New Income-Tax Bill 2025: Introduction of Tax Year to Replace Assessment Year

The much-anticipated Income-Tax Bill, 2025, is expected to be introduced in Parliament on February 13, bringing significant changes aimed at simplifying tax compliance. As promised by Finance Minister Nirmala Sitharaman during the presentation of Budget 2025, the bill proposes replacing the term "assessment year" with "tax year" to streamline tax filing and reporting requirements.

Key Change: Introduction of ‘Tax Year’

Under the current Income-Tax Act of 1961, tax filings operate on a two-layered system:

Previous Year – The financial year in which income is earned.

Assessment Year – The subsequent year in which the previous year’s income is assessed and taxed.

The new bill replaces this structure with a Tax Year, aligning it with the financial year. This means that income earned between April 1, 2024, and March 31, 2025, will now be referred to as Tax Year 2024–25, instead of being assessed under Assessment Year 2025–26. This change eliminates unnecessary complexity, particularly for first-time taxpayers.

Why This Matters

Experts believe that aligning tax reporting terminology with the financial year will make compliance easier. “The new tax bill aims to modernize and simplify the system by introducing clear and intuitive terms. The replacement of ‘Assessment Year’ with ‘Tax Year’ removes confusion and enhances transparency,” said Ritika Nayyar, Partner at Singhania & Co., in a statement to Moneycontrol.

Impact on Tax Filings

Seamless Alignment with Financial Year: Taxpayers will no longer need to differentiate between the previous year and the assessment year, as the tax year will directly reflect the period in which income is earned.

Simplified Compliance: Businesses and individuals will find it easier to file returns as financial records will align directly with the tax year.

Reduced Errors: The new structure is expected to minimize errors in tax filing and improve overall compliance.

Additional Updates in the Income-Tax Bill 2025

The bill also introduces updates to tax rules related to digital transactions and cryptocurrencies, ensuring that India’s tax framework keeps pace with evolving financial technologies. Additionally, a Taxpayer’s Charter has been proposed to enhance transparency and safeguard taxpayer rights.

“This overhaul of India’s direct tax system is a welcome move, especially for businesses dealing with digital assets. However, its effectiveness will be clearer once implemented,” Nayyar added.

By eliminating outdated terminology and aligning tax filings with the financial year, the Income-Tax Bill 2025 aims to make the tax system more efficient, transparent, and user-friendly. While taxpayers will benefit from simplified procedures, experts suggest monitoring the bill’s implementation to assess its real-world impact.