Income Tax Bill, 2025 to replace Income Tax Act, 1961: Key Changes

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs, Income Tax,e-Filing- Individuals, Firms, Companies | 0

Finance Minister Nirmala Sitharaman has presented the new Income Tax Bill 2025 in Parliament today, February 13, 2025. This presentation marks a significant step in reforming India’s direct tax system.

Key Features of the Bill

The Income Tax Bill 2025 is designed to replace to the six-decade old Income Tax Act, 1961, with the goal of making direct taxes simpler.

Simplification and Structural Overhaul:

The idea is to get rid of old, confusing parts of the law and make the language easier to understand. Currently, the tax law has 298 sections and 14 schedules, but the new bill aims to shorten this considerably. The new bill is a substantial document at 622 pages, but it’s expected to cut down the number of sections by about 25-30%. This should make it easier for taxpayers to understand the rules and follow them.

Introduction of ‘Tax Year’ Concept:

One key change is the introduction of the term “Tax Year,” replacing “Assessment Year” and “Previous Year.” This aligns India’s tax system with the financial year and international practices.

This change is aimed at simplifying tax compliance and reducing ambiguities in filing returns, aligning with best global practices.

No Change in Tax Rates and Slabs:

The bill does not propose changes to existing tax rates or slabs. The current categories of tax heads including salaries, house property, and capital gains remain unchanged.

Emphasis on Digital Transactions:

The bill strongly promotes digital transactions. It includes provisions for easier electronic record-keeping and tax filing, reflecting the global shift towards digital finance. Virtual Digital Assets (VDAs), such as cryptocurrencies, are now recognized and taxed like other assets.

Residency Criteria with clearer Guidelines:

Under Section 6 of the 1961 Act, an individual was considered a resident of India if they stayed in the country for 182 days in a financial year or 60 days in specific cases. However, Clause 6 of the Bill retains these broad parameters but has brought forth refined provisions for individuals with multiple citizenships or complex residency situations. This change provides greater transparency and eliminates loopholes that were often exploited in international tax planning.

Revised Heads of Income and Deductions

Traditionally, income has been classified into five heads – Salaries, House Property, Business/Profession, Capital Gains, and Other Sources, all of which remains in the new bill. However, Clauses 13 to 59 expand these categories to explicitly include income from virtual assets, digital businesses, and online earnings.

The revisions modernize income classifications while ensuring that new-age revenue streams are properly accounted for under tax laws.

Capital Gains and other deductions Overhaul

The 1961 Act offered various deductions and exemptions under Sections 10 and 80C to 80U, covering investments, donations, and other expenses.

The 2025 Bill, through Clauses 11 to 154, consolidates these deductions and introduces new provisions benefiting startups, digital businesses, and renewable energy investments. Additionally, the standard deduction for salaried individuals has been increased to ₹75,000, providing significant relief to middle-income taxpayers.

The taxation of capital gains, previously covered under Sections 45 to 55A, remains largely intact in the new bill but is dealt with key refinements. Clauses 67 to 91 introduce specific provisions for virtual digital assets (VDAs) and update holding period thresholds for certain asset classes.

Modern investment instruments such as cryptocurrencies and digital securities are also slated to be accommodated within the new provisions by means of these inclusions.

Automation and Faceless Assessments

.Previously, tax administration under Sections 139 to 158 relied heavily on manual processes for return filing, audits, and assessments. The new bill, in Clauses 263 to 389, mandates e-filing, faceless assessments, and automated taxpayer interactions, reducing human intervention and increasing transparency.

Business Thresholds for Presumptive Taxation:

For businesses, the threshold for the presumptive tax scheme is proposed to be increased. Businesses with a turnover of up to ₹3 crore can now opt for this scheme, up from the previous limit of ₹2 crore. The threshold for professionals has also been raised from ₹50 lakh to ₹75 lakh.

Tax Audits and Compliance:

Regarding tax audits, Chartered Accountants (CAs) will continue to be the primary professionals responsible. The bill does not include Company Secretaries (CSs) or Cost Accountants (CMAs) in this role. The emphasis on digital processes and reduced direct interaction aims to improve compliance and lessen the risk of harassment for taxpayers.

Stricter Compliance

The General Anti-Avoidance Rules (GAAR) that had a limited scope under Sections 95 to 102 of the Income Tax Act, 1961 have been significantly strengthened in the new bill. Clauses 178 to 184 provide for broader GAAR coverage, stricter scrutiny of impermissible tax arrangements, transactions lacking commercial substance and enhanced measures against tax evasion.

