Income Tax Act 2025: Old wine in new bottle or a Pandora’s Box?

Enactment of Income Tax Act 2025 (‘ITA 2025’)

The Income Tax Bill (‘ITB’) 2025 was tabled in the Lok Sabha on 13 February 2025, focusing on simplifying the complex language of the Income Tax Act, 1961 (ITA 1961) and eliminating redundant provisions without affecting policy changes. On the same day, a Parliamentary Select Committee (‘PSC’) was formed to review the ITB 2025. The PSC submitted its detailed report dated 16 July 2025 after extensive consultations and consideration of stakeholders’ recommendations. An amended version of the ITB 2025 was presented to the Lok Sabha on 21 July 2025 by the PSC.

Consequently, most of the PSC’s recommendations, as well as feedback from other stakeholders, were accepted to convey the correct legislative meaning. These necessitated corrections in drafting, phrase alignment, consequential changes, and cross-referencing. Hence, the ITB 2025 was withdrawn from the Lok Sabha and replaced with a fresh bill to avoid confusion from multiple versions and to provide a clear and updated version with all changes incorporated.

This new legislation, having been approved by both houses of Parliament, received Presidential assent on August 21, 2025, and is set to replace the existing ITA 1961 effective from 1 April 2026. However, it is important to note that some suggestions were not adopted, and certain amendments represent a departure from the provisions of the Income Tax Act, 1961.

Key simplifications in the ITB 2025 include:

• Reducing the word count by nearly half compared to ITA 1961 (from 5.12 lakh to 2.60 lakh).
• Reducing the number of sections from 819 to 536.
• Replacing the terms “assessment year” and “previous year” with the consistent term “tax year” for clarity in understanding, compliance, and reporting.
• Removing approximately 1,200 provisos and 900 explanations and codifying them as sub-sections.
• Simplifying language by replacing archaic phrases to enhance clarity. For instance:
  • “Notwithstanding anything contained” replaced with “irrespective of anything contained”
  • “in accordance with” replaced with “as per”
  • “as may be prescribed” replaced with “prescribed”
• Introducing formulas and an additional 39 tables to succinctly convey information on topics such as salary perquisites, presumptive taxation, and tax deduction/collection at source (TDS/TCS) rates and thresholds.
• Simplifying cross-referencing between different provisions. For example, “sub-clause (ii) of clause (b) of sub-section (1) of section 133” in the existing ITA 1961 is changed to the more reader-friendly “section 133(1)(b)(ii).”
• Removing outdated sections that are no longer applicable, such as investment allowances on new plant and machinery, fringe benefits, and pre-emptive purchases of immovable property by the Government.

Key implications of ITA 2025

1. Effect of converting explanations and provisos to sub-section

• A sub-section, a proviso, and an explanation differ fundamentally in their legal character and interpretative weight, even though all of them form part of the same statutory provision. A sub-section is a substantive component of the law. It creates independent rights, obligations, conditions, or procedures and stands on equal footing with other sub-sections within the same section. Each sub-section is presumed to have full legislative force and is interpreted on its own terms. It does not derive its existence or operation from another part of the section and is not presumed to be merely qualifying or clarificatory in nature.
• A proviso is inherently subordinate to the main provision. Its function is to qualify, restrict, or carve out an exception from the general rule laid down in the section or sub-section to which it is appended. A proviso cannot operate independently, nor can it override or expand the scope of the main enactment. Its role is corrective or protective, ensuring that the main rule does not operate harshly or beyond the legislature’s intent.
• An explanation is primarily clarificatory or declaratory and is intended to explain the meaning of words, remove ambiguity, or clarify legislative intent. Because of its clarificatory nature, an explanation is often applied retrospectively, unless it is clearly substantive. Courts read explanations as integral to the section, but only as interpretative aids rather than independent sources of law.When a legislature repeals an existing statute and replaces it with a new enactment in which provisos and explanations are converted into sub-sections, the interpretation of enactment may now be different. What earlier operated as a limited exception or clarification, dependent on the main provision, now acquires the status of a substantive and independent rule.
• Further, when a sub section is referred in another sub section or section, the explanation and proviso appended to it also needs to be read with the referred section or sub-section as it is an integral part of section/sub-section. Now, when the legislature has elevated the explanations/proviso to sub sections, reference will also be required to all those sub-sections. To illustrate, one such anomaly is created under the Significant Economic Presence (SEP) provisions [S. 9(9)(d),(e) & (f) of ITA 2025 (corresponding to Expl 2A of Sec. 9 of ITA 1961)] please refer point 3 below.

2. Shift from “Previous Year” and “Assessment Year” to “Tax Year”

• Presently, ITA 1961 recognizes the concept of “Previous Year” and “Assessment Year“. “Previous Year” refers to the financial year in which income is to be taxed. Whereas “Assessment Year” refers to a 12-month period starting from 1 April immediately succeeding the “Previous Year”. For instance, for financial year 2025-26, “Previous Year” is 2025-26 whereas “Assessment Year” is 2026-27.
• ITA 2025 now eliminates the reference to two different concepts and seeks to introduce a single concept of “Tax Year”, which aligns directly with the financial year. In the above illustration, Tax Year would be 2025-26 which begins from 1 April 2025, or in case of new business or a source of income newly coming into existence, from the date of business setup or income generation, and ends on the same date on which the relevant financial year ends.

