Income Tax Bill 2025: New Changes in Profits and Gains of Business and Profession [Read Bill]

The new Income Tax Bill 2025 introduced huge reforms in the chapter on profits and gains of business and profession. These changes aim to simplify the tax structure, reduce redundant provisions, and make compliance more straightforward for businesses and professionals.

A Streamlined Approach to Tax Calculation

The fundamental method of computing income from business and profession remains unchanged. Taxpayers will continue using the adjustment method, starting with the profit or loss as per the profit and loss account and making necessary additions or deductions based on tax laws. However, the new bill eliminates outdated provisions and introduces structured tables and formulas, making complex regulations easier to understand.

Key improvements include:

• Reduction in Word Count: The chapter has been condensed from 50,000 words in the old Act to 25,000 words in the new bill.
• Fewer Sections: The number of sections has been reduced by 40%, from 65 to 41, enhancing clarity.
• Reorganized Structure: Related provisions are now grouped together for better readability.

Rearranging Sections for Better Comprehension

Over the decades, frequent amendments led to scattered provisions, making it difficult for taxpayers to navigate the law. The new bill logically rearranges sections to enhance clarity:

• Deductions on actual payments (earlier in Section 43B) are now grouped with other expenditure-related deductions, ensuring consistency.
• Capital expenditures eligible for deductions in the first year, such as scientific research expenses, investment-linked deductions, and agricultural extension projects, are now grouped together.
• Definition sections, which were previously placed between operational provisions, have been moved to the end, improving the reading experience.

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Employee Welfare Deductions

Earlier, provisions related to employee welfare contributions (e.g., Provident Fund, Gratuity Fund, Superannuation Fund) were scattered across multiple sections (36(1)(iv), 36(1)(v), 40A(7), 43B), leading to compliance difficulties.

What’s New?

• All employee welfare deduction provisions have been consolidated into a single section (Proposed Section 28).
• Clear guidelines on:
• Due dates for depositing employee contributions.
• Eligibility conditions for deductions.
• Compliance requirements to avoid litigation.

Want a deeper insight into the Income Tax Bill, 2025? Click here

Simplified Provisions for Bad Debt Deductions

The earlier tax law contained multiple clauses, provisos, and explanations related to bad and doubtful debts, making compliance burdensome. The new bill merges provisions from Sections 36(1)(vii), 36(1)(viia), and 36(2) into a single section, eliminating complexity. A tabular format has been introduced for banks and financial institutions, providing a structured and percentage-based deduction system. This change is expected to reduce disputes and litigation significantly.

Depreciation Rules

Depreciation deductions under the old Section 32 contained multiple provisos and explanations, making them difficult to understand. The new Section 33 simplifies these provisions by reducing the word count by 40 percent without altering depreciation rates or allowance methods. The revised structure provides clearer eligibility conditions for depreciation deductions and introduces formula-based explanations and tabular formats for determining Written Down Value (WDV) and Actual Cost. Ambiguous provisions, such as goodwill adjustments, have also been removed.

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Foreign Exchange Fluctuations

Earlier, Section 43A, which dealt with foreign exchange fluctuation adjustments, was complex and open to multiple interpretations.

What’s New?

• The bill introduces a mathematical formula to determine foreign exchange variation in liability.
• A structured mechanism for adding or deducting fluctuations to asset cost.
• Reduced ambiguity, ensuring consistent tax treatment.

This structured approach is expected to reduce disputes and improve compliance.

Decluttering the Act by Moving Niche Provisions to Schedules

Certain provisions, such as those related to site restoration funds and development accounts for tea, coffee, and rubber industries, apply to a very limited number of taxpayers. These provisions have now been moved to schedules, making the core tax provisions more streamlined while ensuring accessibility for those who need them.

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Deferred Expenditure

Businesses often incur expenses that are deductible over multiple years, such as telecom license acquisition costs, spectrum fees, expenditures related to mergers and acquisitions, and voluntary retirement schemes.

The new bill consolidates these provisions into a single tabular format, clearly defining deduction periods and eligibility conditions. This change improves transparency, allows businesses to plan their deductions more efficiently, and reduces the compliance burden.

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Presumptive Taxation: A More Organized Framework

Presumptive taxation is a simplified tax scheme for small businesses and professionals, allowing them to pay tax based on a fixed percentage of turnover without maintaining detailed accounts.

What’s Changed?

• Previously, provisions were scattered across multiple sections (44AD, 44ADA, 44AE), causing confusion.
• The new bill consolidates all presumptive taxation provisions into a single section.
• A tabular format now clearly defines:
• Applicable tax rates for different business categories.
• Eligibility conditions: Reduced compliance burden, ensuring better tax transparency.

Presumptive Taxation for Non-Residents

• Five separate provisions for non-resident taxation have been merged into a single section.
• A new presumptive tax scheme for non-resident electronic goods manufacturers has been introduced.

Business Reorganization of Cooperative Banks

• Depreciation and deduction formulas for cooperative banks undergoing mergers have been merged.
• Redundant provisions removed, retaining the original intent while simplifying calculations.

Revenue Recognition and Inventory Valuation

• No major changes introduced in Section 43CB (service contract profits) and Section 145A (inventory valuation).
• Minor drafting refinements for better clarity

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