Income-Tax Bill 2025: A Comprehensive Overview

By | February 12, 2025
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Income-Tax Bill, 2025: A Comprehensive Overview

The Income-tax Bill, 2025, contains 536 clauses and 23 chapters and 16 Schedules. These clauses are organized into the following chapters:

  • Chapter I: Preliminary
  • Chapter II: Basis of Charge
  • Chapter III: Incomes Which Do Not Form Part of Total Income
  • Chapter IV: Computation of Total Income
  • Chapter V: Income of Other Persons Included in Total Income of Assessee
  • Chapter VI: Aggregation of Income
  • Chapter VII: Set off, or Carry Forward and Set off of Losses
  • Chapter VIII: Deductions to Be Made in Computing Total Income
  • Chapter IX: Rebates and Reliefs
  • Chapter X: Special Provisions Relating to Avoidance of Tax
  • Chapter XI: Special Provisions Relating to Certain Incomes
  • Chapter XII: Special Provisions Relating to Certain Persons
  • Chapter XIII: Special Provisions Relating to Shipping Companies
  • Chapter XIV: Tax Administration
  • Chapter XV: Allotment of Permanent Account Number
  • Chapter XVI: Procedure for Assessment
  • Chapter XVII: Special Provisions Relating to Certain Persons
  • Chapter XVIII: Appeals and Revision
  • Chapter XIX: Collection and Recovery of Tax
  • Chapter XX: Refunds
  • Chapter XXI: Penalties
  • Chapter XXII: Offences and Prosecution
  • Chapter XXIII: Miscellaneous

The bill also includes sixteen schedules.

Tax Year

The term “tax year” is defined in the s a twelve-month period.

For the purposes of this Act, “tax year” means the twelve months period of the financial year commencing on the 1st April.
(2) In the case of a business or profession newly set up, or a source of income newly coming into existence in any financial year, the tax year shall be the period beginning with—
(a) the date of setting up of such business or profession; or
(b) the date on which such source of income newly comes into existence, and, ending with the said financial year.

Here are some key aspects of the “tax year” as defined in the sources:

  • Standard Tax Year: For the purposes of the Income Tax Bill, a tax year typically aligns with the financial year, commencing on April 1st.
  • New Business or Income Source: If a business or profession is newly established, or a new source of income comes into existence, the tax year begins on the date of setup or when the income source is established, and it ends with the conclusion of that financial year.
  • Alternative Twelve-Month Period: In certain cases, a company or entity can adopt a twelve-month period ending on a date other than March 31st for tax purposes if it regularly does so for complying with tax laws of its country of residence or reporting to shareholders.
  • Tax Charge: Income tax is charged for any tax year according to the provisions of the Income Tax Bill, using the rates enacted by a Central Act for that specific tax year.
  • Total Income: The charge of income tax is applied to the total income of every person for the tax year, as defined by the bill.
  • Income deemed to be received: Certain incomes are deemed to be received in a particular tax year, such as annual accretion to the balance of a recognized provident fund. Similarly, dividends are deemed to be income in the tax year they are declared or made available.
  • Specific situations: The tax year may also be adjusted in situations, such as:
    • When there is a transfer of a capital asset or stock in trade between specified persons, the income is attributed to the tax year when the transfer occurs
    • When a business is discontinued, the income up to the date of discontinuance can be charged to tax within that tax year
  • Reference in other definitions: The term “tax year” is also a component of many other definitions in the sources, for example:
    • The “maximum marginal rate” is the income tax rate that applies to the highest income bracket for an individual, association of persons, or body of individuals, as specified in the Finance Act of the “relevant tax year”.
    • “Rate or rates in force” in relation to a tax year, is used in computing income tax and advance tax, and in deducting tax
    • “Total income” means the total amount of income computed in the manner as laid down in the Act, with reference to a given “tax year”

This definition of “tax year” is central to how income tax is calculated and applied throughout the Income Tax Bill.