3. Anomaly in Significant Economic Presence (SEP) provisions Sec. 9(9)(d),(e) & (f) of ITA 2025 (corresponding to Expl 2A of Sec. 9 of ITA 1961)

1. ITA 1961:
   • Explanation 2A to Sec 9(1)(i) of ITA 1961 states that the SEP provisions in India are triggered when a non-resident engages in transactions involving goods, services, or property with any person in India, provided that the aggregate payments from such transactions exceed a prescribed threshold during the previous year. Additionally, significant economic presence is established through systematic and continuous solicitation of business activities or interaction with a specified number of users in India.
   • However, second and third proviso to above explanation states that transactions solely related to the purchase of goods for export do not constitute significant economic presence, and only the income attributable to the qualifying transactions will be deemed to accrue in India.
2. ITA 2025 Provision:
   • Under ITA 2025, Sec.9(9)(d) explains and defines SEP on the lines of provisions of ITA 1961. Sec.9(9)(e) provides purchase exclusion for clause (d).  Clause (f)(ii) mentions income reasonably attributable to transaction or activities referred to in clause (d) shall be deemed to accrue or arise in India from any business connection.
3. Impact Analysis:
   • If one read the attribution provision i.e. clause (f), it attributes income to activities covered under SEP i.e. clause (d). The attribution provision does not exclude purchase activity. Thereby it means that income will have to be attributed to even purchasing activity even though it is excluded from business connection or SEP.
   • Ideally, it should have referred to both clause (d) and clause (e), this issue is created as proviso is now a main clause. But, in practice, it is unlikely to have any significant impact considering that the income attributed to purchase activity will not be taxable in India in view of clause (e). Furthermore, in most cases, treaties are likely to relieve taxation in absence of SEP source rule.

4. ITA 2025 clarifies that surcharge paid under any other law can be claimed on actual payment basis u/s 37 of ITA 2025[S.43B of ITA 1961]

• Section 43B of ITA 1961 reads as follows:

“Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of—

(a)  any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or”

• The Supreme Court in CIT vs. K. Shrinivasan [(1972) 83 ITR 346], after referring to legislative history dealing with levy of surcharge and after referring to Article 271 of the Constitution of India which confers power on Parliament to increase taxes or duties by surcharge held that the surcharge is part of income tax. Thus, it may be possible to suggest that surcharge paid under laws other than income tax laws also forms part of base tax.  

• It may be worthwhile to note that the Finance Act 1988 amended Sec. 43B to specifically include “cess or fee” within the scope of Sec. 43B in addition to tax and duty. The Explanatory Circular No. 528 dated 16 Dec 1988 to FA 1988 states that the amendment is by way of clarification and thus cess and fee shall also be governed by Sec. 43B w.e.f. 1 April 1989. The relevant extracts from the Circular are reproduced below:

“21.2 The words “tax” and “duty” have been the subject-matter of judicial interpretation and there is a controversy as to whether they cover statutory levies like cess, fees, etc. Some appellate authorities have held that such cess or fees cannot be covered by the excess “tax” or “duty”. Such an interpretation is against the legislative intent and therefore, by way of clarification, an amendment has been carried out to provide that cess or fees by whatever name called, which have been imposed by any statutory authority, including a local authority, will be allowed as a deduction only if these are actually paid.”

• The Explanatory Circular supports that the term cess has been introduced to clarify that it is otherwise also part of tax/duty. Though there is no explicit mention of surcharge u/s 43B of ITA 1961 , basis Circular and SC ruling , it was possible to suggest that  surcharge forms part of tax.  Basis this, surcharge paid (i.e., under laws other than income tax laws), can be claimed as deduction on actual payment basis u/s 43B of ITA 1961.

• The comparable Section 37 of ITA 2025  reads as follows:

(2) The sums payable for the purposes of sub-section (1), shall be––

(a) tax, duty, cess, surcharge or fee, by whatever name called, levied under any law in force;

• The introduction of the word “surcharge” u/s 37 of ITA 2025 appears to be clarificatory amendment. It is not a case where surcharge was allowed as deduction without actual payment basis u/s 43B of ITA 1961. Thus, under both ITA 1961 and ITA 2025 surcharge (i.e., paid under laws other than income tax laws) can be claimed as deduction on actual payment basis only.

5. Set off of losses and claim of deductions against Presumptive Income

• Under ITA 1961, sections 44AD, 44ADA and 44AE (for residents) and sections 44B to 44BBD (for non-residents) did not expressly prohibit the set-off of losses arising under other heads of income or from non-presumptive businesses. Consequently, in the absence of a specific bar, taxpayers could set off current year losses from house property, income from other sources, non-presumptive business losses, and even brought-forward business losses against presumptive income, though such situations were practically uncommon. To illustrate , taxpayer has two businesses viz. Business A and Business B. Business A qualifies for presumptive tax while Business B is not covered by any presumptive provision. In absence of any restriction, the current year’s business loss and brought forward loss of Business  B  (non-presumptive) can be set-off against the profits of Business A (presumptive).

• ITA 2025 introduces an explicit restriction through sections 58(4) (for residents) and 61(4) (for non-residents), which provide that “any loss, allowance or deduction allowable under the provisions of this Act shall not be allowed against the income computed” under the presumptive scheme. On a plain reading, this provision eliminates the possibility of any set-off, including losses arising from other businesses or heads of income, against presumptive income. Continuing with the illustration stated above, as per the provision of ITA 2025, the current year losses and brought forward business loss of Business of B (non-presumptive) cannot be set off against the income of Business A (presumptive). This represents a clear departure from the position under ITA 1961 and substantially narrows the flexibility available to taxpayers.

