Taxation Then & Now: How the New Income Tax Bill 2025 Compares to the 1961 Act

India’s tax system is set for a major transformation with the New Income-Tax Bill, 2025,replacing the long-standing Income-Tax Act, 1961. Designed to simplify tax laws, enhance compliance, and improve efficiency, this new bill introduces modern tax provisions for individuals and businesses. With a focus on streamlining income tax regulations and strengthening tax governance, it aims to make taxation more transparent and taxpayer-friendly. In this blog, we compare the key differences between the 1961 Act and the 2025 Bill to understand their impact on the evolving tax landscape.

I] Structural and Conceptual Changes

1.      Structural Reorganization

The Income-Tax Act, 1961, has undergone numerous amendments over the decades, making it increasingly complex for taxpayers to understand. The New Income-Tax Bill, 2025, aims to simplify and restructure tax provisions, ensuring greater clarity and ease of understanding for taxpayers.

2.        Introduction of “Tax Year”

Previously, the terms Assessment Year and Previous Year were frequently used, often causing confusion among taxpayers. The New Income-Tax Bill, 2025, addresses this issue by introducing a simplified concept called the Tax Year for better clarity and understanding.

For e.g. if you earn income in the financial year 2024-25, then Tax Year for that Income will be 2024-25.

3.        Ease in Faceless System Governance

The Income-Tax Act, 1961, introduced faceless assessment and appeals wherein the Income-tax proceedings were conducted online to avoid direct contact between taxpayers and tax officers. Building on this, the New Income-Tax Bill, 2025, introduces Faceless Jurisdiction in tax administration, further enhancing transparency, efficiency, and tax governance.

4.        Expansion of General Anti-Avoidance Rules (GAAR)

General Anti-Avoidance Rules (GAAR) are preventive rules that stop people and businesses from using any tax-loopholes and avoid paying taxes. Earlier, in Income-Tax Act, 1961, GAAR provisions had very limited applicability. However, the New Income-Tax Bill, 2025, strengthens these provisions, enforcing stricter preventive measures to reduce tax evasion.

A quick summarised table for understanding the changes:

II] Basis of Taxes & Definition

1.      Change in Residency Rules

Earlier, under the Income-Tax Act, 1961, a person was considered a tax resident of India if they stayed in the country for at least 182 days in a year. The New Income-Tax Bill, 2025, retains the existing provisions as well as provides clarity on the 120 days limit considered for high-net-worth individuals while determining their residential status. This change helps bring people understand the provisions better.

2.      Scope of Total Income

The Income Tax Act-1961 includes all incomes received or accrued in India. The New Income Tax Bill 2025 will includes deemed income on receipt of capital asset or stock-in-trade in incomes if the asset or stock is received by the taxpayer being a specified person from a specified entity. It ensures in expanding the taxability provisions.

3.      Income from Other Sources

Section 56 of the Income-Tax Act, 1961, covers gifts, dividends, and unexplained credits under one provision. The New Income-Tax Bill, 2025,improves clarity by separating rules for unexplained credits, assets, and expenses into a dedicated chapter.

A quick summarised table for understanding the above changes:

III]Changes in Computation of Income:

1.     Presumptive Taxation:

Sections 44AD, 44ADA, and 44AE of the Old Income-Tax Act, 1961, provide presumptive taxation for small businesses and professionals. The New Income-Tax Bill, 2025, retains these provisions under Section 58 and includes Section 61 for presumptive taxation specifically for non-residents for easier understanding of the readers.

2.     Deductions for Salaries:

The Income-Tax Act, 1961, included standard deductions and allowances. The New Income-Tax Bill, 2025, expands these benefits by introducing additional deductions for pension contributions, the Agnipath Scheme, and electric vehicles, encouraging savings and sustainable investments.

3.      Heads of Income:

No significant change in categorization, but provisions have been clarified for better understanding.

A quick summarised table for understanding the above changes:

IV]Capital Gains and Business Taxation

1.      Capital Gain Taxation:

The recent tax changes aim to strengthen rules and eliminate gaps. Exemptions under Sections 54, 54F and 54EC have been simplified with clarifications on reinvestment conditions.

2.      Business Taxation:

Section 32 continues to allow depreciation being calculated on a block of assets, but the calculations have been simplified under Sections 33–41. This ensures better alignment of the tax provisions with accounting standards, and a more standardized approach to depreciation.

A quick summarised table for understanding the above changes:

V] Anti-Abuse Provisions

1. Unexplained income, investments & expenditure were earlier under Sections 68–69D of the Income-tax Act, 1961, are now covered under Chapter VI - Sections 102–105 in the proposed bill, with provisions being reorganized but mostly remains unchanged.

2. Section 263 provides further clarification on inadequate inquiry as an erroneous order and hence, expands the CIT’s revision powers in such cases.

Conclusion

The New Income-Tax Bill, 2025, introduces major reforms to simplify taxation, improve compliance, and tackle tax evasion. Key changes include residency modifications, capital gains tax restructuring, digital taxation, and enhanced anti-avoidance measures. While retaining fundamental tax principles, the Bill modernizes the framework to align with global best practices and India’s evolving economy.

Click here for FAQs, sections, and details from the Income Tax Department on the New Income-tax Bill, 2025.

To stay updated on the key highlights and implications of Budget 2025, read our Blog about Budget 2025-26 here.

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