Non-Profit Organizations

While Sections 11 to 13 of the Income Tax Act, 1961 Act provided tax exemptions for non-profit entities, they lacked detailed compliance measures. Clauses 332 to 355 in the new bill introduce a comprehensive regulatory framework that imposes stricter compliance and reporting requirements to prevent misuse of tax benefits.

Dispute Resolution Mechanism

Under the 1961 Act, taxpayers had access to a Dispute Resolution Panel (DRP ) under Section 144C, mainly for foreign companies. The 2025 Bill, through Clause 275, expands the DRP’s scope and introduces a Dispute Resolution Committee (DRC ) under Clause 379, catering specifically to small and medium taxpayers for quicker and more efficient dispute resolution.

Speedy Redressal

Clauses 268 to 296 of the new bill gives tax officers expanded powers to request asset and liability statements, introduces faceless scrutiny through Clause 273, and shortens reassessment timelines by means of Clauses 279 to 285.

The appellate process has also been streamlined, with first appeals now allowed at the Joint Commissioner level (Clause 356), while the ITAT and High Court procedures (Clauses 362-365) have been simplified for efficiency. A new Board for Advance Rulings has also been introduced through Clause 381 to improve tax predictability for businesses.

Implications for Taxpayers

The immense changes introduced through the Income Tax Bill, 2025 aims to streamline taxation, eliminate ambiguities, and promote compliance through automation, digital inclusion, and modernized tax rules.

The introduction of faceless assessments, expanded digital income classifications, and stricter anti-evasion measures paves the way for India’s tax system to navigate through the next phase of economic growth.

Process and Implementation

After it’s introduced, committees will review it. It will go to the Standing Committee on Finance for their suggestions, and then the cabinet will review it again before it goes back to Parliament for a final vote. The plan is for the new law to take effect on April 1, 2026, which is the beginning of the new financial year.

Major Reform

 This new bill is part of a bigger effort to update tax laws, lessen the amount of legal disputes over taxes, and make the tax rules clearer.

The introduction and later implementation of the 2025 Income Tax Bill is a major change to how taxes work in India. The goal is to make tax laws more transparent and simpler, while also adapting to the current economic situation.

CBDT extends deadline for furnishing belated / revised ITRs for Asst Year 2024-25 to January 15th, 2025

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs, Income Tax,e-Filing- Individuals, Firms, Companies | 0
The deadline for furnishing belated or revised Income Tax Returns (ITRs) for the Assessment Year (AY) 2024-25 has been extended from December 31, 2024, to January 15, 2025.

The Central Board of Direct Taxes (CBDT) has announced an extension for furnishing belated or revised income tax returns for the Assessment Year (AY) 2024-25. In a recent notification, the CBDT exercised its powers under Section 119 of the Income-tax Act, 1961, to extend the deadline for resident individuals.

The Central Board of Direct Taxes (CBDT) has announced a significant extension for taxpayers

The deadline for furnishing belated or revised Income Tax Returns (ITRs) for the Assessment Year (AY) 2024-25 has been extended from December 31, 2024, to January 15, 2025.

What does this mean to Taxpayers?

This extension provides taxpayers with additional time to file their belated returns under Section 139(4) or revised returns under Section 139(5) of the Income-tax Act, 1961

This move is particularly beneficial for those who missed the initial filing deadline of July 31, 2024, or need to correct unintentional errors or omissions in their original filings.

Rationale for the Extension

The CBDT’s decision to extend the deadline is aimed at reducing the stress on taxpayers and ensuring they have ample time to comply with their tax obligations. This extension is especially helpful for individuals who may have received intimations for mismatches in their Annual Information System (AIS) and reported income or transactions.

Penalties and Fees

It’s important to note that filing belated returns usually incurs penalties, including an interest charge of 1% per month under Section 234A and late filing fees amounting to ₹5,000 for incomes exceeding ₹5 lakh or ₹1,000 for incomes below this threshold. However, the revised returns do not attract penalties and can be filed multiple times within the allowed period.