• Similarly, under ITA 1961, resident taxpayers claiming certain profit linked tax holidays (s.10A, 10AA, 10B, 10BA or Part C of Chapter VI-A of ITA 1961) cannot opt for presumptive taxation u/s. 44AD pursuant to Explanation (a) to Sec.44AD. However, deductions under Chapter VI-A in relation to expenditures can be claimed in the absence of any specific restrictions mentioned in Sec.44AD. Resident taxpayers offering income u/s 44ADA and 44AE of ITA 1961 can claim Chapter VI-A deductions in relation to qualifying expenditures. The restriction against claiming deductions in these presumptive provisions is against deductions allowable u/s. 30 to 38 of ITA 1961 (Refer Sec.44ADA(2) and 44AE(3)). Also, non-resident taxpayers covered by presumptive income taxation u/s 44B to 44BBD can claim deductions under Chapter VI-A.

• ITA 2025 substantially widens the restriction. Sections 58(4) and 61(4) are worded broadly enough to cover all deductions under the Act, not merely those under the business head. As a result, taxpayers offering presumptive income under ITA 2025 are precluded from claiming any Chapter VIII deductions of ITA 2025

• A possible interpretative argument exists— that “set off” of loss is different from “allowed” referred in Sec.58(2) and consequently, what Sec.58(2) prohibits is allowance of incidental trading loss incurred in the presumptive business (eg. embezzlement by employees or loss of stock due to damage, fire, floods, etc) and not set off of loss computed under the same head for other business (not subject to presumptive taxation) or other head of income.  The statutory bar applies only to “allowance” of losses while computing presumptive income and not to “set-off” governed by separate provisions.

• However, the text of ITA 2025, reinforced by legislative intent as reflected in Select Committee proceedings, suggests a deliberate policy choice to deny both deductions and set-offs. The Ministry of Finance has justified these changes on grounds of simplification, rationalisation, and avoidance of double benefits, emphasizing that presumptive income represents only a small fraction of gross receipts and already provides substantial tax relief. The Government has also highlighted the inconsistency of allowing loss claims in a regime where the maintenance of books is largely dispensed with.

• For ease of understanding, the summary is captured below:

Whether the below mentioned losses can be set off against presumptive income	For Residents		For Non Residents
	ITA 1961 Sec. 44AD/ 44ADA/ 44AE	Sl. No. 1, 2 and 3 of Table in Sec. 58(2) of ITA 2025	ITA 1961 Sec. 44B to 44BBD	ITA 2025 Sl Nos. 1 to 6 of Table in sec. 61(2)
Losses from income from house property	Yes (but practically less likely[1])	No	Yes (but practically less likely)	No
Losses from income from other sources	Yes (but practically less likely)	No	Yes (but practically less likely)	No
Current year losses from non-presumptive business income	Yes (but practically less likely)	No	Yes (but practically less likely)	No
Unabsorbed depreciation	No	No	No	No
Brought Forward business loss	Yes	No	Yes u/s Sec. 44BBC or 44B or 44BBA (but practically less likely)	No
Chapter VI-A deductions	Yes (except for part C which cannot be claimed against presumptive income offered u/s 44AD)	No	Yes	No

• It appears that the issue of claim of deductions under chapter VI-A becomes academic in ITA 2025 in case of resident individuals in majority of the cases considering that more than 95% of individuals may prefer new regime where they don’t pay tax upto Rs. 12 lakhs. 6% of maximum presumptive turnover of Rs. 3 Cr is Rs. 18 lakhs and most taxpayers are unlikely to have exemptions/deductions of Rs. 8 lakhs to opt for old regime. It may be noted that Chapter VIA deductions and House Property loss set off (even for let out property) are not available under new regime. 

• The removal of Chapter VI-A deductions in ITA 2025 may be relevant to resident partnership firms who can presently avail presumptive taxation and Chapter VI- A deductions under ITA 1961 and are not eligible for new regime. Such taxpayers falling under presumptive taxation of Sec.58 of ITA 2025 will lose right to claim Chapter VIII deductions under ITA 2025.

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[1] Not allowable if taxpayer is under default new regime u/s. 115BAC(1A)

6. Clarification on cost of acquisition in case where the capital gains (charged on firm at the time of transfer of capital asset to a partner) is allowed as cost of other assets remaining with the firm (s. 72(5) of ITA 2025 corresponding to Sec.48(iii) of ITA 1961)

• Under section 48(iii) of the ITA 1961 [corresponding to section 72(5) of ITA 2025], a firm is subjected to capital gains if a partner receives any capital asset or money from firm. In such case, the amount charged to capital gains in the hands of the firm is allowed as cost of other assets remaining with firm. For instance, if the firm has 4 assets (A, B, C and D) and it transfers Asset A to one of the partners who retires from the firm in Year 1, then the FMV considered for taxation of capital gains on transfer of A is allocated between remaining assets B, C and D. 

• By adding the phrase “in addition to deductions under sub-section (1)”, ITA 2025 clarifies that the amount charged to capital gains in the hands of firm when the asset was transferred to a partner will be allowed as cost in addition to components covered under sub-section (1) i.e., cost of acquisition, cost of improvement and expenditure incurred in connection with transfer. With reference to above illustration, if the firm subsequently sells Asset B in Year 3, the amount allocated to B when Asset A was transferred to retiring partner will be allowed as deduction in computing capital gains from B in addition to cost of acquisition/improvement of B and expenditure incurred in connection with transfer of B.

