Hey folks, we know Saturdays are usually for Finshots wrap-ups. But just as we were putting it together, FinMin Nirmala Sitharaman dropped the new Income Tax Bill. And we figured—why wait till Monday to bring you all the details when you can hear it from us first? So, here we are.

That said, we don’t want you to miss out on all that we covered this week. So here’s a quick rundown… On Monday, we wrote about Trump’s mass deportation plan. On Tuesday, we tracked the final verdict in the Brightcom saga. On Wednesday, we flagged a veteran investor’s warning on small and midcaps. Then, our crypto series told you about Web3, NFTs, and Altcoins, and finally the markets story covered the ongoing IPO of Quality Power Electrical Equipments.

And with that out of the way, let’s get to today’s story shall we?

The Story

The new tax bill wasn’t introduced to rejig existing tax laws — instead the primary motive was to reorganise and rephrase many sections in the old act to make them less confusing. 

Think of it like tidying up a long set of rules so you can more easily find what applies to you. This is an effort to reduce the huge number of subsections, provisos, and amendments scattered in the old law and condense it to a neat 600 pages — as opposed to 800 pages earlier. 

Here’s an example:

When you set aside your money to make donations or buy medical insurance, your income is taxed only after accounting for these deductions. In the old law, these deductions were spread across different sections from 80C to 80U with no clear structure. You had to jump between different sections to see which deductions applied to you.

In the new Bill, most deductions — whether you are claiming them for life insurance, medical insurance, or charitable donations — are grouped under a single section cluster called “Deductions to be made in computing total income”. It’s all in one place, making it easier to see a comprehensive list.

The language is also less confusing. 

Take for instance the confusing terms “Previous year” and “Assessment year”. In the old bill, previous year meant the year in which income was earned and the assessment year was the year in which income was taxable. And people often got this mixed up — should they mention “Previous Year” or “Assessment Year” when filing taxes? Even tax documents and return forms had to clarify “PY” vs. “AY.”

The new bill replaces these words with just one term “Tax Year” i.e. the period when income is earned. So if you are filing tax returns, simply refer to “Tax Year 2024–25”, rather than worrying about AY 2025–26.

Outside of replacing old terms, the new tax bill also introduces and defines new terms. 

Take for instance a “virtual digital space”.

The new bill defines this term as any online or digital environment where users can interact, store, or exchange data. This includes emails, social media, online banking and trading accounts, websites storing asset details, cloud servers, digital platforms, and similar spaces.

At first, this may not seem too significant. But that quickly changes when you realise that this term features heavily in a clause that details “search and seizure” operations. In other words, during a tax raid, authorities can now demand access to any of these records from individuals and businesses. 

So if taxpayers hide undeclared income in a foreign crypto exchange, then tax authorities can demand access to online crypto wallets, trading accounts, or emails to check for hidden assets.

Once again, this is not to say that the old tax bill was toothless. It did extend tax authorities the power to confiscate “electronic records” during a “search and seizure” operation. However, the term electronic records did not encompass social media, cloud servers, and crypto wallets. It was too broad and perhaps too vague. So in some ways, the new bill eliminates ambiguity and perhaps closes a few loopholes. 

It also formally defines cryptocurrencies. This includes: crypto, NFTs, other digital assets specified by the government. And “undisclosed income” now includes “income from cryptocurrencies” etc. They’ve also included online games (Dream 11 types) in the bill, making taxation on winnings from these platforms more structured and clear.

Finally, it seems there’s now greater clarity on faceless assessment. 

In the past, tax officers could call you, meet you, or ask you to visit their office if they needed clarification on your tax returns. Unfortunately, this sometimes led to misuse by both officers and taxpayers.

To address this, the government introduced faceless assessment in 2019, ensuring that everything happens online. Now, you receive emails, submit documents through a secure portal, and a computer system randomly assigns tax officers to review your case.

The new income tax bill takes this a step further by fully codifying the process with clear timelines and procedures. This means greater transparency, no room for bias or bribery, and faster, more efficient tax processing, hopefully. 

All in all, this bill doesn’t drastically change, but it’s an attempt to simplify, codify, and keep with the times. Is this a revolutionary step? Of course not. But it was necessary and we hope that this is a step in the right direction.

Until then...

Don’t forget to share this story on WhatsApp, LinkedIn and X.

Finshots Roundup of Current Affairs 2024

A FREE and comprehensive compilation of our most impactful financial, economic, tech and business highlights of the year is here. Get our classic 3-min reads in an easy to access eBook. Plus, we made sure to add our signature infographics and jargon explainers too!

Click here to access the pdf resource now.

And don’t forget to share this with your peers, friends, and anyone in your network who might benefit from it.

Happy Reading :)