Q. Discuss the key features of the Income-Tax Bill, 2025. How does it address challenges related to taxation in the digital era?

Q. Discuss the key features of the Income-Tax Bill, 2025. How does it address challenges related to taxation in the digital era?

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Introduction

The Income-Tax Bill, 2025 was introduced in the Lok Sabha on February 13, 2025, to replace the Income-Tax Act, 1961, which had been in force for over six decades. While the Bill retains most of the provisions of the 1961 Act, it seeks to simplify the law, eliminate redundant clauses, and modernise the tax framework, especially to deal with challenges posed by the digital economy.

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Key Features of the Income-Tax Bill, 2025

1. ✅ Simplified Language and Structure

   • The Bill rephrases complex legal terms to make the law more accessible.

   • Redundant and outdated provisions from the 1961 Act are removed.

   • No changes are made to tax slabs or penalties.

2. ✅ Faceless Tax Administration

   • Continues the faceless assessment model introduced earlier.

   • Empowers the central government to frame schemes that:

     • Eliminate human interface using technology,

     • Optimise resources using functional specialisation,

     • Ensure transparency and accountability.

   • Such schemes must be laid before Parliament to ensure oversight.

3. ✅ Expanded Definition of Undisclosed Income

   • Includes Virtual Digital Assets (VDAs) such as:

     • Cryptocurrencies, NFTs, and tokens.

   • This enables assessment and taxation of previously unregulated assets.

4. ✅ Access to Virtual Digital Space

   • Income-tax authorities now have power to:

     • Access emails, social media, trading accounts, cloud storage, etc.,

     • Override passwords or access codes during search and seizure operations.

   • Virtual digital space is legally defined for the first time.

5. ✅ Strengthening Dispute Resolution Panel (DRP)

   • Applicable to:

     • Transfer pricing cases,

     • Non-residents and foreign companies.

   • DRP must now give:

     • Clear points of determination,

     • Reasons behind its decisions—enhancing transparency.

6. ✅ Interpretation of Tax Treaties

   • If terms are undefined in:

     • The treaty,

     • The Act,

     • Central government notification,
       ➤ They will now be interpreted based on any other central law.

   • Reduces ambiguity in applying Double Taxation Avoidance Agreements (DTAAs).

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Addressing Challenges in the Digital Era

1. 🌐 Taxation of Digital Assets

   • With the growth of digital currencies and NFTs, tax evasion and ambiguity increased.

   • By including VDAs under undisclosed income, the Bill brings transparency, traceability, and accountability.

2. 📲 Access to Digital Information

   • Enables tax authorities to penetrate virtual platforms and accounts.

   • Targets sophisticated methods of hiding income or laundering money via digital means.

3. 🤖 Faceless, Technology-Driven Assessments

   • Reduces corruption and discretion at lower levels.

   • Facilitates speedy and fair processing through AI-backed systems.

4. 🧩 Closing Legal Loopholes in Globalised Transactions

   • Broader interpretation of treaties helps tackle base erosion and profit shifting (BEPS) by multinationals.

5. 🛡️ Balancing Ease of Compliance and Enforcement

   • Simplified language eases compliance for ordinary taxpayers.

   • Greater digital surveillance enhances enforcement without increasing the taxpayer burden.

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Conclusion

The Income-Tax Bill, 2025 is a significant step toward modernising India’s taxation system. While it retains the core framework of the 1961 Act, its key additions reflect an adaptive approach to emerging digital and global economic realities. By expanding the scope of taxation and enhancing administrative tools, the Bill strengthens the legal, technical, and enforcement capacity of the Indian tax system—making it future-ready.