7. Exemption from capital gains arising from transfer of long-term capital asset under sections 54, 54EC, 54F etc. of ITA 1961(corresponding sections 82, 85, 86 etc. of ITA 2025)

ITA 1961 provisions:

• The opening part of sections 54, 54EC, 54F etc. uses the language ‘capital gains arising from transfer of long-term capital asset’. The term ‘long-term capital asset’ was defined in erstwhile section 2(29AA) as capital asset which is not a short-term capital asset.

• Section 50 deems that capital gains arising from transfer of depreciable asset shall be deemed to be ‘capital gains arising from short-term capital gains’. The Supreme Court (SC) in the case of CIT v V.S. Dempo Company Ltd [2016] 387 ITR 354 (SC) granted exemption under section 54E of ITA 1961 to the taxpayer in respect of capital gains arising from depreciable asset which otherwise qualifies as long-term capital asset i.e. held for more than 36 months. The rationale for the SC ruling was that fiction created under section 50 of ITA 1961 shall be restricted to the computation provisions only and cannot be extended to other provisions (exemption provisions) of ITA.

• By placing reliance on SC ruling in case of V. S. Dempo (supra) various High Courts and Tribunals have granted benefit of exemption and lower tax rate where a capital asset transferred otherwise qualifies as a long-term capital asset.

ITA 2025 provisions:

• The opening part of sections 82, 85 and 86 of ITA 2025 refers to ‘long-term capital gains’ instead of ‘capital gains arising from transfer of long-term capital asset’.

• The question which arises is whether mention of ‘long-term capital gains’ in sections 82, 85, 86 of ITA 2025 overrides the SC ruling in case of V. S. Dempo (supra).

• One of the stakeholders suggested to the Select Committee that the proposed amendment in Clause 85 of the New Bill, which changes the term “asset” to “gains,” would limit the scope of exemption. This change would mean that deemed short-term capital gains from the transfer of long-term depreciable assets would no longer qualify for exemption. In response, the Ministry of Finance stated that the current wording in the Bill is clear and specifically intended for long-term capital gains, not for long-term assets, and therefore, the existing provisions should remain unchanged. It was further stated that this change aimed to eliminate ambiguities related to the taxation of gains from the sale of depreciable assets, which were previously taxed as short-term capital gains.

Impact Analysis:

• On technical analysis, Section 2(68) of ITA 2025 defines ‘long term capital gain’ as capital gains arising from the transfer of a long-term capital asset. Juxtaposing the definition of section 2(68) into sections 82, 85 and 86 of ITA 2025, the language reads as follows:

ITA 1961 provision (section 54 of ITA 1961)	ITA 2025 provision (section 82 of ITA 2025)
Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto	Where an individual or Hindu undivided family has long-term capital gains (capital gains arising from the transfer of a long-term capital asset) arising from the transfer of a capital asset, being buildings or lands appurtenant thereto

1. Considering the definition of ‘long-term capital gains’ and juxtaposing the same into section 82 of ITA 2025 arguably, there does not seem to be any material difference.

• The ratio laid down by SC in case of V. S. Dempo (supra) may still be applied considering that the thrust of the decision was deeming fiction of one provision may not be imported into another without specific mention.

• In view of the above if the asset is held for more than 24 months i.e. capital asset which qualifies as long-term capital asset, exemption can be claimed on such gains and the fictions of section 50 / 50AA of ITA 1961 (S.74/76 of ITA 2025) cannot be imported into exemption provisions.

8. Virtual digital asset is also a valuable article [S 69A, 69B of ITA 1961 / Sec.104(2) of ITA 2025]

ITA 1961 Provision:

• The concept of ‘virtual digital asset was inserted with effect from 1-4-2022 by the Finance Act, 2022 under the Act. However, there was no clarity on whether the said virtual digital asset would be covered under the provisions of sec 69A and 69B in the expression “other valuable article”.

ITA 2025 Provision:

• S. 104(2) of ITA 2025 has now specifically inserted ‘virtual digital asset’ to be an ‘asset’ for the purposes of the said section. The amendment provides clarity that VDAs are also covered within the ambit of Sec.104 and avoids any litigation on this aspect. VDAs cannot cover within its scope Loyalty Points, Credit Card Rewards,  airmiles, in-app credits, store gift vouchers (not traded or transferable outside the issuer’s platform), etc.

9. Set-off of capital losses Sec 108 of ITA 2025 (corresponding to Sec.70 of ITA 1961)

ITA 1961 Provision:

• Under Sec. 70 of ITA 1961 and Sec. 108 of ITA 2025, a taxpayer can set off losses under the head ‘income from capital gains’ only against capital gains income. However, ITA 1961 provides for a condition that the income against which such loss can be set off should be arrived at under a “similar computation”. 

• This phrase led to a controversy as to whether the set-off of losses under capital gains head is allowed only against income computed under similar mechanism and may not apply when different computational provisions are applied for determining capital gains (e.g. indexation benefit, depreciable assets, slump sale etc). The Mumbai ITAT[1] held that the set-off of capital losses computed after availing indexation benefit cannot be restricted merely because capital gains against which it is sought to be set off are computed without indexation benefit. 