Welcome reliefs

The extension is a welcome relief for many taxpayers, providing them with the necessary time to ensure their tax filings are accurate and complete. It’s a reminder of the importance of staying informed and proactive about tax obligations to avoid last-minute stress.

https://incometaxindia.gov.in/communications/circular/circular-no-21-2024.pdf

Tax Audit Report due date extended to 07-October-2024

by | posted in: Corporate Updates, Economy, Business Updates, Corporate Affairs, Income Tax,e-Filing- Individuals, Firms, Companies | 0
Considering the difficulties faced by taxpayers in electronic filing of various audit reports under the Income Tax Act, the deadline is being extended from September 30 to October 7.
CBDT has extended the specified date of furnishing of Tax Audit Report under any provision of the Act for the Financial Year 2023-24, which was 30th September, 2024 to 07th October, 2024.
 
The reason behind the extension is because of difficulties faced by the taxpayers and other stakeholders in the electronic filing of various reports.
 
In its latest report, CBDT said, “On consideration of difficulties faced by the taxpayers and other stakeholders in electronic filing of various reports of audit under the provisions of the Income-tax Act,1961 (Act), the Central Board of Direct Taxes (CBDT), in the exercise of its powers under Section 119 of the Act, extends the specified date of furnishing of report of audit under any provision of the Act for the Previous Year 2023-24, which was 30th September, 2024 in the case of assessees referred in clause (a) of Explanation 2 to sub-section (1) of section 139 of the Act, to 071h October, 2024.”
 
Tax Audit involves an expression of the tax auditor’s opinion on the truth and correctness of certain factual details, furnished by the assessee to the Income Tax Authorities to enable correct assessment of total income considering all allowances, deductions, losses, adjustments, exemptions etc. and determination of tax thereon.
 
It is conducted to ensure proper maintenance and correctness of books of accounts by the taxpayer and certification of same by the CA. This is to discourage tax avoidance and evasion, the requirement of a tax audit that was introduced by inserting a new section 44AB in the Income Tax Act.
 
There are two types of forms for filing income tax audit reports namely 3CA-3CD and 3CB-3CD.
Form 3CA-3CD is applicable in case of a person who is required by or under any law to get their accounts audited; while Form 3CB-3CD is applicable in case of a person not being a person referred above i.e. where accounts are not required to be audited under any other law.
 
Meanwhile, rule 6G prescribes the manner of reporting and furnishing of Report of Audit of accounts to be furnished under section 44AB, which is meant for the audit of accounts of certain persons carrying on business or profession.
 

CBDT Circular -10-2024

 

CBDT Extends Due Date for Filing Form 10 A/10 AB

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs, Income Tax,e-Filing- Individuals, Firms, Companies | 0

CBDT extends due date for filing Form 10A/10AB upto 30th June, 2024.
The CBDT), has issued Circular No. 07/2024 dated 25.04.2024 further extending the due date for filing Form 10A/ Form 10AB under the Income-tax Act, 1961 (the ‘Act’) upto 30 th June, 2024.

Considering the representations received by CBDT requesting for further extension of the due date for filing such Forms, the CBDT has extended the due date of filing Form 10A/ Form 10AB until 30th June, 2024

Form 10 A – Form 10 AB –

The Central Board of Direct Taxes ( CBDT ), has issued Circular No. 07/2024 dated 25.04.2024 further extending the due date for filing Form 10A/ Form 10AB under the Income-tax Act, 1961 ( the ‘Act’ ) upto 30th June, 2024.

CBDT had earlier extended the due date for filing Form 10A/ Form 10AB by trusts, institutions and funds multiple times to mitigate genuine hardships of the taxpayers.

The last such extension was made by Circular No. 06/2023 extending the date to 30.09.2023.

Considering the representations received by CBDT requesting for further extension of due date for filing of such Forms beyond the last extended date of 30.09.2023, and to avoid genuine hardships to taxpayers,

CBDT has extended the due date of filing Form 10A/ Form 10AB up to 30th June, 2024, in respect of certain provisions of section 10(23C)/ section 12A/ section 80G/ and section 35 of the Act.

Form 10B enables a taxpayer to file an audit report if the taxpayer has applied for or is already registered as charitable or religious trust/institution by filing Form 10A. Form 10B is accessed by the CA added by the taxpayer under the My CA service and is assigned the relevant form.

It was further clarified by CBDT that, if any such existing trust, institution or fund had failed to file Form 10A for AY 2022-23 within the extended due date, and subsequently, applied for provisional registration as a new entity and received Form 10AC, can also now avail this opportunity to surrender the said Form 10AC and apply for registration for AY 2022-23 as an existing trust, institution or fund, in Form 10A till 30th June 2024.