Tax Audit Provisons

The tax audit provisions are covered in Clause 63 of the Income Tax Bill, 2025. This clause also specifies the conditions under which books of accounts must be audited by a specified accountant.

Additionally, several other clauses and schedules mention the requirement for a tax audit in specific contexts. These include:

  • Clause 52 outlines conditions for deductions related to certain expenditures, which include an audit.
  • Clause 146 specifies that deductions for an eligible business are not allowed unless the accounts have been audited before the specified date referred to in section 63.
  • Schedule IX describes the requirements for claiming deductions for tea, coffee, and rubber development accounts which include an audit.
  • Schedule X details the conditions for claiming a deduction for a site restoration account which include an audit.

These sections specify that the audit must be conducted by an accountant before the specified date referred to in section 63 and that a report of the audit must be furnished by that date.

The sources detail specific requirements for tax audits, which are generally triggered by certain financial thresholds or business activities. Here’s a breakdown of those requirements:

Who needs a tax audit?

  • Businesses whose total sales, turnover, or gross receipts exceed ₹10,00,00,000, if at least 95% of receipts and payments are made through specified banking or online modes.
  • Businesses not covered above (where less than 95% of transactions are through specified banking modes), if total sales, turnover, or gross receipts exceed ₹1,00,00,000.
  • Certain professions  whose gross receipts exceed ₹50,00,000 are also subject to tax audits,
  • Specified assessees (non-resident individuals or foreign companies) may also need a tax audit if they claim their profits are lower than the deemed profits calculated by the Income Tax Bill.
  • Assessees who are required to maintain books of account under section 62 may be required to have a tax audit.
  • Assessees who have opted for the presumptive taxation scheme but claim their profits are lower than the prescribed amount.
  • Eligible businesses that are claiming certain deductions under sections 33, 44, or 52(1) also require a tax audit.
  • Businesses that transfer goods or services to other businesses also need tax audits.
  • Non-profit organizations may require a tax audit if their income exceeds the maximum amount not chargeable to tax.

What is involved in a tax audit?

  • A tax audit involves an examination of the books of accounts by a qualified accountant.
  • The accountant must provide a report of the audit in a prescribed form, duly signed and verified, and setting forth the necessary particulars.
  • The audit report must be furnished by a specified date, which is one month before the due date for filing the income tax return.
  • If an assessee is required to get their accounts audited under any other law, it is sufficient to get them audited under that law and provide the report along with an accountant’s report.
  • The assessee must provide the necessary facilities to inspect books of accounts or other documents and access to electronic media or computer systems, as required.

Purpose of Tax Audit

  • The main purpose of the tax audit is to ensure compliance with the provisions of the Income Tax Bill.
  • It verifies the accuracy of the financial records and ensures that the assessee has correctly reported their income and taxes.
  • It also aims to ascertain that the assessee has maintained the books of accounts and other documents as required.
  • Tax audits are also relevant for identifying instances of tax evasion or avoidance.

Consequences of non-compliance

  • Failure to get accounts audited or furnish the audit report by the specified date can lead to penalties.
  • The penalty could be up to 0.5% of the total sales, turnover, or gross receipts, or ₹1,50,000, whichever is lower.
  • Failure to furnish a report from an accountant as required by section 172, will result in a penalty of one lakh rupees.

Other points

  • The tax audit report must be furnished to the Assessing Officer before the specified date.
  • If a person is required to get their accounts audited under any other law, it is sufficient compliance if they get the accounts audited under that law and furnish the report, along with a report from an accountant.
  • If the assessee fails to maintain proper books of accounts, or doesn’t get them audited, they may also be subject to a penalty as per section 441.
  • The Assessing Officer can direct a taxpayer to get their accounts audited and to furnish a report of such audit. This may be necessary if the nature and complexity of accounts or volume, and multiplicity of transactions raises doubts about their accuracy.

