The Income Tax Bill 2025 introduces several key changes in the chapter on Profits and Gains of Business and Profession (PGBP), aimed at enhancing clarity, coherence, and compliance. Here's a detailed look at the major amendments:
1. Revised Section Flow for Better Coherence
The sequence of sections has been reorganized to improve logical progression, ensuring seamless readability. Similar provisions, such as those concerning presumptive taxation for residents and non-residents, have been merged to simplify interpretation.
2. Consolidation of Related Provisions
Provisions on related topics, including deductions for employee welfare, which were previously scattered across multiple sections, have been grouped together. This change improves accessibility and compliance.
3. Introduction of Formula-Based Explanations
Complex provisions, such as the definition of Written-Down Value, now feature formula-based explanations. This move helps taxpayers and professionals understand key concepts with greater clarity.
4. Improved Readability Through Tabular Formats
Sections involving multiple scenarios, like those determining Actual Cost, have been reorganized into tables. This restructuring enhances comprehension and usability.
5. Conversion of Provisos and Explanations into Subsections
All provisos and explanations have been incorporated into subsections to eliminate ambiguity, making the legislation more user-friendly.
6. Removal of Redundant Provisions
Obsolete provisions, including those already sunset, have been eliminated to streamline the chapter.
7. Relocation of Niche Provisions
Provisions specific to certain business segments, applicable to a small subset of taxpayers, have been moved to a separate Schedule. Some procedural provisions have also been shifted to rules, reducing the complexity of the main sections.
8. Reduction in Word Count and Number of Sections
The revised chapter has been significantly condensed, with the number of sections decreasing from 65 to 41, and the word count reduced by over 50%.
Changes in Specific Provisions
1. Changes in Section Order
Provisions have been grouped logically; for instance:
- Sections related to general expenditure allowances (Section 37) and deductions for actual payments (Section 43B) are now placed alongside Sections 40 and 40A.
- Scientific research expenditure, investment-linked deductions (Section 35AD), skill development, and agricultural extension project expenditure are now consolidated under proposed Sections 45, 46, and 47.
2. Deductions Related to Employee Welfare
Earlier, deductions for Provident Fund, Gratuity Fund, Superannuation Fund, etc., were scattered across multiple sections (e.g., 40A(7), 40A(9), 36(1)(iv), etc.). The new Bill consolidates these under a single section (proposed Section 28), simplifying compliance while maintaining tax incidence and deductibility.
3. Bad Debt and Doubtful Debt Provisions
Provisions from Section 36(1)(vii), 36(1)(viia), and 36(2) have been consolidated, converting provisos and explanations into clear subsections and clauses. A tabular format has been introduced for banks and financial institutions, making compliance easier.
4. Depreciation Deduction (New Section 33 vs. Section 32 of IT Act, 1961)
The complex Section 32, which included multiple provisos and explanations, has been restructured into Section 33 with streamlined clauses. The word count has been reduced by 40%, with no changes in depreciation rates, eligibility, or allowance methods.
5. Simplification of 'Actual Cost' and 'Written Down Value' Definitions
Explanations and provisos have been converted into a tabular format for ease of understanding, while redundant provisions (e.g., goodwill adjustments) have been removed.
6. Provisions on Scientific Research Expenditure
Previously lengthy and complex provisions under Section 35 have been reorganized into the proposed Section 45, improving clarity while maintaining existing policies.
7. Capitalizing the Impact of Foreign Exchange Fluctuation
Section 43A, which deals with capitalizing foreign exchange fluctuation impacts, has been divided into four structured subsections, introducing a new formula for 'Variation in Liability' for better understanding.
8. Provisions Moved to Schedules
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The Site Restoration Fund and Development Accounts for Tea, Coffee, and Rubber industries have been shifted to Schedules due to their applicability to a niche taxpayer group.
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Insurance business provisions remain in the Schedule as before.
9. Deferred Expenditure Provisions
Sections covering amortization of expenses for telecom services, amalgamations, demergers, and voluntary retirement schemes have been consolidated into a single section with a tabular presentation for clarity. Preliminary and prospecting mineral expenses are now addressed separately.
10. Presumptive Taxation for Residents
Sections 44AD (business income), 44ADA (professionals), and 44AE (transporters) have been consolidated into a single section, with a tabular format for eligibility conditions, improving readability and reducing text length.
11. Presumptive Taxation for Non-Residents
The five existing sections for non-resident presumptive taxation have been merged into one, with a proposed scheme for non-residents in the electronic goods manufacturing sector. The new format ensures simplicity and clarity.
12. Business Reorganization of Cooperative Banks
Depreciation and deduction formulas for predecessor and successor cooperative banks have been merged to eliminate redundancy while retaining the original intent.
13. Revenue Recognition and Inventory Valuation
No new sections have been introduced in this regard. The existing provisions under Section 43CB (service contract profits) and Section 145A (inventory valuation) continue to apply, with minor drafting refinements for better clarity.
Conclusion
The Income Tax Bill 2025 aims to enhance the clarity and usability of provisions under Profits and Gains of Business and Profession without making significant policy changes. The restructuring, consolidation, and simplification of sections ensure better compliance and a streamlined taxation process for businesses and professionals alike.
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