Introduction

In August 2025, Parliament passed the Income Tax Bill, 2025, a shorter and simplified legislation with 23 chapters (down from 47) and 536 sections (down from 819). The Bill aims to reduce discretion with clearer provisions, introduce taxpayer-friendly reforms like longer timelines for return updation, and curb harassment. However, it has also expanded the powers of tax officials, especially over digital information and personal data, raising concerns about privacy and misuse.

Need for Overhauling the 1961 Income Tax Framework

1. Obsolete framework: The Income Tax Act, 1961 had become outdated, riddled with amendments, and difficult for laypersons to interpret.
2. Harassment potential: Excessive discretion allowed officials to harass taxpayers.
3. Structural reform: New law cuts down chapters from 47 to 23 and sections from 819 to 536, simplifying compliance.
4. Greater clarity: More tables (57, up from 18) and formulae (46, up from 6), along with examples to aid understanding.

From Draft Bill to Final Law: The Legislative Journey

1. Initial draft (Feb 2025): Introduced in Parliament but referred to a Select Committee given the Bill’s significance.
2. Committee review: Headed by Baijayant Panda, with MPs across parties; submitted a detailed report in July 2025.
3. Withdrawal & replacement: Government withdrew the earlier version on August 8, 2025, to incorporate committee recommendations.
4. Final Bill (Aug 11, 2025): Introduced and passed the same day, avoiding confusion through multiple versions.

Key Reforms and Structural Simplifications:

1. No slab changes: Finance Minister clarified tax rates and slabs remain unchanged.
2. Technical refinements: Clearer provisions for Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT), separated into sub-sections.
3. Taxpayer-friendly features: Returns can be updated up to 4 years from the end of the relevant assessment year without penalty; Assessment reopening period reduced to 5 years.

Simplification Gains and Emerging Concerns

1. Expanded search powers: Tax officers can now demand passwords of electronic devices, emails, and social media accounts.
2. Override access: Officials may bypass access codes to computer systems if passwords are not shared.
3. Privacy concerns: Unlike earlier provisions (limited to inspection and lock-breaking), the new law extends to personal digital data, raising red flags.

Government’s Rationale for Expanding Digital Powers

1. Rationale: Much of financial data today is exchanged via messaging apps, emails, or stored digitally.
2. Committee stance: Though some dissent was recorded, the Select Committee accepted the government’s view that these provisions are essential for effective investigation.

Conclusion

The Income Tax Bill, 2025 is a watershed reform, simplifying one of India’s most complex laws. While the codification of taxpayer-friendly provisions marks a progressive step, the enhanced surveillance powers granted to tax authorities highlight the thin line between efficiency and overreach. The challenge ahead lies in ensuring that simplification does not come at the cost of citizens’ trust and constitutional rights.

PYQ Relevance

Practice Mains Question

The Income Tax Bill, 2025 seeks to simplify India’s tax regime but also introduces stronger surveillance powers for officials. Discuss the balance between efficiency, transparency, and taxpayer rights. (250 words)

Mapping Microthemes for GS Papers

1. GS-I: Evolution of economic policies post-Independence.
2. GS-II: Governance, legislative reforms, fundamental rights (privacy).
3. GS-III: Fiscal reforms, tax policy, ease of doing business.
4. GS-IV: Ethics of surveillance, transparency, accountability.

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now