The Income Tax Act of 1961 is 64 years old. It was written before computers existed, before the internet existed, and long before a Meesho seller in Jaipur could run a ₹50L/year business from a smartphone. The law grew around its own inconsistencies for six decades — provisos added to provisos, explanations appended to explanations, until the Act ran to 4.5 lakh words, 298 sections, and 23 chapters of legal archaeology that even experienced CAs keep a reference guide open for.
On February 13, 2025, the government introduced the Income Tax Bill, 2025 in Lok Sabha — a complete rewrite that keeps tax rates identical but cuts the word count to 2.6 lakh, sections to 536, and eliminates 1,200 provisos that existed only because previous governments were afraid to delete them. Here's what it means for your business.
What the Bill Actually Changes (and What It Doesn't)
Start with what stays exactly the same, because this is where most confusion begins.
Unchanged:
- All income tax slab rates and percentages
- The ₹12 lakh zero-tax threshold from Budget 2025
- TDS rates including the 0.1% Section 194O rate for marketplace sellers
- Capital gains tax rates and holding periods
- Deductions like 80C, 80D (under old regime)
- The GST system — entirely separate law, unaffected
Changed:
The bill rewrites the structure and language of income tax law — not the substance. Think of it less as a new tax law and more as a translation of the old one into plain English (and plain Hindi), with the contradictions resolved and the dead wood removed.
The single most significant structural change for regular filers: the abolition of "previous year" and "assessment year" as separate concepts.
The Previous Year / Assessment Year Problem — Finally Fixed
Here is a question every new business owner asks their CA at least once: "Why do I file my 2024-25 income in AY 2025-26? What's the difference?"
The answer is a historical artifact. Under the 1961 Act, income earned during the "previous year" (financial year, say FY 2024-25) is assessed in the "assessment year" (AY 2025-26 — the year after). You file an ITR for AY 2025-26 to report income earned in FY 2024-25. The year in which you earned money and the year you report it are different — and the forms, notices, and portal all refer to the assessment year, not the year you actually worked in.
The new bill introduces a single term: tax year. Income earned in the tax year 2024-25 is filed and assessed in tax year 2024-25. One concept, one label. First-time filers in 2026-27 and beyond will never have to ask the previous year question.
For you right now: nothing changes in how you file. This is a terminology fix. But it will simplify every future conversation with your CA, your bank, and the tax portal.
TDS Consolidation — What It Means for Marketplace Sellers
The current Act has over 30 separate TDS sections:
- 194A (interest), 194C (contractors), 194J (professional fees), 194O (e-commerce), 194Q (purchases), 206C (TCS on sales)...
Each has its own threshold, rate, exemption, and filing format. Understanding which section applies to your transaction requires either experience or a reference chart.
The new bill consolidates all TDS and TCS provisions into a single chapter with unified rules. The section numbers will change — 194O becomes something else — but the underlying rate (0.1% for e-commerce operators) stays identical. What changes is that the rule governing it sits alongside every other withholding provision in one readable place rather than scattered across chapters written in different decades.
Practical implication for sellers: When the bill passes, the TAN numbers and certificate formats will remain the same. You'll still receive TDS certificates from Amazon, Flipkart, and Meesho. You'll still claim the credit in your ITR. The process is identical — only the section reference number changes.
The Audit Threshold Change — Big Deal for Digital Businesses
Under the current Act, businesses with turnover above ₹1 crore must get a tax audit under Section 44AB (raised to ₹10 crore for businesses with 95%+ digital receipts under an existing carve-out).
The new bill proposes to make the 95% digital threshold the standard baseline and raise it further — specifically targeting businesses that operate primarily through digital platforms and banking channels.
For an Amazon or Flipkart seller doing ₹8–12 crore annually, where every transaction is digital by definition, the higher audit threshold could eliminate the mandatory CA audit requirement entirely.
This isn't finalised yet — the Joint Parliamentary Committee is reviewing it. But if it passes as proposed, it removes a significant annual compliance cost for high-volume e-commerce businesses.
The Language Overhaul — Why It Matters More Than You Think
The 1961 Act was notoriously litigation-prone. Provisions worded ambiguously led to contradictory court interpretations — the same section read differently by different High Courts for years before the Supreme Court resolved it.
The new bill was drafted with 75,000 person-hours of legal input specifically to close those ambiguities. Clearer language means fewer disputes. Fewer disputes means more predictable tax outcomes for businesses. GAAR provisions — General Anti-Avoidance Rules targeting artificial tax structures — are also strengthened and clarified, while leaving legitimate business transactions entirely undisturbed.
For a small business owner doing genuine transactions, none of this changes your day-to-day. For a CA advising on complex structures, it removes years of interpretive uncertainty.
Timeline — When Does This Take Effect?
The bill's journey so far:
| Date | Event |
|---|---|
| February 13, 2025 | Bill introduced in Lok Sabha |
| February 2025 | Referred to Joint Parliamentary Committee (JPC) |
| February 2026 | JPC review ongoing |
| April 1, 2026 (proposed) | Expected implementation date |
| Until then | Income Tax Act 1961 applies in full |
Until the bill is officially enacted and notified, file every return, respond to every notice, and calculate every TDS under the current 1961 Act. The new bill's section numbers mean nothing in any ongoing proceedings until the law changes.
What to Do Right Now
Three actions that are relevant today — not when the bill passes.
1. Get your ITR filed correctly for FY 2025-26 under current law. The new bill changes nothing for this year's filing. Your July 31, 2026 deadline is under the 1961 Act, with its current forms, sections, and rules. Don't let the noise about the new bill distract from the filing you owe right now.
2. Verify your PAN is correctly linked with every marketplace. When the new consolidated TDS chapter comes into effect, TANs and certificate formats may change. Any seller whose PAN isn't correctly registered with their marketplace will miss the update window and face a 5% TDS deduction instead of 0.1%. Fix this now, not under time pressure.
3. If you're at the audit threshold, talk to your CA about the proposed digital receipts provision. If your turnover is between ₹1 crore and ₹10 crore and you're currently under mandatory audit, understand whether the proposed threshold change would apply to your business. It could save ₹30,000–₹80,000 in annual CA fees if the provision passes as drafted.
How to claim TDS credit from marketplace platforms in your ITR → Zero tax up to ₹12 lakh — what it means for business owners → Section 194O: the 0.1% TDS rate fully explained →
The Income Tax Bill 2025 is, at its core, a promise that the tax law will eventually say what it means. That's a meaningful improvement even when the rates stay exactly the same. Watch for parliamentary passage and give your CA a heads-up — the transition to new section numbers will need a one-time update to your filing templates, and you'd rather do it in advance than scramble in April 2026.