Income Tax Bill 2025: From Tax Evasion to Crypto, What Works and What Doesn't

The Income Tax Bill 2025 is all set to be presented in Parliament as the Monsoon Session begins Monday, 21 July.

The Income Tax Bill’s focus on textual clarity sidesteps the pressing need for structural reforms.

(Photo: Kamran Akther/The Quint)

(The Income Tax Bill 2025 is slated to be tabled in Parliament as the Monsoon Session begins Monday, 21 July. The bill, which was tabled in Lok Sabha in February this year, will be presented again in Parliament after a parliamentary committee's proposed changes.)

After nearly five decades, India’s income tax landscape is set for a major overhaul with the introduction of the Income Tax Bill 2025. With promises of simplification and modernisation, this legislative shift has been hailed as a long-awaited reform aimed at bringing clarity and ease to taxpayers across the nation.

But as the dust of anticipation settles, a closer examination reveals a more nuanced reality. 

Navigating India's Tax Evolution

The Income Tax Act of 1961 laid the foundation for India’s fiscal policy, but over the decades, its complexities grew, leading to significant challenges for both taxpayers and the administration. With its intricate tax slabs, multiple exemptions, and convoluted legal language, the old regime imposed heavy compliance burdens.

Taxpayers were required to navigate a labyrinth of deductions, including popular ones under Sections 80C, 80D, and house rent allowance (HRA exemptions).

While these provisions were intended to provide relief, they demanded meticulous documentation and a deep understanding of tax laws, making the filing process tedious, especially for the salaried middle class. 

This complexity also opened doors to tax evasion and exploitation of loopholes. High-income earners, in particular, could strategically use exemptions to significantly reduce their taxable income, leading to revenue leakage.

In fact, India's tax-to-GDP ratio stood at approximately 10 percent in 2023 – one of the lowest among emerging economies – reflecting the inefficiencies in revenue collection. 

India's tax-to-GDP ratio stood at around 10 percent in 2023, one of the lowest among emerging economies.

(Source: CEIC)

Additionally, the dependence on manual filings and paper-based documentation created administrative backlogs and slowed down the processing of returns and refunds. As of March 2024, the amount stuck in unresolved tax disputes had escalated to Rs 15.4 lakh crore, underscoring the old system’s legal ambiguities.

These challenges not only stifled economic efficiency but also discouraged voluntary compliance, impacting the government’s fiscal health. 

One of the most significant reforms is the shift toward a streamlined tax regime that minimises exemptions and deductions, thereby simplifying calculations and closing loopholes.

By replacing the terms "assessment year" and "previous year" with the more straightforward "tax year," the bill aligns with global standards, reducing ambiguity and enhancing taxpayer clarity.

Where the Bill Falls Short on Clarity

In response to these long-standing issues, the Income Tax Bill 2025 was introduced to simplify and modernise the tax system. The bill, which was announced by Finance Minister Nirmala Sitharaman during her Budget speech on 1 February, was introduced in the Lok Sabha on 13 February.

On the surface, the bill presents an impressive transformation by reducing the number of sections from 819 to 536 and condensing the total pages from 823 to 622. Such streamlining suggests a more accessible tax code, supposedly cutting through the labyrinth of legal jargon that has long plagued taxpayers.

Yet, a critical look suggests that these changes are largely cosmetic. The reduction mainly stems from rephrasing and reorganising existing clauses rather than introducing substantive policy reforms. The core complexities of the tax system, which have historically confused and burdened taxpayers, remain largely untouched. 

Moreover, the bill’s focus on textual clarity sidesteps the pressing need for structural reforms. Despite the facade of modernisation, the new bill fails to address significant issues like broadening the tax base, curbing tax evasion, and revisiting outdated tax brackets. These omissions raise questions about the bill's potential to create a more equitable tax system. 

Adding to the irony of its so-called simplification, the bill introduces a staggering 57 tables and 46 formulae, compared to the previous act’s 18 tables and 6 formulae — effectively making compliance even more complex for the average taxpayer.

The Digital Promises and Gaps

A transformative feature of the new regime is its focus on digital integration. Faceless assessments and appeals, along with mandatory electronic filings, enhance transparency and reduce human intervention, minimising opportunities for corruption.

This digital overhaul is expected to accelerate the processing of returns and refunds, providing a seamless experience for taxpayers who previously faced delays due to manual systems. Additionally, the new framework aims to enhance revenue collection by broadening the tax base and tightening regulations against tax avoidance. By simplifying capital gains taxation and introducing stricter rules, the government targets high-income earners who previously exploited exemptions. This shift is also expected to improve India’s tax-to-GDP ratio, contributing to fiscal consolidation. 

