5. Parliamentary Institutions and Legislative Functioning

e. Income-tax Bill, 2025: Parliamentary Oversight on Taxation

Notes for Students

Context of the Article: The Income-tax Bill, 2025, introduced in the Lok Sabha on 13 February 2025, seeks to replace the Income-tax Act, 1961. It represents a major reform in India’s tax law, aimed at simplification, modernization, and increasing transparency. The Bill is currently under scrutiny by a Select Committee of the Lok Sabha.It was referred to a Select Committee of the Lok Sabha, chaired by Mr. Baijayant Panda, which submitted its report on July 21, 2025, the first day of the Monsoon Session.

UPSC Paper Topic Belongs To: 

GS Paper III: Indian Economy – Taxation and Fiscal Policy
GS Paper II: Governance – Role of Parliament and Oversight Mechanisms
GS Paper III: E-Governance – Digital Tax Enforcement and Privacy

Dimensions of the Article:

• Simplification and Modernization of Tax Laws
• Role of Parliamentary Committees in Legislative Oversight
• Taxpayer Rights and Digital Surveillance
• Legislative Delegation vs. Parliamentary Accountability
• Stakeholder Engagement in Tax Reform

Why in News

Recently in February 2025, the Income-tax Bill, 2025 is part of a broader exercise to overhaul India’s direct tax regime. It reduces the original Act’s complexity and simplifies the language to aid comprehension and compliance. The Bill also expands the scope of tax investigations into digital spaces and introduces changes like replacing the concept of ‘Assessment Year’ with ‘Tax Year.’ The Bill is currently being reviewed by a Select Committee headed by Baijayant Panda, with recommendations expected before the Monsoon session of Parliament. Stakeholder consultations are ongoing.

Features

1. Simplification of Tax Law
   1. Reduces length and number of sections in the original Income-tax Act, 1961.
   2. Removes hundreds of explanations, provisos, and exceptions.
   3. Aims to promote voluntary compliance through clarity.
2. Introduction of Tax Year Concept
   1. Replaces ‘Assessment Year’ with ‘Tax Year‘ beginning on April 1 each year.
   2. Designed to reduce confusion in filing and processing returns.
3. Inclusion of Digital Assets and Surveillance Powers
   1. Tax authorities granted access to ‘virtual digital spaces’ including phones, emails, cloud storage, and social media during search operations.
   2. Raises privacy concerns and demands judicial and parliamentary oversight.
4. Faceless Procedures and Scheme-Making Power
   1. Continues with faceless assessments, enhancing transparency.
   2. Enables Central Government to formulate schemes through notification, with later parliamentary scrutiny.
5. Decriminalization Measures
   1. Converts non-filing of returns into a non-cognisable offence.
   2. Aims to reduce fear-driven compliance and align with taxpayer rights.

Explainers

1. Why is this Bill significant?
   The Income-tax Act of 1961, originally enacted based on Wanchoo Committee recommendations, had become increasingly convoluted due to the addition of nearly 1,200 provisos, over 900 explanations, and numerous judicial interpretations over time. As of 2024, India’s direct tax legislation was among the longest in the world, leading to significant litigation and compliance challenges. The World Bank’s Ease of Doing Business reports and assessments by NITI Aayog have frequently flagged tax complexity as a barrier to formalisation and economic activity. The 2025 Bill streamlines this by reducing the Act from 823 to approximately 622 pages, consolidating 47 chapters into 23, and eliminating archaic terms. These reforms are aligned with global best practices and are intended to create a predictable, litigation-free, and taxpayer-friendly environment.
2. What are the concerns around digital access?
   The Bill grants tax authorities the power to access digital repositories such as emails, mobile devices, social media platforms, and cloud storage during investigations, without requiring prior judicial sanction. While the government justifies this as a necessary step to address digital-era tax evasion, it raises red flags in light of the Supreme Court’s judgment in Justice K.S. Puttaswamy v. Union of India (2017), which recognised privacy as a fundamental right under Article 21. Legal experts and civil society have raised concerns that unchecked access to personal and professional digital data could lead to misuse and surveillance. The issue calls for strong procedural safeguards, data protection mechanisms, and either prior judicial approval or prompt post-facto oversight.
3. What is the role of the Select Committee?
   The Bill has been referred to a 31-member Select Committee of the Lok Sabha, chaired by Baijayant Panda, to conduct a detailed clause-by-clause scrutiny. The Committee has invited public submissions from stakeholders such as ICAI, industry bodies, tax professionals, and civil society organisations. Their task is to assess the clarity, operational feasibility, and constitutional alignment of the Bill. This process exemplifies robust parliamentary oversight—a core pillar of representative democracy—wherein laws with far-reaching implications are refined through bipartisan consultation before final enactment.
4. What are the implications for governance?
   The Bill strengthens e-governance through the institutionalisation of faceless assessments, aimed at reducing corruption and increasing efficiency in tax administration. Additionally, it empowers the Central Government to notify tax-related schemes through executive orders. While this offers administrative flexibility, it also centralises power, potentially weakening legislative scrutiny. For instance, concerns have been raised that such delegated powers could bypass Parliament and dilute accountability. Therefore, a fine balance must be maintained where scheme notifications are promptly tabled in Parliament for review and, if necessary, modification.
5. How are stakeholders reacting?
   Reactions to the Bill have been mixed. The Institute of Chartered Accountants of India (ICAI) and tax professionals have largely welcomed the simplification and restructuring efforts, particularly the reduction in legal jargon and redundant provisions. However, many experts have flagged the lack of safeguards in digital enforcement powers as a potential threat to civil liberties. Concerns have also been voiced about the tight timeline for transitioning to the new ‘Tax Year’ concept by 1 April 2026, with suggestions for phased implementation. Business groups have recommended issuing detailed guidelines and digital literacy programs to ensure smooth compliance during the transition phase.

Conclusion:

The Income-tax Bill, 2025, represents a progressive attempt to modernize and simplify tax legislation. It promotes digital governance, clarity, and voluntary compliance. However, the provisions related to digital surveillance and wide executive powers call for vigilant parliamentary oversight. Moving forward, the government must incorporate stakeholder feedback, ensure data privacy, and design a smooth transition strategy. The final form of the Bill, post-committee review, will reveal how well it balances governance efficiency with taxpayer rights.