The Select Committee of Parliament, consisting of 31 members, presented its report on the new Income Tax Bill, 2025 in the Lok Sabha

Main Suggestions from the Parliamentary Committee

TDS Refunds: Suggested elimination of stringent penalty clauses for delayed refund requests if the taxpayer is otherwise compliant.

Trust Taxation: Exemption for religious and charitable trusts from the standard 30% tax on unidentifiable donations.

GAAR Protections: Aids in reinstating zero-tax withholding certificates for non-residents, enabling easier cross-border compliance.

Beneficial Ownership: Precise definitions to eliminate confusion in corporate taxation.

Penalty Discretion: Suggests that penalties for failing to maintain account books should be discretionary rather than automatic to prevent penalizing honest errors made by legitimate taxpayers.

Main Aspects of the Income Tax Bill, 2025

Tax Year Concept: Substitutes ‘Assessment Year’ with a standardized ‘Tax Year’ corresponding to the financial year (April 1–March 31).

Digital Asset Taxation: Virtual Digital Assets (VDAs) such as cryptocurrencies and NFTs categorized as capital assets, liable for capital gains tax.

Streamlined Drafting: Complex legal terminology substituted with clear clauses, tables, and schedules to enhance readability.

Presumptive Taxation Caps: Limits increased for small enterprises (₹2 crore to ₹3 crore) and professionals (₹50 lakh to ₹75 lakh).

Anonymous Appeals: Required video hearings and second-tier review committees implemented to enhance natural justice.

Search and Seizure Authority: Tax authorities can bypass passwords and gain entry to digital platforms such as emails and social media.

Effects on Taxpayers

Employees: Minor updates; enhanced filing interface.

Small Enterprises: Simplified adherence through increased assumed thresholds.

Crypto Traders: More transparent tax regulations for digital assets

Startups & Freelancers: Qualified for simplified presumptive taxes.

Tax Professionals: Must revise SOPs and undergo retraining on updated definitions.

Key Concerns of the Bill

Privacy Issues: The legislation does not include judicial supervision or warrant mandates for obtaining personal digital information.

It could infringe on the Right to Privacy, supported by the Supreme Court in Justice K.S. Puttaswamy v. Union of India.

The expansive definition of digital space might result in overreach, revealing irrelevant personal details.

Override Authority: According to Section 247 of the Bill, tax officials have the authority to access digital platforms such as emails, social media, cloud storage, and online trading accounts; they can bypass passwords and encryption if access details are not supplied;

The legislation broadly defines 'virtual digital space,' encompassing almost all online settings that may include financial or personal information.

Legal Uncertainties: Although structural simplification has occurred, numerous vague terms (e.g., ‘risk management strategy’) persist, potentially leading to more lawsuits.

Certain definitions continue to refer to the 1961 Act, diminishing the objective of a comprehensive statute.

Compliance Burden: Although the Bill has fewer words, the fundamental tax framework stays the same, providing minimal assistance to small taxpayers.

Manual follow-up is still required for refunds of excess TDS; there is no mechanism for automated system-driven refunds.

Judicial Delays: The timelines for appeals are discretionary ("may" conclude within a year), leading to prolonged delays of 4–5 years.

What comes next?

After the report is presented in Parliament, the Lok Sabha will discuss the Committee’s suggestions and move towards the Bill’s completion and implementation.

If sanctioned, the new legislation is anticipated to take effect on April 1, 2026.