In summary, tax audits are a crucial part of the tax compliance process, ensuring accuracy and adherence to regulations as outlined in the sources.

The Income-tax Bill, 2025 covers a wide range of topics related to income tax. Here’s a breakdown of key points:

  • Heads of Income: The bill classifies income under five main heads: Salaries, Income from house property, Profits and gains of business or profession, Capital gains, and Income from other sources
  • Business and Profession: The bill outlines specific rules for computing profits and gains from business or profession . It includes sections on deductions for rent, taxes, repairs, and insurance , as well as deductions related to employee welfare . It also covers deductions for bad debt, depreciation , and expenses on scientific research , as well as rules for special businesses such as prospecting for mineral oils, insurance , construction and service contracts , and businesses in special economic zones . The bill also addresses the maintenance of books of accounts , and tax audits .
  • Capital Gains: The bill details rules for capital gains, including those on the distribution of assets by companies in liquidation and the purchase by a company of its own shares . It also covers special provisions for the full value of consideration in certain cases , including transfers of shares and agricultural land . The bill also addresses capital gains on compulsory acquisition of lands and buildings .
  • Losses and Depreciation: The bill provides rules for the treatment of accumulated losses and unabsorbed depreciation in cases of amalgamation or demerger , as well as business reorganization of co-operative banks . It also covers the carry forward and set off of losses .
  • Special Deductions: The bill provides for deductions for profits and gains from industrial undertakings engaged in infrastructure development  and development of Special Economic Zones . It also includes deductions for profits and gains from housing projects  businesses engaged in collecting and processing of bio-degradable waste , and for additional employee cost .
  • International Transactions and Non-Residents: The bill contains provisions for advance pricing agreements  and secondary adjustments in certain cases . It also addresses the chargeability of royalty and fees for technical services in the hands of non-residents  and the deduction of head office expenditure in the case of non-residents . The bill also covers special provisions for computing income on a presumptive basis for certain business activities of certain non-residents .
  • Mode of Payment: The bill includes rules regarding the mode of taking or accepting certain loans, deposits, and specified sums  as well as the mode of undertaking transactions and accepting payment through electronic modes
  • Tax Administration: The bill establishes income-tax authorities, their jurisdiction and functions. It outlines procedures for surveys, collection of information, and the power to call for information. It also includes provisions for faceless collection of information, and faceless assessment. It includes rules for search and seizure of assets and documents. It addresses the power of authorities to issue directions and make references to Dispute Resolution Panels.
  • Special Cases: TThe bill includes special provisions for certain persons such as associations of persons, firms, and Hindu undivided families. It also includes rules for legal representatives, persons trying to alienate their assets, and for cases of discontinuance of business or dissolution.
  • Penalties: The bill specifies penalties for under-reporting and misreporting of income, failure to keep books of account, and failure to furnish statements. It also covers penalties for failure to comply with various provisions of the bill.
  • Offenses and Prosecution: The bill outlines offenses and prosecutions under the legislation. It includes provisions for special courts, and the application of the Bharatiya Nagarik Suraksha Sanhita, 2023 to proceedings before Special Court.
  • Miscellaneous Provisions: The bill includes provisions for service of notice, submission of statements by non-residents having liaison offices, and the obligation to furnish information on transactions of crypto assets. It also covers advance pricing agreements and the furnishing of reports in respect of international groups.
  • Definitions: The bill provides definitions for a wide array of terms including “charitable purpose”, “concern”, “fair market value”, “foreign company”, “income”, “Keyman insurance policy”, “limited liability partnership”, “mineral oil”, “partner”, “short-term capital gain”, “slump sale”, and “specified domestic transaction”.
  • Other Provisions: The bill includes provisions regarding the treatment of connected persons and accommodating parties, and the mode of payment in certain cases. It also covers determination of tax in special cases. It includes rules on refunds, penalties, and offences and prosecution.