Tax legislation, specifically the Income Tax (No 2) Bill, successfully passed in Lok Sabha. Let's break down the 'S.I.M.P.L.E' aspects of this new law:

Tax legislation, specifically the Income Tax (No 2) Bill, successfully passed in Lok Sabha. Let's break down the 'S.I.M.P.L.E' aspects of this new law:

New Income Tax Act of 2025: A Comprehensive Overhaul of the 1961 Act

The Indian government has passed the Income-Tax Bill, 2025, which aims to replace the six-decade-old Income Tax Act of 1961. The new tax law brings significant changes, modernizing the tax system to reflect current economic conditions and government priorities.

One of the key changes is the reduction in the lowest federal marginal tax rate from 15% to 14%, providing relief to nearly 22 million Indians, particularly lower-income earners. This change contrasts with the higher rates of the 1961 Act.

Another notable change is the increase in the Lifetime Capital Gains Exemption (LCGE) from about $1 million to $1.25 million. This allows individuals to shelter more capital gains from tax when selling qualified small business shares, farm or fishing property.

A new Canadian Entrepreneurs’ Incentive has been introduced, reducing the inclusion rate on capital gains for qualifying small businesses from two-thirds to one-third. This is a significant departure from the 1961 law, which had no such modern targeted incentives.

The definition of eligible small business corporation shares is being expanded, along with relaxed conditions for capital gains rollovers on business investments, plus new exemptions for worker co-ops and employee ownership trusts. Such nuanced business support schemes were largely absent in the 1961 Act.

The Act also increases limits and extends refundable investment tax credits for scientific research and experimental development, including for small public corporations. This reflects current government priorities on innovation and R&D, not present in the older tax law.

Enhanced reporting requirements for non-profit organizations aim at transparency improvements, a modern development in tax administration missing from the 1961 framework.

New audit powers for the Canada Revenue Agency and penalties for non-compliance are introduced, reflecting advanced tax enforcement mechanisms beyond those possible in 1961.

The Act provides exemptions from excessive interest and financing expenses limitation (EIFEL) rules for residential rental buildings and regulated energy utilities.

Standard deduction amounts for single and married filers have been raised, permanently maintaining these higher thresholds to simplify filing and reduce taxable income burdens compared to older fixed deductions under the 1961 Act.

The adverse alternative minimum tax (AMT) initially proposed has been dropped in the final bill, providing relief for partnerships, family offices, and limited liability partnerships—entities that have gained prominence since 1961.

The new tax law introduces a 'tax year', replacing the simultaneous use of 'financial year' and 'accounting year'. The bill also clarifies deductions and strengthens cross-referencing across provisions.

Clearer definitions for terms such as 'capital asset', 'micro and small enterprises', and 'beneficial owner' have been introduced. The bill also aligns tax treatment for pension contributions and scientific research expenditures.

The new tax law does not change the existing tax slabs. However, it provides relief over tax refunds, no penalty on late TDS filing, nil-TDS certificate for taxpayers who don’t have tax liabilities, explicit tax deduction for commuted pension, reinstatement of deductions for inter-corporate dividends, and property tax clarifications.

The bill carries 285 suggestions made by a select committee led by Baijayant Panda. However, it does not mention any changes to the principles such as Streamlined structure and language, Integrated and concise, Minimised litigation, Practical and transparent, Learn and adapt, and Efficient tax reforms. The bill also does not change the clarifications made regarding deductions, strengthening cross-referencing across provisions, or the introduction of clearer definitions for terms such as 'capital asset', 'micro and small enterprises', and 'beneficial owner'.

1. The new tax law introduces changes to finance policies, modernizing the business tax system by reducing the lowest federal marginal tax rate and increasing the Lifetime Capital Gains Exemption.
2. The Act includes a Canadian Entrepreneurs’ Incentive, deviating from the 1961 law by reducing the inclusion rate on capital gains for qualifying small businesses.
3. The legislation presents enhanced reporting requirements for non-profit organizations, reflecting advancements in policy-and-legislation and transparency improvements beyond those present in the 1961 Act.

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