Review of the Income Tax Act, 2025 The Income Tax Act, 2025 has been established and is set to come into effect from 1 April 2026. This new legislatio
Review of the Income Tax Act, 2025
The Income Tax Act, 2025, has been established and is set to come into effect from 1 April 2026. This new legislation aims to simplify the taxation landscape through redesigned forms and rules that allow ordinary citizens to comply with their tax obligations without difficulty. To ensure a smooth transition, any income deemed as such under the repealed 1961 Act will continue to be treated as income under the 2025 Act.
The proposals focus on several key areas:
Ease of Living and Compliance
- Tax Exemptions and Reductions: Interest awarded by the Motor Accident Claims Tribunal to natural persons will be exempt from income tax, and TCS rates for overseas tour packages, education, and medical purposes under the Liberalised Remittance Scheme (LRS) will be reduced to 2%.
- Streamlined Filing: The deadline for revising tax returns is extended to 31 March, while the filing due date for non-audit business cases and trusts is staggered to 31 August.
- Automated Processes: Small taxpayers will be able to obtain lower or nil deduction certificates through an automated, rule-based process instead of manual applications.
- Foreign Asset Disclosure: A one-time, six-month Foreign Asset Disclosure Scheme (FAST-DS, 2026) will be introduced for taxpayers to disclose overseas income or assets below specific thresholds (up to ₹1 crore or ₹5 crore, depending on the category) with immunity from prosecution.
Rationalisation of Penalty and Prosecution
- Integrated Proceedings: To reduce the cost of litigation and multiplicity of proceedings, the Government proposes integrating assessment and penalty proceedings into a single common order.
- Decriminalisation: Certain technical defaults, such as the non-production of books of account, are being decriminalised, and the maximum imprisonment for remaining offences is generally being reduced to two years.
- Fee Conversion: Penalties for technical failures, like not getting accounts audited or failing to furnish transfer pricing reports, will be converted into fees.
Corporate and Sector-Specific Proposals
- IT and Technology: Various software-related services will be clubbed into a single Information Technology Services category with a common safe harbour margin of 15.5% and an increased threshold of ₹2,000 crore.
- Global Investment: To boost the data centre industry, a tax holiday until 2047 is proposed for foreign companies providing global cloud services using Indian data centres.
- MAT Reforms: Minimum Alternate Tax (MAT) will become a final tax, with its rate reduced from 15% to 14% starting 1 April 2026. To incentivise the shift to the new tax regime, the set-off of brought-forward MAT credit will only be permitted for companies that migrate to the new regime.
- Capital Markets: Securities Transaction Tax (STT) on Futures and Options is proposed to increase to 0.05% and 0.15%, respectively, to generate additional revenue and provide a course correction in the segment.
- Share Buybacks: Taxation on buybacks will now be treated as Capital Gains for all shareholders, though promoters will face an additional tax (effective rate of 22% for corporates and 30% for others) to prevent tax arbitrage.
COMMENTS