need not file returns merely for the purpose of claiming TDS refunds. This simplification eliminates unnecessary procedural burdens on low-income assessees and senior citizens.
Modernizing the Law for Emerging Economic Realities
Express Inclusion of Digital and Virtual Assets
The revised draft explicitly includes virtual digital assets, such as cryptocurrencies and tokenized instruments, within the ambit of taxable income. This inclusion provides legal clarity, ensures proper reporting and valuation norms, and minimizes disputes in future audits or assessments.
Expansion of Presumptive Taxation Regimes
The thresholds for eligibility under presumptive taxation schemes (Sections 44AD and 44ADA) are proposed to be revised upward, with procedural simplifications. This is a positive development for small traders, professionals, and MSMEs, reducing their compliance burden while expanding the formal tax base.
Enhancing Procedural Fairness and Institutional Accountability
Continuity of Loss Carry Forward Despite Temporary Ownership Changes
In case of changes in shareholding due to genuine business needs (e.g., fund-raising, succession), the Bill permits carry forward of business losses, provided the original shareholding is restored within a stipulated period. This balances anti-abuse provisions under Section 79 with commercial realities.
Restriction on Jurisdiction-Free Investigations under Section 131(1A)
The power under Section 131(1A), allowing tax authorities to conduct inquiries irrespective of jurisdiction, has been a subject of litigation and overreach. The proposed amendment restricts such powers to officers with appropriate jurisdiction, thereby reinforcing procedural due process and taxpayer protection.
Clarification for Religious and Charitable Institutions
The Bill provides structured definitions and conditions for treatment of corpus donations, voluntary contributions, and application of income for charitable and religious trusts. These clarifications reduce litigation risk and help genuine institutions plan better within the law.
Practical Impact: Beneficiaries and Compliance Ease
| Area of Reform | Likely Beneficiaries | Key Impact |
|---|---|---|
| Simplified structure and language | All assessees | Reduced interpretation issues, self-compliance |
| Unified Tax Year | Domestic and global taxpayers | Less confusion, seamless reporting |
| Standard deduction clarification | Property owners | Reduced tax outgo |
| Deductions restored and clarified | Individuals and small businesses | Enhanced tax savings and planning certainty |
| Refund simplification | Low-income earners, pensioners | Faster refunds, reduced filing burden |
| Digital asset taxation clarity | Crypto investors, platforms | Legal certainty, better compliance infrastructure |
| Presumptive tax liberalization | Small traders, professionals | Wider applicability, lower compliance cost |
| Procedural fairness in investigations | Businesses, high-net-worth individuals | Reduced overreach, more accountable tax audits |
| Institutional support to non-profits | Charitable and religious trusts | Less ambiguity, greater operational confidence |
Conclusion
The recommendations of the Select Committee incorporated in the Income Tax Bill, 2025 represent a carefully balanced approach—combining simplification, modernization, and procedural equity. The proposed legislative changes go beyond mere textual amendments. They seek to create a tax regime that is intelligible, inclusive, and internationally aligned.
For income tax assessees, these reforms mean a more predictable, fair, and less burdensome compliance environment. For the tax administration, the new framework enhances efficiency, transparency, and legal defensibility. Collectively, these measures reflect a progressive shift in India's approach to tax law—anchored in clarity, trust, and forward-looking governance.
