Parliamentary Panel on Income Tax Bill Provisions

Syllabus: GS2/Governance; Government Policy & Intervention; GS3/Economy

Context

• Recently, the Select Committee of Parliament (31-Member) tabled its report on the new Income Tax Bill, 2025 in the Lok Sabha.
  • The  Income Tax Bill, 2025 seeks to replace the Income Tax Act of 1961, aims to simplify tax laws, reduce litigation, and enhance taxpayer clarity.

Key Recommendations of the Parliamentary Panel

• TDS Refunds: Proposed removal of strict penalty clauses against late refund claims when the taxpayer is otherwise compliant.
• Trust Taxation: Relief for religious-cum-charitable trusts from flat 30% tax on anonymous donations.
• GAAR Safeguards: Supports restoration of zero-tax withholding certificates for non-residents, facilitating smoother cross-border compliance.
• Beneficial Ownership: Clearer definitions to avoid ambiguity in corporate taxation.
• Discretion on Penalties: Recommends making penalties for non-maintenance of account books discretionary, not automatic, to avoid punishing honest mistakes by genuine taxpayers.

Key Features of the Income Tax Bill, 2025

• Tax Year Concept: Replaces ‘Assessment Year’ with a uniform ‘Tax Year’ aligned to the financial year (April 1–March 31).
• Digital Asset Taxation: Virtual Digital Assets (VDAs) like crypto and NFTs classified as capital assets, subject to capital gains tax.
• Simplified Drafting: Dense legal language replaced with concise clauses, tables, and schedules for better readability.
• Presumptive Taxation Limits: Thresholds raised for small businesses (₹2 crore to ₹3 crore) and professionals (₹50 lakh to ₹75 lakh).
• Faceless Appeals: Mandatory video hearings and second-level review panels introduced to strengthen natural justice.
• Search & Seizure Powers: Tax officials can override passwords and access digital platforms like emails and social media.

Impact on Taxpayers

• Salaried Individuals: Minimal changes; improved filing interface
• Small Businesses: Easier compliance via higher presumptive limits
• Crypto Traders: Clearer tax treatment of digital assets
• Startups & Freelancers: Eligible for simplified presumptive taxation
• Tax Professionals: Need to update SOPs and retrain on new definitions

Major Issues of the Bill

• Privacy Concerns: The bill lacks judicial oversight or warrant requirements for accessing personal digital data.
  • It may violate the Right to Privacy, upheld by the Supreme Court in Justice K.S. Puttaswamy v. Union of India.
  • The open-ended definition of digital space could lead to overreach, exposing unrelated personal information.
• Overriding Power: Under Section 247 of Bill, tax authorities are empowered to access digital platforms like emails, social media, cloud servers, and online trading accounts; override passwords and encryption if access credentials are not provided;
  • The bill defines ‘virtual digital space’ broadly, covering nearly all online environments where financial or personal data may reside.
• Legal Ambiguities: Despite structural simplification, many undefined terms (e.g., ‘risk management strategy’) remain, risking increased litigation.
  • Some definitions still reference the 1961 Act, undermining the goal of a self-contained statute.
• Compliance Burden: While the Bill is shorter in word count, the core tax architecture remains unchanged, offering little relief to small taxpayers.
  • Refunds for excess TDS still require manual follow-up; no provision for automatic system-driven refunds.
• Judicial Delays: Appeals timelines remain discretionary (“may” dispose within a year), perpetuating delays of 4–5 years.

What’s Next?

• Following the tabling of the report in Parliament, the Lok Sabha will deliberate on the Committee’s recommendations and proceed toward the Bill’s finalisation and enactment.
• If approved, the new law is expected to come into force on April 1, 2026.

Source: TH