The Income Tax Bill, 2025, which replaces the Income Tax Act, 1961, has now been passed and published in the Official Gazette.
It will come into effect from April 1, 2026. This new law is designed to simplify, update, and make India’s tax system clearer and easier to follow. Here are the key changes:
1. “Tax Year” Replaces Old Terms
The ITB, 2025 introduces the term “tax year”, replacing the older terms “previous year” and “assessment year.”
This aims to reduce confusion and make tax filing easier.
2. Royalty Deemed to Accrue in India
Now, royalty paid by a non-resident is considered income earned in India, even if the payment is linked to a source outside India.
Experts believe this might be a mistake in drafting, as the intention may have been to include only income from sources within India.
3. No Deduction for Certain Taxes
Taxes paid on income, including surcharge and cess, cannot be claimed as a deduction when calculating business income.
This clears earlier doubts and avoids misuse.
4. Presumptive Tax for Non-Residents in Electronics Sector
Non-residents offering technology or services to India’s electronics manufacturing sector will now fall under a presumptive tax scheme.
25% of their receipts will be considered taxable income.
However, the formula used may double-count amounts, possibly leading to legal issues.
5. Bookkeeping & Audit Now Required for Presumptive Tax
Non-residents choosing this presumptive taxation will now be required to maintain accounts and undergo audits, which was not required before.
6. New Flexibility in Shipping & Projects
Non-residents in shipping, aircraft, or turnkey construction can now report lower income than standard presumptive rates, if they maintain proper books and get audited.
This option was not allowed earlier.
7. Stricter Loss Set-off Rules
Previously, unabsorbed depreciation and old losses couldn’t be set off against presumptive income.
Under ITB, 2025, no deductions or allowances (like donations under Section 80G) can be claimed against deemed profits at all.
8. Changes in Capital Gains Exemption
Section 85 (replacing old 54EC) allows exemption only for long-term gains from land/building.
Depreciable assets no longer qualify.
Section 86 (like old 54F) still covers long-term gains from other assets.
9. Capital Loss Carry Forward
Capital losses can be carried forward till March 31, 2026.
From 2026–27 onwards, long-term capital losses (LTCL) can also be set off against short-term capital gains (STCG), which helps investors.
10. Interpretation of Tax Treaty Terms
If a term used in a tax treaty isn’t defined, ITB, 2025 allows it to be interpreted from:
Any Indian tax law, or
If that fails, any Central Act.
11. Loss Set-off and Change in Shareholding
If a company’s shareholding changes by over 49%, old losses cannot be set off—even if the original shareholders return later.
This makes corporate restructuring rules stricter.
12. LTCG Relief for Non-Residents
Non-residents who sell unlisted shares or securities of Indian companies can now adjust gains for foreign exchange rate changes under LTCG, taxed at 12.5%.
This brings Indian law in line with global standards.
13. Refunds Tied to Timely ITR Filing
Taxpayers can now claim refunds only if they file their Income Tax Return (ITR) on time, i.e., before the original due date.
14. Corporate Tax Rules (22% and 15%)
Companies choosing the 22% tax rate can no longer claim the 80M deduction (on inter-corporate dividends).
But, this benefit continues under the 15% regime for new manufacturing companies.
15. Changes to Dispute Resolution Panel (DRP)
The DRP must now issue detailed reasoned orders, but it is not required to review evidence from taxpayers or remand reports directly.
16. Lower Deduction Certificates (LDC) for TDS/TCS
LDCs now apply to all kinds of TDS/TCS-covered income or expenses.
However, zero deduction certificates are no longer allowed.
Assessing Officers now have clear power to cancel these certificates after hearing from the taxpayer.