ITA 2025 Provision:

• ITA 2025 now deletes such phrase thereby potentially resulting in reduced litigation on this aspect.

10. Expansion of deeming fiction for TDS on credit made to suspense or any other account

• Presently in ITA 1961, several provisions (namely sections 193, 194A, 194C,194G, 194H, 194-I,194J, 194K, 194LBB, 194LBC, 194Q, 194S, 195 and 196A) mandated TDS at the time of payment or credit, whichever is earlier and also contained a clause to provide that credits to suspense or any other account will be deemed as credit of income to the payee’s account. This is to plug the loophole of avoiding TDS by crediting to any other account head like suspense account instead of payee’s account. There was no provision of collecting TCS when the amount was debited to any other account including suspense account.

• Sec 393(11) extends the deeming fiction of crediting to any account, including suspense accounts, to all provisions of this Chapter, treating such credits as deemed credits to the payee’s account. However, it is fairly arguable that if the payee is not identifiable, TDS obligation cannot arise merely because credit is made to a provision account (Refer, for instance, Industrial Development Bank of India vs. ITO [2007] 107 ITD 45 (Mum.)).

11. Difference in Timing of deduction/collection of TDS/TCS:

Tax Deducted at Source:

• Under ITA 1961, all sections related to TDS specified when TDS should be deducted, whether at the time of payment, or earlier upon credit.

• However, under ITA 2025, in an attempt to consolidate all the sections into one single section, the provisions are tabulated. Table 1 to Sec. 393(1) provides for cases where payments are made to residents. Table 2 to Sec. 393(2) provides for cases where payments are made to non-residents. Table 3 to Sec. 393(3) provides for cases where payments are made to any persons (this includes income by way of winning lotteries, horse races, online gaming, cash withdrawal, etc.) Table 4 to ss 393(4) provides for cases where TDS is not applicable.

• S.393(1)(c)/(2)(b) of ITA 2025 establishes a general rule for the timing of tax deduction, specifying that it should occur at the earlier of credit or payment. In cases where deviations from general timing mentioned under 393(1)(c) / 393(2)(b) are necessary, relevant notes are provided at the end of each serial number in the table. In the following cases, the timing of deducting tax remains unaltered due to the notes appended to it:

ITA 1961	Corresponding Provision as per ITA 2025	Remarks
Sec 194 – Dividend	Sec 393(1) Table (1) Sr no 7.	Note to Sr No 7 of table to Sec.393(1) states that the TDS on dividend is to be deducted at the time of payment/distribution [in line with the provisions of ITA 1961]
Sec 194-IB –  Payment of rent by certain individuals or Hindu undivided family	Sec 393(1) Table (1) Sr no 2(i).	Note 1 to Sr no 2(i) of table to Sec 393(1) states that TDS is to be deducted in the last month of the tax year or in the last month of tenancy on rent paid by Individual or HUF exceeding 50,000 per month [in line with the provisions of ITA 1961]
194R. Deduction of tax on benefit or perquisite in respect of business or profession.	Sec 393(1) Table (1) Sr no 8(iv).	Note 2 to Sr no 8(iv) of table to Sec 393(1) states that TDS is to be deducted before providing such benefit or perquisite [in line with the provisions of ITA 1961]

• However, certain provisions which required TDS at the time of payment under ITA 1961 and for which no specific notes are provided in various Tables in Sec.393will now be impacted by the above deemed credit provision, the said provisions are tabulated below:

ITA 1961	ITA 2025
Section 194LA provided that where any immovable property, other than agricultural land, is compulsorily acquired under any law in force, the person responsible for paying any sum to a resident by way of compensation or enhanced compensation is required to deduct tax at the rate of 10%. Tax shall be deducted at the time of payment of compensation or enhanced compensation.	S. 393(1) Table 1, Sl. No. 3(iii) r.w. 393(1)(c) of ITA 2025 mandates that tax be deducted at source at the earlier of the following events: when the amount is credited to the payee’s account, orwhen payment is made, whether in cash, by cheque, draft, or by any other mode
Sec 194P allows specified banks to deduct TDS at rates in force on total income of specified senior citizens after considering deductions under Chapter VI-A and rebate u/s 87A in case. However, no time of deduction was specifically mentioned in the sec.	393(1)Table 1 Sl No. 8(iii) r.w. 393(1)(c) mandates that tax be deducted at source at the earlier of the following events: when the amount is credited to the payee’s account, orwhen payment is made, whether in cash, by cheque, draft, or by any other mode
Sec 194DA mandates the deduction of TDS on maturity proceeds of life insurance policies that are not exempt under Sec 10 (10D) at the time of payment.	Sec 393(1), Table (1) Sl No 8(i) r.w. 393(1)(c) mandates to deduct tax at the earlier of credit to the payee’s account or when the payment is made

• In relation to the change in timing of Sec 194LA of ITA 1961 (corresponding to Sec. 393(1) Table 1, Sl. No. 3(iii) of ITA 2025), Sec. 67(12) of ITA 2025 (corresponding to Sec. 45(5) of ITA 1961) taxes the capital gains arising on transfer of a capital asset by way of compulsory acquisition under any law at the time of receipt of compensation or enhanced compensation. The above amendment in deduction of TDS at the time of payment or credit whichever is earlier will create hardship for the taxpayer in cases where TDS will be deducted in the year of credit and payment is made in subsequent years. This will create a mismatch between the year of TDS deduction by the payer and the year of income reporting by the payee. Taxpayers can comply with Section 67(12) of ITA 2025 by reporting compensation income in the year it is received and may carry forward TDS credits from prior years to offset tax liabilities in the year the income is recognized. However, practically, such mismatch may not arise in the generality of cases since compensation or enhanced compensation is generally awarded by the Government (which typically follows cash basis of accounting) and enhanced compensation is paid pursuant to court orders which generally would not involve prior credit in books.

