India's new income tax bill 2025: Legal Implications and structural reforms

-Ayaan Siddiqui, 3rd Year, St Xavier’s University Kolkata

Legal Implications and structural reforms

INTRODUCTION

With the introduction of the Income Tax Bill 2025, there will be a fundamental shift in India’s taxation regime. This bill aims to replace the Income Tax Act of 1961, which has remained in place as the direct taxation statute for six decades. It was tabled in the Lok Sabha on 13th February 2025. Under the latest proposals, the government aims to lower the compliance burden and level of disputes, as well as improve the international competitiveness of India’s tax regime. It keeps the broad framework of the existing law but makes significant changes on a calendar basis. The proposed date of enactment is 1st April 2026. In this article, I examine the legal consequences and structural changes brought in by the bill regarding modernizing India’s tax system, worries on enforcement authority, and questions of fiscal federalism.

HISTORICAL AND LEGISLATIVE CONTEXT

A. Income Tax Legislation Evolution India

The British introduced income taxation in India in the year of 1860 with the intention of fiscal recuperation after the Revolt of 1857. Some sort of laws were developed until the Indian Income Tax Act was introduced in the year of 1922. Through the after-independence period, direct taxation was established with the introduction of the Income Tax Act of 1961. However, by the year of 2024, more than 3200 amendments, owing to over four decades of arcane over tax laws, were made. The compliance issues alongside the surge in litigation and disputes sought for a reform. The report of CBDT alone claimed more than 12 lakh crores of tax disputes pending resolution in multiple courts and tribunals. Solving these issues was the government’s directed aim towards radically restructuring the tax system, which later turned into the 2025 Income Tax Bill.

B. The Bill’s Legislative Journey

Directly altering the Indian tax structure was first announced in July of 2024 by the finance minister Nirama Sitharaman. The reform process was stated via public feedback draft bill released in November of 2024 which collected inputs from over a million respondents. The bill faced extreme scrutiny and was refined extensively post feedback before being introduced to the parliament on February 13, 2025. Protests took place as violent resistance when members of Lok Sabha decided to send the bill to a Select Committee, blaming the government of procedural missteps and overly claimed to have engaged with states. It is the responsibility of the Select Committee to submit their report to the Parliament, as it is due by July 2025.

KEY STRUCTURAL REFORMS IN THE BILL

A. Simplified Structure and Language

The single most surprising aspect of the new bill is how streamlined the structure is:

• Warning Reduction in Sections: The number of sections will be reduced from 819 in the legislation to an astounding 536.

• Simplified English Drafting: The complex legal language that surrounding documentation of the tax was riddled with intricate legal jargon, and has now been simplified, to allow for improved comprehension.

• Critical adjustments: Thus, including the tax thresholds and deductions are now presented in tabular form instead of descriptive paragraphs.

While these modifications strive to ease navigation through tax laws, some critics argue that oversimplification does not resolve interpretative issues and does little to mitigate litigation.

B. Introduction of a Unified Tax Year

The bill merges the “previous year” and “assessment year” concepts into one “tax year” which runs from April 1st to March 31st. The aim is optimally serve citizens. Nevertheless, it creates transitional issues for businesses with a fiscal year financial operating calendar.

C. Enhanced Digital Framework

The bill highlights Z to K digitization as one of innovations of administrative modernization in this aspect:

• Virtual Digital Assets (VDAs): The scope of taxable income is extended to include cryptocurrency and NFT assets.

• Faceless Assessments: As was indicated after other reforms, assessments will all be conducted devoid of any human contacts.

• Remote Work Provisions: Foreign citizens who are permanently residing in India and employed in Indian will be taxed indefinitely on these income streams. These measures align with global trends but require robust digital infrastructure and capacity-building efforts.

The changes are in line with global trends, but there is a lack of solid infrastructure and capacity building initiatives.

D. Expanded Search and Seizure Powers

Section 247 gives the tax authorities incriminating powers on the accesses of digital assets in the course of investigations:

• Electronic records can now be remotely destroyed without the need of a shoe court order.

• The time frame for keeping withheld data has increased from three to ten years.

These measures attempt to mitigate tax evasion in an increasingly digital world, but raise concerns regarding infringement and potential abuse of privacy at the same time.

LEGAL IMPLICATIONS AND CONSTITUTIONAL CHALLENGES

A. Invasion of Privacy

The clauses allowing expanded search and seizure under Section 247 have created concerns for compliance with the Article 21 of The Constitution which guarantees the Right to Privacy. Digital assets can be infringed upon without notice, which is worrisome due to the lack of warrants that come with the missing access controls. Principles upheld in landmark decisions, such as Justice K. S. Puttaswamy v. Union of India (2017), get violated when this level of access is granted.

B. Fiscal Federalism

State governments openly criticize other parts of the bill that impose surcharge and cesses, revenues that are not shared with the states as discretionary grants, as the abuse of state powers by the federation. This is popularly said to have weakened fiscal federalism by concentrating the powers of governance at the centre.

C. Equality Before Law

There are claims of unequal treatment under some provisions, particularly those that advantage the higher-income taxpayers. The disparate treatment of low-income earners with the capital gains tax is a classic case in point.

EXECUTIVE CHALLENGES

A. Transition Control

It should be noted that there are some challenges to the implementation of these reforms, especially considering how burdensome they will be for:

• Making adjustments to the bookkeeping machines used by businesses.

• Adjusting teaching materials for tax practitioners.

B. Digital Divide

The successful implementation of faceless assessments is highly dependent on strong digital infrastructure. This poses a challenge, particularly for rural areas with limited access to high-speed internet.

C. Litigation Risks

In this area, some simplification efforts run the risk of mitigating the disputes, while certain experts warn that they reopen abstract attempts at combinations or may create an entirely new set of ambiguities.

POLICY IMPLICATIONS AND STAKEHOLDER REACTIONS

A. Supporters’ Perspective

Proponents of the issue under discussion expressed the following advantages:

• Voluntary tax compliance will increase as processes become less cumbersome.

• Eased levels of corruption will be attributed to better digitalized transparency.

• Funding will be welcomed by foreign investors as they align with their international counterparts.

As she presented the bill, Finance Minister Sitharaman called it “a step towards building trust between the taxpayers and the administrators.”

B. Critics’ Concerns

These opposing arguments are under discussion:

• The enforcement discretion given is too broad and opens a possibility for a surveillance state.

• Lack of engagement with the states undermines cooperative federalism.

• Simplification will do little to remedy issues such as the structural systemic transfer pricing conflict, or multi-national base erosion.

CONCLUSION

This Income Tax Bill of 2025 is an aggressive attempt to modernize direct taxation in India after three decades of slow revisions- an attempt inherited from the 1961 Income Tax Act. It is remarkable how the focus on compliance and litigation goes alongside a progressive policy stance. While operational and constitutional hurdles remain formidable, the challenges are not insurmountable. During this time, Parliament is considering the bill's provisions, while stakeholders are commenting on the draft during the public consultation period. More attention should be given to privacy rights, fiscal federalism, and equity. Currently, achieving this reform hinges upon its implementation, particularly the successional modifications necessary to integrate into the multi-layered Indian economy. For the first time, the federal government faces the paradoxical challenge of updating these policies within the controlling boundaries of constitutional requirements, which will be as burdensome as paying

taxes.

-Ayaan Siddiqui, 3rd Year, St Xavier’s University Kolkata