by CA. Sandeep Choudhary
63662 57036
sandeepchoudharyfca@gmail.com
This is my second post on the new Income Tax Bill, 2025. An earlier post captured my preliminary observations.
1. Tax Holiday for 1 Year to all?
The first section of the Bill says that the new law will call info effect from 1st April 2026. The last section says that the Income Tax Act, 1961 is hereby repealed. Since no separate date is given here, it means that the 1961 Act shall stand repealed from 1st April 2026. This creates a problem.
Under section 4 of the 1961 Act, income tax is charged on Assessment Year (AY) basis for income in the previous year (PY). If the law stands repealed from 1st April 2026, there will be no AY 2026-27 in which tax on income of PY 2025-26 can be computed. And the 2025 Bill does not envisage taxing income for Tax Year 2025-26. A literal reading of the first and last sections of the 2025 Bill imply that there will be no Income Tax for the year 2025-26 for any person.
Obviously, this is not how the situation will unfold. Section 535 of the Bill empowers the Central Government to issue 'Removal of Difficulties Order'. In 2017, similar powers in GST law were used to address obvious lacuna and implementation issues. We will see a repeat of issue of such orders in 2026-27.
So, no, Nirmala Ji is not giving a tax break to all. However, since the Removal of Difficulties Order will be issued after the new law comes into effect, it creates some ambiguity for income for the PY 2025-26.
2. Petty Changes?
As noted in the earlier post, Explanations and Proviso have either been converted into separate clauses or clubbed with the underlying provision using the word 'where'. Similarly, the word 'notwithstanding' has been replaced by 'irrespective of'. In a law where every word, punctuation mark and nuance gets heavily litigated, this can be problematic. 'Proviso' are a well-understood concept, they limit, modify or explain the main part. That is to say, it is restricted in scope to the underlying provision in which it is carving out a change. Converting a Proviso into a separate clause can expand the scope of its text, which may not be the intention here.
Other minor changes may have more impact. Replacing 'reasonably attributable' with 'attributable', 'wholly or substantially the whole' with 'wholly or substantially' change the scope of the provisions.
Currently, the law permits taxpayers to apply for lower of NIL rate of TDS. In practice, even where NIL rate is ought, tax authorities impose a small rate of say, 0.5%. The new Bill converts this de facto position into de jure: the Bill provides only for application for lower rate and not NIL rate. It could be argued that NIL is indeed a lower rate, but it is likely that when the utility is updated, the option to fill the requested rate will not permit zero figure.
3. Unpaid Taxes
U/s 43B of the 1961 Act, unpaid taxes are disallowed even if the amount was not payable in the PY under the relevant law. Thus, GST of March 2024 payable in April 2024 but not paid by due date of filing return would be disallowed in the computation of income for PY 23-24. No such provision has been provided under the corresponding section 37 of the 2025 Bill. A taxpayer could therefore make the argument that the GST liability for March 2027 is not a sum payable in the TY 26-27 and hence need not be added back even if it remains unpaid on the due date of filing return.
4. Indexation for Real Estate
In the Budget for 2024, the benefit of indexation u/s 48 was proposed to be removed. Correspondingly, a lower rate of 12.5% was mooted. After much brouhaha, a further amendment was introduced stating that old provisions will apply if they result in lower tax for land/ building. Thus, indexation continues to be applicable for land/ building in many cases. The new section 72 of the 2025 Bill simply states that indexation will be applicable in 'prescribed cases'. This is a case of excessive delegation of legislative power to tax department.
5. No Refund if Return not Filed within Due Date?
Filing of Income Tax Return (ITR) is covered u/s 263 of the new Bill. Section 263(1)(ix) states that a person intending to make a claim of refund shall file return on or before due date. It appears that a person filing belated return may not be eligible for refund. No such restriction exists under the 1961 Act. Even the refund provisions in the new Bill do not refer to any such condition. The condition is flowing from the section on filing of returns.
6. No addition by CPC on the basis of TDS info
Currently, when ITR is processed by CPC, it has the power to make additions based on information in Form 26AS, Form 16A and Form 16. This power has not been given to the CPC in the new Bill. This appears contrary to the general trend of speedy automation.
7. Drafting Anomalies
a. For presumptive taxation, eligible assessee is defined under section 58(10). The conditions here should have been cumulative. However, in the current draft, each condition ends with the word 'or' instead of 'and'. This would imply that the taxpayer can claim various deductions currently not available under presumptive taxation, and is probably not whatthe Govt intends to do.
b. Now that the New Regime is the default option, the charging section in the Bill could have directly referred to it. However, section 4 of the new Bill continues to refer to Finance Acts for charge of Income Tax. Surprisingly, the clause 'subject to the provisions of this Act' has been removed. Thus, the charging section does not refer to the New Regime or any of the special rates (such as for Capital Gains).
c. In Royalty payable by Non-Resident, the 1961 Act refers to income from any source in India. The new Bill refers to income from any source outside India. This is an obvious error.
c. Section 78(3) of the new Bill defines the word 'assessable' for the purposes of the section. However, the word in not used in the section.
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