Revamping India’s Tax Code: Key Recommendations of the Income Tax Bill, 2025 Review Committee

Relevance: GS III Economics

The Income Tax Bill, 2025, a comprehensive initiative aimed at overhauling the antiquated Income-tax Act of 1961, is set to bring about a significant change in India’s tax landscape. This bill, which is being led by a high-level Review Committee on Direct Tax Code Reform, suggests changes that are up to date, open, and advantageous to taxpayers. The recommendations center on bringing India’s tax system into line with international best practices, from clarifying important financial terms to improving compliance systems and digital tax governance.

Important suggestions

The Bill allows for the forcible access of private emails and social media during search and seizure activities.

• The definitions of “capital asset,” “infrastructure capital company,” and “micro and small enterprises” have been updated to reflect the most recent legislation.
• Clearer R&D deduction guidelines, tax incentives for biodegradable waste management companies, and clarification on the meanings of “parent company” and “status” in tax appeals are all examples of business and startup help.

Note: Stay informed about the most recent UPSC current Affairs, where we provide clear explanations of the major events.

About the 2025 Income-Tax Bill

It aims to take the place of the 1961 Income-Tax Act. The measure seeks to eliminate the Act’s superfluous parts and clarify its wording.

Important clauses consist of:

The measure eliminates 24 chapters and 283 sections from the 1961 Act.

• Simplifying the language: “tax year” is being used in place of terms like “financial year” and “assessment year.”
• Provision for Virtual Digital Assets: explains what “electronic mode” and “virtual digital asset” are, as well as how they are taxed.
• Maintaining predictability for taxpayers, consolidating amendments, avoiding significant changes to tax policy, and not altering tax rates.

Mains:

Question: The Income Tax Bill, 2025 seeks to replace an outdated legal framework with a more transparent and citizen-friendly system. Critically evaluate the implications of such legal reforms on institutional accountability and the taxpayer-state relationship in India.

Note: To take UPSC mains tests on GS Mains Q & A, click the link that is attached.

Mains PYQs:

Question: What is the meaning of the term ‘tax expenditure’? Taking the housing sector as an example, discuss how it influences the budgetary policies of the government. (UPSC IAS 2013)

MCQs:

Question: With reference to the Income Tax Bill, 2025, consider the following statements:

1. It replaces the Income-tax Act of 1961 in its entirety.
2. It introduces new definitions for “tax year” to replace both “financial year” and “assessment year.”
3. The bill proposes significant changes in direct tax rates to increase tax revenue.

Which of the above statements is/are correct?

1. a) 1 and 2 only
2. b) 2 and 3 only
3. c) 1 and 3 only
4. d) 1, 2 and 3

Answer: a) 1 and 2 only

Prelims PYQs

Note: To take practice tests on Daily current Affairs MCQs, click the link that is attached.

Question:With reference to India’s decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct? (UPSC IAS 2018) 

1. It is introduced as a part of the Income Tax Act. 
2. Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the “Double Taxation Avoidance Agreements”.

Select the correct answer using the code given below: 

(a) 1 only

(b) 2 only 

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer: (d)

UPSC Exam 2025 Related Articles

UPSC General Studies Paper Preparation