India Set to Overhaul Tax System with Income Tax Bill 2025

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India is on the verge of a major tax reform as the Lok Sabha Select Committee has unanimously adopted its report on the draft Income Tax Bill, 2025, proposing 285 recommendations. The 3,709-page draft, tabled on July 21, 2025, aims to modernize and simplify India’s complex tax laws, replacing the Income Tax Act of 1961 from April 1, 2026.

The new bill, announced in the 2024 Union Budget, is designed to create a transparent, easy-to-understand tax framework. It consolidates 823 pages across 52 chapters into a leaner 622-page document with 23 chapters and 16 schedules. Key structural reforms include a unified ‘Tax Year’ for individuals starting new businesses or income sources, and the continuation of both the old and new tax regimes—without changes to existing slabs or rates.

Notable updates include simplified return filing, extended correction windows, and standardized income categories. TDS and TCS provisions are streamlined under Section 393, clarifying rates and responsibilities for salaries, interest, rent, and more.

The presumptive taxation scheme sees a boost, with expanded turnover limits and a five-year lock-in period for eligible professionals and businesses. Profits must meet specific thresholds, or taxpayers will need to maintain audited books.

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Crucially, Virtual Digital Assets (VDAs) like cryptocurrencies and NFTs are now officially classified as taxable assets, bringing them under capital gains tax rules and stricter compliance.

The Finance Minister has requested a Joint Parliamentary Committee to further review the bill. Final revisions, if any, will be presented to the Cabinet before becoming law.

Expected to enhance compliance, reduce litigation, and align tax policy with India’s evolving economy, the Income Tax Bill 2025 is a landmark step toward a modern and efficient tax system.