The enactment of the Income-tax Bill, 2025 (‘the Bill”) marks the most comprehensive reform to Indian direct tax law since the Income-tax Act, 1961. Unlike decades of incremental amendments, this is a full recodification—born of the finance minister’s 2024 announcement, extensive drafting, and 36 sittings of the Select Committee that drew hundreds of stakeholder recommendations.

The government has consistently projected the Bill as a “no policy change” initiative, designed to simplify, modernise and eliminate redundancies. That framing signals continuity in jurisprudence, even as legislative form undergoes sweeping change.

Strategically, the Bill is positioned as a pillar of India’s economic roadmap and a key enabler of the ‘Viksit Bharat @2047’ vision. By retaining current tax rates but recasting provisions in plain, principle-based language, the law seeks to foster predictability, reduce disputes, and align with global best practices. Equally significant is the shift to a “trust-first, scrutinize-later” philosophy, promoting voluntary compliance and reducing adversarial enforcement.

Key structural changes

At the heart of the Bill, lies a repeal-and-savings framework that seeks continuity while resetting the statutory base. From 1 April 2026, the 1961 Act will no longer govern new tax years; the familiar “assessment year/previous year” distinction is replaced by a single “tax year.” Yet, proceedings up to that date will continue under the old law, and existing circulars and instructions remain valid, ensuring the transition feels seamless in practice.

Much of the Bill is language clean-up designed to preserve settled outcomes. Dividend relief akin to section 80M is reinstated to prevent cascading taxation, TDS-linked disallowance rules have been realigned, and section 43B clarified to avoid unintended deductions. Preliminary expense rules now confirm allowance for public issue costs, while R&D and repair deductions remain safeguarded.

On the tax architecture, MAT and AMT are preserved but with refinements: AMT is confined to incentive-linked situations, avoiding unintended hits on LLPs; MAT/AMT rules for business trusts are clarified, and legacy MAT credits are excluded on conversion to LLPs. Capital provisions also see clean-ups — carry-forward of long-term capital losses and thin-cap disallowances is protected, IFSC relocation relief extended to 2030, and non-resident share transfers taxed at a concessional 12.5% rate without indexation or forex adjustments.

For real estate, pre-construction interest deduction now extends to let-out property, vacancy relief is tied to actual rent, and “may occupy” is reinstated for business use. For individuals, the new regime remains default, but special rates on capital gains and dividend/interest continue; residential status retains the 182-day cushion for Indians abroad. On administration, digital search powers are codified, TDS/TCS correction timelines shortened to two years, and refund eligibility clarified.

Corporate compliance overhaul

The Bill shifts compliance towards corporate self-declaration, with companies bearing primary responsibility for accuracy. Provisos and explanations have been folded into subsections, improving readability but creating risk of literal interpretations that depart from established jurisprudence.

While the Select Committee incorporated numerous clarifications, businesses remain concerned that gaps may trigger future litigation in areas like group taxation, associated enterprise rules, and nonprofit conditions. With few circulars promised, corporates must prepare for a regime where certainty is intended, but only careful compliance and evolving judicial interpretation will determine stability in practice.

Implications for cross-border business

The Bill makes targeted changes to cross-border taxation. It is clarified that royalty or fees for technical services between two non-residents are taxable in India only if linked to a business carried on in India. This corrects an overbroad pull in the earlier draft and aligns with international norms, offering relief to global service and licensing arrangements.

Presumptive taxation regimes are also tightened. New presumptive rules are introduced for specialised electronic manufacturing services alongside existing ones for turnkey projects, but the option to declare lower profits through audited accounts has not been expanded, maintaining sectoral discipline.

The more contentious reform lies in the associate enterprise definition. By blending subjective criteria with objective triggers, the law risks drawing in even marginal participation in management, control, or capital—well beyond the intended 26% threshold. Without clarificatory guidance, this widened scope could trigger significant uncertainty and litigation, particularly for multinational groups with complex shareholder or governance structures.

Another flashpoint is the anti-abuse gift provision. Industry sought carve-outs for takeover-code driven price differentials, downstream conversions where entry valuation was already tested, and routine rights or bonus issues. All these aspects have not been specifically addressed in the Bill on the pretext that they amount to policy changes, even though they were acknowledged in the Select Committee’s discussions.

Overall, while the Bill steadies certain cross-border rules, interpretational grey zones—particularly around associated enterprises and anti-abuse provisions—remain live risks for global investors.

Litigation and dispute resolution

The future of litigation under the new law will depend on how consistently the government’s “no policy change” stance is applied in practice. Courts are expected to follow continuity with existing jurisprudence, as they did when the 1961 Act replaced the 1922 Act. The Select Committee also made it clear that many suggestions were turned down because they would amount to a policy change. Even so, some drafting choices could give rise to disputes if interpreted too literally.

One example is fast-tracking demergers under section 233 of the Companies Act, 2013. Tax neutrality should not depend on whether a merger is approved by the NCLT or by the Regional Director, yet the ministry’s comments leave room for uncertainty. A similar issue arises with carry-forward of losses for closely held companies: the Bill uses the phrase “the person,” while practice has always looked to whether 51% of shareholders remain the same.

Conclusion
The Income-tax Bill, 2025 represents a comprehensive recodification aimed at simplifying and modernizing India’s tax framework while preserving continuity with existing law. By enhancing clarity, streamlining compliance, and reducing dispute potential, the Bill provides businesses and individuals with a more predictable and efficient system. Overall, it lays a solid foundation for supporting investment, cross-border activity, and long-term economic growth.

 The author is Partner at Economic Laws Practice. Views are personal.