Tax Collected at Source:

         ITA 1961 Provision:

• Section 206C(1F) of ITA 1961 mandates that tax be collected at source at the rate of 1% on the entire sale consideration, at the time of receipt from the buyer, if the value of a motor vehicle or other specified goods exceeds Rs. 10 lakhs.

         ITA 2025 Provision:

• Section 394(1) Table Sr no 6 of ITA 2025, retains the framework of Section 206C of ITA 1961. However, there is a slight difference with respect to the timing for the collection of tax at source towards motor vehicles and notified goods. With respect to all goods wherein tax is to be collected, including motor vehicles or specified goods, it is mentioned under Section 394(1) that tax shall be collected at the earliest of the following:

1. At the time of debiting the amount payable by the buyer, licensee, or lessee, to the account of the seller or licensor, or lessor, or
   1. At the time of receipt of such amount from the said buyer, licensee, or lessee in cash or by way of a cheque, a draft, or any other mode

• The change has brought consistency with other provision of TCS with respect to timing of tax collection. Illustratively, if a motor car dealer was earlier collecting TCS at the time of receipt of consideration for motor vehicle of value exceeding Rs. 10 lakhs under ITA 1961, he would now be required to collect TCS at the time of debit to customer’s account or receipt from customer, whichever is earlier, under ITA 2025. This may prepone the timing of TCS collection and payment if there is time interregnum between the two (eg. credit sale to customer).

12. The impact of language change on TDS thresholds from predictive to definitive

• S. 193, 194, 194A, 194C, 194D, 194H, 194J, 194K, 194-O,194R and 194T of ITA 1961 use the phrase “sum credited or paid or likely to be credited or paid” while providing aggregate monetary thresholds. This phrase introduces a level of prediction. It suggests that if there is a possibility or expectation that the amount to be paid may exceed the threshold in the future, but it has not exceeded yet, then also TDS is required to be deducted. For instance, in context of payment to contractor, if value of contract awarded to a contractor and expected to be paid during the financial year exceeds Rs. 1 lakh, the payer is technically required to deduct TDS from the first payment itself even if it does not exceed individual payment limit of Rs. 30,000. 

• Under ITA 2025, all of these sections are now consolidated into single sec 393. Sec 393 uses the phrase “the amount or aggregate of amounts exceeds the threshold limit”,  thereby indicating a definitive condition that TDS would be deducted upon reaching or exceeding the prescribed threshold but not before reaching such threshold. As the term “likely to exceed” is missing under ITA 2025, indicating thereby that the threshold limit is applicable irrespective of whether the aggregate amount exceeds in future. Thus, in the above illustration, TDS is not required until the cumulative threshold of Rs. 1 lakh or individual threshold of Rs. 30,000 is exceeded.

• Sec 393(1)/(3) of ITA 2025 encompasses the monetary thresholds for all the sections referred above of ITA 1961 (except for sec 194 and 194-O) without using the phrase “likely to exceed”. Thus, Sec 194 and Sec 194-O are the only 2 sections not impacted by the above change as their thresholds are housed under 393(4) and not u/s. 393(1)/(3).

• A section wise comparison of the aforementioned provisions under ITA 1961 and ITA 2025 is provided below:

Sr.	Particulars	Threshold under ITA 1961 and 2025	Section as per ITA 2025
I	Sections where phrase “likely to exceed” is omitted in ITA 2025
1.	193. Interest on securities	₹ 10,000	393(1) r.w. Sr 5(i) of Table to 393(1) column D
2.	194A. Interest other than “Interest on securities”	₹ 1,00,000 in the case of a senior citizen;₹ 50,000 in case of person other than senior citizen.	393(1) r.w. Sr 5(ii) of Table to 393(1) column D
3.	194C. Payments to contractors	(a) ₹ 30000; for any such sum; and (b) ₹ 100000 in case of aggregate of such sums	393(1) r.w. Sr 6(i) of Table to 393(1) column D
4.	194D. Insurance commission	₹ 20,000	393(1) r.w. Sr 1(i) of Table to 393(1) column D
5.	194H. Commission or brokerage	₹ 20,000	393(1) r.w. Sr 1(ii) of Table to 393(1) column D
6.	194J. Fees for professional or technical services	(i) for (a), (b), (d) and (e) of Col. B: ₹ 50,000. (ii) for (c) of Col. B: Nil.	393(1) r.w. Sr 6(iii) of Table to 393(1) column D
7.	194K. Income in respect of units	₹ 10,000	393(1) r.w. Sr 4(i) of Table to 393(1) column D
8.	194R. Deduction of tax on benefit or perquisite in respect of business or profession	₹ 20,000	393(1) r.w. Sr 8(iv) of Table to 393(1) column D
9.	194T. Payments to partners of firms	₹ 20,000	393(3) r.w. Sr 7 of Table to 393(3) column D
II	Sections where phrase “likely to exceed” continues in ITA 2025
1	194. Dividends	₹10,000	393(4) r.w. Sr no 10 of Table to 393(4), column C
2	194-O Payment of certain sums by e-commerce operator to e-commerce participant	₹ 5,00,000 where the e-commerce participant is an individual or HUF and has furnished PAN or Aadhaar	393(4) r.w. Sr no 11 of Table to 393(4), column C

13. Minor change in threshold limit for TDS on payment in respect of certain sections:

Section 194DA of ITA 1961/ Sec. 393(1) Table, SI. No. 8(i) of ITA 2025:

• Under Sec.194DA of ITA 1961, any payment related to a life insurance policy to a resident is subject to a 2% TDS on the income component if the gross payment is Rs. 1,00,000 or more, with tax deducted at the time of payment.