It was also clarified that those trusts, institutions or funds whose applications for re-registration were rejected solely on the grounds of late filing or filing under the wrong section code, may also submit fresh applications in Form 10AB within the aforesaid extended deadline of 30th June 2024.

The applications as per Form 10A/ Form 10AB shall be filed electronically through the e-filing portal of the Income Tax Department.

Source: CBDT Circular No. 7/2024 dated 25th April 2024

CBDT rulings relating to donations made by a trust / institution to another trust / institution.

by | posted in: Corporate & Business Advisory Services, Income Tax,e-Filing- Individuals, Firms, Companies | 0

Only 85% of the eligible donations made by a trust or institution registered under Section 12AB to another trust or institution registered under Section 12AB or approved under Section 10(23C) shall be treated as the application.

The amendment introduced in the Finance Act, 2023 has significant implications for eligible Trusts and institutions. Let’s delve into the key points:

  1. Eligible Donations Treatment:
    • When an eligible Trust or institution donates to another eligible Trust or institution, the donation is considered an application for charitable or religious purposes.
    • However, this treatment applies only to 85% of the donated amount. The remaining 15% is not considered an application.
    • For example, if a Trust donates INR 100, it is treated as having applied INR 85 for charitable or religious activities.
  2. Investment Exemption:
    • The 15% portion of the donation that is not considered an application does not need to be invested in specified modes under section 11(5) of the Income-tax Act (ITA).
    • This exemption applies because the entire INR 100 donation has been made to another Trust or institution.
  3. Corpus Donations:
    • The amendment emphasizes that donations should not be towards corpus.
    • Corpus donations are not eligible for the 85% application treatment.
  4. Clarity from CBDT:
    • The Central Board of Direct Taxes (CBDT) has clarified the computation of exemption for such donations.
    • The clarification reiterates the 85% application rule and provides guidance on how to handle eligible donations.

In summary, this amendment encourages donations between eligible Trusts and institutions while ensuring that the funds are primarily used for charitable or religious purposes. It streamlines the treatment of donations and exempts the 15% portion from investment requirements.

ITR filing for AY 2024-25 – New Regime & Old Regime-How to file

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs, Income Tax,e-Filing- Individuals, Firms, Companies | 0
ITR-1, ITR-2 and ITR-4 have been enabled by the Income Tax department for taxpayers to file their Tax Returns for Asst Year 2024-25.

Income Tax Return Form of ITR-1, 2 and 4 are enabled to file through Online mode with prefilled data at the Income Tax e-filing portal, for Assessment Year 2024-25.

In the above, the new income tax regime has become the default option for taxpayers, in the Assessment Year 2024-25 (relating to the financial year ended March 31, 2024). Taxpayers who fail to specify their preference between the old and new regime will have their taxes processed under the New Regime.

However, taxpayers wishing to adhere to old taxation norms have been granted flexibility to change their preference, allowing them to switch between old and new regimes.

The frequency of such switches, however, is conditional on specific types of income.

Income from Salaries

Salaried individuals have the flexibility to switch between the new and old tax regimes multiple times within each financial year.

The new tax regime offers fewer tax deductions and exemptions compared to the old tax regime, which provides various deductions under Chapter VI A from taxable income.

Income from business or profession

Individuals with income from business or profession can only make a one-time choice.

For instance, if an individual with business income switches from the old to the new regime in FY2023, they will not be eligible to switch again.

Once an individual with business income opts out of the new tax regime, they cannot opt back in for the new tax regime in the future.

How to switch while filing ITR

The Central Board of Direct Taxes (CBDT) has introduced two new income tax return forms, ITR-1 (SAHAJ) and ITR-4 (SUGAM), for the Assessment Year 2024-25.

ITR Form 1 now includes the option to select the tax regime. For ITR 4 (individuals with business or professional income), taxpayers will need to file form 10-IEA to opt out of the new tax regime.

Previously, individuals had to fill out Form 10-IE to choose the new tax regime. However, Form 10-IE, which allowed individuals to opt into the new tax regime, has been discontinued.

This change aims to make the new tax regime the default setting, starting from the financial year 2023-24. Therefore, the new tax regime will automatically apply unless individuals take specific action to opt for the old regime.

