The devil is in the details: New income tax law sparks questions, experts call for clarity

THE UNION FINANCE ministry has set the ball rolling towards simplification of India’s direct tax laws. As announced in the Budget, finance minister Nirmala Sitharaman tabled the Income-tax Bill, 2025, on February 13 to repeal the Income-tax Act, 1961. The Bill has been referred to a select committee of Parliament, chaired by BJP MP Baijayant Jay Panda.

After the tabling of the Bill, the finance ministry had said that it marks a significant step towards simplifying the language and structure of the Income-tax Act, 1961. “No major tax policy changes have been done to ensure continuity and certainty and no modifications of tax rates, preserving predictability for taxpayers,” the finance ministry said in a release.

The Income-tax Bill, 2025, significantly curtails the redundancies that have crept into the 1961 Act (see table). However, certain provisions contained in the fine print of the Bill may need further clarifications, believe experts.

“Broadly, the government has taken simplification measures. This was the main purpose. In the fine print, we noticed five to six crucial changes, which could be seen as amendments to the existing provisions of the Income-tax Act, 1961. In my view, those changes could be inadvertent errors and may not be intended,” says Punit Shah, partner at tax firm Dhruva Advisors.

Shah explains that according to the provisions contained in clause 263(1)(a)(ix) of the Bill, a person who intends to make a claim of refund under chapter XX must file returns within the “due date”. According to the Income-tax Act, 1961, filing of returns within the due date was not mandatory to be eligible to claim a refund. “According to me this may not be the intent. Say for example, a person has refund worth ₹100 crore. And he files his tax returns one day late. Will the government deny the refund?” asks Shah, adding that the firm is planning to make representation to the finance ministry to seek clarification on some of the proposed amendments.

“Basically, the provision says that no refund will be issued if the return of income is filed after due date. This was never the requirement before. We do not see how it is justified because these are genuine amounts that have been paid by the taxpayer. A procedural lapse cannot deprive a taxpayer of his genuine dues,” says Riaz Thingna, partner (Tax), Grant Thornton Bharat.

“It would lead to unjust enrichment of the exchequer. If these matters go to court, anything creating unjust enrichment will go against the principles of natural justice and should not be sustained. Penal provisions already exist on late filing, which can continue,” Thingna points out. The provision of no refund on delayed returns will be applicable to all taxpayers across categories.

Tax practitioners point to incoherence between the announcements on tax collected at source (TCS) on education loan remittances. The Budget announced TCS will be removed on remittances for educational purposes, where such remittance is out of a bank loan. But provisions pertaining to this are missing in the proposed legislation.

The Bill empowers tax authorities to access digital assets — such as email and cloud servers — during search and seizure cases. “Virtual digital space (VDS) has been defined in the new Bill to include email/remote/cloud servers, social media account, online investment/banking/trading accounts, website, etc. Further, the definition of computer system also includes VDS,” says a Grant Thornton note on the Bill. In search and seizure cases, the authorised officer can access the VDS and will have power to override the access code if the information is in VDS, it adds.

Tax practitioners are of the view that more clarity will come when the Act comes into force on April 1, 2026. Parliamentary deliberations on the Bill will continue for now and amendments will be moved according to recommendations made by the parliamentary committee and approved by the Cabinet. The government will notify the rules once the Bill is passed by Parliament.