• ITA 2025 maintains the essence of this provision but introduces a minor change in the threshold applicability. Section 393(1) Table: Sr no 8(i) specifies that tax shall be deducted only if the total amount exceeds Rs. 1,00,000, meaning no TDS is required if the amount is exactly Rs. 1,00,000. In contrast, under ITA 1961, TDS liability arose even when the amount was exactly Rs. 1,00,000.

Sec 194Q of ITA 1961 corresponding to Sec. 393(1) Table (1) Sr no 8(ii) of ITA 2025:

• S 194Q of ITA 1961, provides for deduction of TDS at 0.1% on purchase of goods of value or aggregate of such value exceeding fifty lakh rupees in any previous year.

• S. 393(1) Table (1) Sr no 8(ii) of ITA 2025 column B mentions “Any sum exceeding fifty lakh rupees for purchase of any goods.” The column D mentions threshold as per Note 1. Whereas note 1(b) mentions “The tax shall be deducted on the sum exceeding fifty lakh rupees”. The word aggregate is missing thereby creating an ambiguity as to whether threshold of Rs. 50 lakhs is to be applied qua single transaction or in aggregate for all transactions. As the intention was to make no policy changes, this appears to be a drafting error requiring suitable representation.

14. Certificate for deduction of TDS at lower rates extended to all TDS provisions [Section 197(1) of ITA 1961 /Section 395(1) of ITA 2025]

ITA 1961 Provision:

• Under ITA 1961, the option to obtain a certificate for lower rate TDS was restricted to specific provisions, including Sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA, 194LBA, 194LBB, 194LBC, 194M, 194-O, 194Q, and 195. Consequently, taxpayers whose income fell under other provisions had limited recourse for reducing TDS, even if their overall tax liability was lower than the standard deduction rate.

         ITA 2025 provision:

• S. 395(1) of ITA 2025 has addressed the previous limitation by expanding the scope for obtaining lower deduction or collection certificates to entire chapter. Such certificates can now be issued for any income or sum subject to TDS under Chapter XIX-B. This change promotes uniformity by eliminating inconsistencies where only certain types of income were eligible for lower deduction certificates, while others were not.

• By virtue of this amendment the sections of ITA 1961 which are now eligible for lower TDS are Sec. 192A, 194B, 194BA, 194BB, 194DA, 194E, 194EE, , 194-IA, 194-IB, 194-IC, 194LB, 194LC, 194LD, 194N, 194P, 194R , 194S, 194T, 195A, 196, 196A, 196B, 196C and 196D.As Sec. 395 of ITA 2025 has expanded the scope of applying for lower certificate to the entire chapter, application for lower TCS can also be applied which was not provided for in ITA 1961.

15. Time limit to furnish a correction statement of the TDS/TCS statement is reduced [Section 200(3) of ITA 1961 /Section397(3)(f) of ITA 2025]

ITA 1961 Provision:

• S. 200 of ITA 1961 prescribes the duties of a person responsible for deducting tax under Chapter XVII-B. Sub-section (3) mandates that, after depositing the tax deducted to the credit of the Central Government, the deductor must prepare a statement of the TDS deducted and furnish it to the prescribed authority within the prescribed time.

• The proviso to Section 200 allows the deductor to file a correction statement with the prescribed authority for rectifying errors or for adding, deleting, or updating information in the original statement. A corresponding framework exists under Section 206C for tax collection at source (TCS).

• Earlier, while there was a prescribed time limit for furnishing TDS/TCS statement however, no such limit existed for furnishing correction statements. This led to the possibility of infinite revisions, creating scope for misuse and practical hardship for deductees/collectees.

• To address this, the Finance (No. 2) Act, 2024, effective from 01-04-2025, amended sections 200 and 206C to provide that no correction statement may be filed after 6 years from the end of the financial year in which the original TDS/TCS statement are required to be delivered.

         ITA 2025 provisions:

• ITA 2025 has curtailed the time limit for filing TDS/TCS correction statements from 6 years to 2 years. Section 397(3)(f) provides that the deductee or collectee may file a correction statement within 2 years from the end of the tax year in which the original statement was due. It should be noted that the Income-tax (No. 1) Bill, 2025, introduced in the Lok Sabha, proposed a 6-year limit consistent with ITA 1961, however the amendment was made in revised bill at enactment stage while moving the Bill in Lok Sabha on 11 August 2025.