Old tax regime

The old tax regime offers numerous tax exemptions and deductions for individuals. Commonly claimed exemptions and deductions include allowances such as House Rent Allowance (HRA) and Leave Travel Allowance (LTA), as well as deductions under Sections 80C, 80D, 80CCD(1b), 80CCD(2), and various others.

New tax regime

In the new tax regime, the exemptions and deductions available in the Old Regime are not applicable. If the taxable income (after all deductions) under the old regime is below Rs 5 lakh, no tax is levied. Conversely, under the New Regime, the entire income will be tax-free if the taxable income is under Rs 7 lakh.

Which form to choose:

ITR-1 is filed by individuals, including salaried class and senior citizens.

ITR-2 is filed by businesses and professionals who have opted for presumptive taxation and those individuals whose annual income doesn’t exceed Rs 50 lakh.

ITR-4 is for resident individuals, HUFs and firms (other than LLP) having total income up to Rs 50 lakh and having income from business and profession which is computed under Sections 44AD, 44ADA or 44AE and agricultural income up to Rs 5,000.

Source: https://www.incometax.gov.in/iec/foportal//latest-news#

Income Tax Advisory for Trusts / Institutions

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs, Income Tax,e-Filing- Individuals, Firms, Companies | 0
                                                                  ATTENTION TRUSTS/ INSTITUTIONS                         08-Mar-2024

Income of any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or subclause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 (hereinafter referred to as trust or institution under the first regime) of the Income-tax Act, 1961 (hereinafter referred to as the Act) or any trust or institution registered under section 12AA or section 12AB of the Act (hereinafter referred to as trust or institution under the second regime) is exempt subject to fulfilment of certain conditions specified under various sections of the Act.

One of the conditions required to be fulfilled by the trust or institution in order to be eligible to claim exemption under the first regime, is laid down in clause (b) of the tenth proviso to clause (23C) of section 10 of the Act. This states that in case the total income of the trust or institution, as computed under the Act without giving effect to the provisions of exemption under the first regime, exceeds the maximum amount which is not chargeable to income-tax in any previous year, the trust or institution is required to get its accounts audited and furnish the audit report in the prescribed Form before the specified date.

A similar condition is in place for trust or institution under the second regime in subclause (ii) of clause (b) of sub-section (1 ) of section 12A of the Act.

Rule 16CC and 17B of the Income-tax Rules, 1962 (hereinafter referred to as the Rules) prescribe the form of audit report for trust or institution under the first and second regime respectively. They provide that the report of audit of the accounts of a trust or institution, shall be furnished in –

(a) Form No. l0B where,

(i) the total income of trust or institution, exceeds rupees five crores during the previous year; or

(ii) such trust or institution has received any foreign contribution during the previous year; or

(iii)such trust or institution has applied any part of its income outside India during the previous year;

(b) Form No. 10BB in other cases.

The new forms, Form No. l0B/ Form No. l0BB, were notified vide Notification No. 7 of 2023 dated 21st February, 2023. The above prescription was put in place w.e.f. 01.04.2023, vide the Income-tax (Third Amendment) Rules, 2023, and is therefore, effective for assessment year 2023-24 and subsequent assessment years. The due date for furnishing such audit reports for the A.Y. 2023-24 was 31st October, 2023.

It has come to the attention of the Board that in a number of cases trusts/ institutions have furnished audit report in Form No. l0B, where Form No. 10BB was required to be furnished for the A.Y. 2023-24. Similarly, in a number of cases trusts/ institutions have furnished audit report in Form No. 10BB, where Form No. l0B was required to be furnished for the A.Y. 2023-24. As noted above, non-furnishing of audit report in the prescribed form would result in denial of exemption in such cases as it is one of the conditions which is required to be satisfied for claim of exemption.

In view of the above, the Central Board of Direct Taxes, in exercise of its powers under section 119 of the Act has allowed those trusts/ institutions which have furnished audit report on or before 31st October, 2023 in Form No. l0B where Form No. 10BB was applicable and vice-versa, to furnish the audit report under clause (b) of the tenth proviso to clause (23C) of section 10 and sub-clause (ii) of clause (b) of sub-section (1) of section l2A of the Income-tax Act, 1961, in the applicable Form No. l0B/ 10BB for the assessment year 2023-24, on or before 31st March, 2024. Please refer to CBDT Circular 2/2024 dated: 05th March 2024. Please furnish audit report in correct prescribed form for AY 2023-24 on or before 31st March 2024 to claim exemption.

Source: Central Board of Direct Taxes Circular