One glaring shortfall is its limited approach to digital integration. While the bill introduces faceless assessments and mandatory electronic filings, it stops short of creating a fully integrated digital ecosystem that could significantly reduce compliance burdens.

For instance, advanced data analytics and artificial intelligence (AI) could have been employed to detect tax evasion patterns proactively. This oversight limits the bill’s potential to enhance efficiency and transparency in tax administration. 

Equally concerning is the bill's failure to address tax evasion effectively. While it aims to broaden the tax base and close loopholes, it lacks stringent anti-evasion measures, leaving room for manipulation. In 2023-24 alone, tax evasion accounted for an estimated Rs 2.02 lakh crore in lost revenue.

Despite this staggering figure, the bill introduces no radical mechanisms to curb evasion, such as enhanced scrutiny of high-value transactions or stricter penalties for non-compliance. This gap undermines the integrity of the tax system and perpetuates inequities, as honest taxpayers bear a disproportionate burden. 

Misses on Inflation, Stakeholder Consultations

Another significant drawback is the lack of inflation adjustments. The bill fails to incorporate mechanisms to index tax brackets and deductions to inflation. This oversight risks bracket creep, where taxpayers are pushed into higher tax slabs merely due to nominal income growth rather than real purchasing power increases.

With inflation averaging 6 percent in recent years, this could erode disposable incomes and negatively impact consumer spending, slowing economic growth. 

Moreover, the ambiguity in the implementation timeline adds to the uncertainty. While the bill is set to take effect from 1 April 2026, it does not provide a detailed roadmap for transition. This lack of clarity creates confusion among taxpayers and tax professionals who are expected to adapt to the new system. A phased implementation plan, coupled with extensive awareness campaigns, could have eased this transition. 

The bill also suffers from insufficient stakeholder consultation.

Unlike successful tax reforms in other countries, which incorporated extensive public and industry feedback, the drafting of this bill appears to have been largely top-down.

By not engaging a broad spectrum of stakeholders, including industry experts, tax professionals, and common taxpayers, the bill risks overlooking practical challenges and ground-level realities. 

Perhaps the most glaring shortfall lies in its approach to progressive taxation. By not revising tax rates or introducing new slabs, the bill misses an opportunity to reduce income inequality, leaving existing disparities intact. Ultimately, while the Income Tax Bill 2025 brings notable administrative reforms, its failure to address fundamental policy concerns prevents it from being the transformative overhaul India’s tax system truly needs. 

A Tightened Grip on Crypto

In a first, the bill tightens its grip on cryptocurrency, making compliance more intricate while leaving investors with little room to manoeuvre.

Crypto transactions must now be meticulously reported to tax authorities, with platforms mandated to identify users and furnish transaction details within 30 days. A failure to do so invites scrutiny, with inaccuracies requiring correction within just 10 days.

Despite promises of simplification, the bill sticks to its harsh 30 percent tax on crypto gains, allowing no deductions beyond acquisition cost, effectively treating digital assets like gambling winnings. The controversial 1 percent tax deducted at source (TDS) on crypto transfers remains, applying to transactions exceeding Rs 50,000 for individuals and Rs 10,000 for others.

In a move signaling tougher enforcement, the bill now presumes that any undisclosed crypto assets found during tax raids belong to the person in possession, unless proven otherwise. Losses from crypto trades remain non-adjustable against other gains, unlike in traditional investments, further isolating digital assets within the tax system.

Despite the buzz around modernisation, the new tax bill doesn’t revolutionise crypto taxation. It rather doubles down on existing rules, keeping India’s stance on digital assets as rigid as ever.

A Reform in Need of Refinement

While the Income Tax Bill 2025 represents an earnest attempt to modernise India’s tax structure, it ultimately falls short of being the transformative reform it aspires to be.

Without comprehensive structural changes, the bill risks becoming another bureaucratic reshuffle rather than a meaningful step toward a more equitable and efficient tax system.

(This article was first published on 14 February 2025.)

(Deepanshu Mohan is a Professor of Economics, Dean, IDEAS, Office of Inter-Disciplinary Studies, and Director of Centre for New Economics Studies (CNES), OP Jindal Global University. He is a Visiting Professor at the London School of Economics, and a 2024 Fall Academic Visitor to the Faculty of Asian and Middle Eastern Studies, University of Oxford. Ankur Singh is a Research Assistants with Centre for New Economics Studies (CNES) and members of the InfoSphere team. Aditi Desai is a Senior Research Analyst with Centre for New Economics Studies (CNES). This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)