• The rationale for amendment at enactment stage of ITA 2025 without any discussion or debate is incomprehensible considering that the unequivocal object of entire ITA 2025 as endorsed by Select Committee was to preserve the policy of ITA 1961 i.e. only to simplify language without substantive change. The time limit of 6 years was recently introduced w.e.f. 1 April 2025. The reduction in time limit will prevent deductors/collectors from giving proper credit to deductees/ collectees even in bonafide genuine cases e.g. mergers/demergers with prior appointed dates, assessment of corresponding income in hands of other person, clubbing of incomes, joint holding of property where TDS is made in name of first holder, etc.

16. Binding effect of CBDT guidelines [Section 194BA(4), 194-O(5), 194Q(4), 194R(3), 194S(7) /New section 400(2)]

         ITA 1961 Provision:

• Under ITA 1961, various TDS sections provide that if any difficulty arises in giving effect to the provisions of the section, the Board may, with the prior approval of the Central Government, issue guidelines to remove the difficulty. Every such guideline issued by the Board shall be laid before each House of Parliament, and it shall be binding on the income-tax authorities and on the person liable to deduct income-tax.

• The list of such sections is:
  1. Section 194BA: TDS on winnings from online games
  1. Section 194-O: TDS from payment by e-commerce operator
  1. Section 194Q: TDS on Purchase of Goods
  1. Section 194R: TDS on benefit or perquisite arising from business or Profession
  1. Section 194S: TDS on payment for the transfer of Virtual Digital Assets (VDAs)

• Similarly, Section 206C(1J) of ITA 1961 empowers the Central Government to issue guidelines in respect of the collection of TCS from the remittances made under the Liberalised Remittance Scheme (LRS) and the sale of overseas tour packages, which will be binding on tax authorities and collectors.

         ITA 2025 Provision:

• A new section 400 has been introduced in ITA 2025, which empowers the Board to issue guidelines with the previous approval of the Central Government, to remove any difficulty arising in giving effect to the provisions of this Chapter, and these guidelines shall be laid before each House of Parliament. ITA 2025 extends the powers to issue guidelines in respect of the entire Chapter XIX, which includes all provisions of TDS, TCS, advance tax, collection & recovery and interest for defaults. Further, the provision contained in ITA 1961, which required that these guidelines shall be binding on the person responsible for deducting income tax or on the income-tax authorities subordinate to the CBDT, has been removed.

• The removal of the binding effect of the guidelines on taxpayers and income-tax authorities may alter the legal status of such guidelines. In ITA 1961, this binding effect created a statutory obligation for both the deductor and the departmental authorities to follow the CBDT’s interpretation. If deductors complied with a CBDT guideline, they could take comfort that their action would not later be challenged by the tax department, even if a different interpretation emerged subsequently. The provision acted as a hurdle for a deductor/collector who bonafide believed and/or was professionally advised that the view expressed in CBDT guideline does not represent correct position in law (eg. requirement to deduct tax on free samples even if it did not result in any benefit or perquisite for the recipient). However, it was fairly arguable that CBDT guidelines for removal of difficulty which are contrary to the statutory provisions are not binding on the taxpayer.

• With the binding nature now removed, CBDT’s guidelines may be viewed more as clarificatory or advisory documents rather than mandatory directions. Deductors would no longer have any obligation to follow these guidelines where they bonafide believe and/or are professionally advised that the view expressed in CBDT guideline does not represent correct position in law. This change is beneficial to the deductors/collectors.

• As mentioned above, under ITA 1961, only TDS sec 194BA(4), 194-O(5), 194Q(4), 194R(3), 194S(7) and TCS sec 206C(1J) mentioned that the guidelines should be laid before both Houses of Parliament and it will be binding on the assesses and income tax authorities. However, sec 400(2) of ITA 2025, extends the power to issue guidelines for all the provisions of this chapter while maintaining the same procedure of laying the guidelines before both the Houses of Parliament without any further procedure.

Closing Remarks

The Income Tax Act, 2025 is still in its formative phase of interpretation, and the tax ecosystem—taxpayers, practitioners and administrators—is collectively engaged in the process of understanding and adapting to the new legislative framework. While the Act was presented as a consolidation and simplification exercise with no intended policy shifts, a closer reading reveals that several changes have been introduced consciously and with discernible policy consequences. Some of these amendments have undoubtedly been made to put an end to long-standing controversies and operate in favour of taxpayers, such as the express allowance of deduction for surcharge paid under other enactments.

At the same time, the Act also introduces provisions that materially alter the tax position in certain areas. The withdrawal of the ability to set off losses and to claim Chapter VI-A (now Chapter VIII) deductions against specified presumptive incomes, the tightening of timelines for filing correction statements in the TDS regime, and similar measures reflect a clear departure from the earlier legislative balance.

Further, the stylistic overhaul of the statute—particularly the simplification of language and the conversion of provisos and explanations into sub-sections—while commendable in intent, carries with it the risk of unintended interpretational consequences. Structural changes of this nature are not merely cosmetic; they may dilute the applicability of established judicial precedents and give rise to fresh debates on scope, applicability, and legislative intent. Ironically, a statute designed to simplify may, in certain areas, expand the frontiers of litigation.

This article highlights only a few illustrative instances of the changes brought about by the Income Tax Act, 2025. As the law begins to be tested in assessments and appellate proceedings, further nuances—both beneficial and adverse—are likely to emerge. For now, the tax community finds itself in a phase of learning, recalibration, and cautious acceptance, with the true contours of the new Act destined to be shaped not merely by its text, but by its interpretation and application in the years to come.

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[1] Vipul A Shah [2011] 47 SOT 189