The Income Tax Bill 2025, introduced in the Lok Sabha on 13th February 2025, brings significant structural reforms aimed at simplifying tax compliance and ensuring transparency.
This newsletter provides a brief look at the key changes affecting residential status, capital gains taxation, and other important aspects. 🏛️
📖 Introduction
The new Income Tax Bill 2025 will replace the Income Tax Act, 1961, streamlining tax provisions and eliminating redundant clauses.
While preserving the core tax framework, the bill enhances clarity and simplifies compliance for various taxpayer groups, including seafarers, NRIs, and investors. 🌍⚖️
The bill simplifies the tax structure by consolidating 47 chapters into 23 and reducing 819 sections to 536 clauses.
Key clauses include:
🔹 Clause 5 – Defines the scope of income for residents and non-residents, ensuring offshore earnings remain tax free if residency is maintained abroad.
🔹 Clause 6 – Defines calculation of residential status of a person in India (including not ordinarily resident), primarily on the basis of number of days in India with combination of income criteria.
🔹 Clause 174 – Prevents income transfers to non-residents to avoid tax.
🔹 Clause 422 – Strengthens tax authorities' ability to recover outstanding tax dues from
seafarers’ Indian assets.
🌍 Key Objectives of the New Tax Bill
✅ Simplification of Tax Laws: The bill is designed to be more concise, eliminating complexities that taxpayers face.
✅ Reduced Litigation: Streamlined provisions ensure better clarity, reducing disputes between taxpayers and the authorities.
✅ Enhanced Taxpayer Compliance: A structured, modernized tax framework improves ease of filing and compliance.
⚠️ NRI Days under the New Income Tax Bill 2025
There is no change in the number of days outside India for the purpose of qualifying
non-resident status under the new Income Tax Bill 2025.
A Seafarer will be considered as NRI (i.e. Non Resident Indian) if the stay outside India is for more than 184 days in a financial year under the New Income Tax Bill 2025.
However, there is one major change in phrase adopted in clause 6 of the new bill. Previously, the Income Tax Act, 1961 provided NRI status for Seafarers who went outside India “for the purpose of employment”, allowing them to be classified as nonresidents
if they spent more than 184 days outside India in a financial year (starting from April till March).
Under the new Income Tax Bill 2025, this phrase has been changed and modified to “for employment outside India”. This revision emphasizes that documentation proving formal employment (i.e. contract letter from the Company) is necessary to qualify for non-resident status. 🛂📑
🧐 Impact of This Change
📋 Stricter Compliance Requirements
Seafarers seeking non-resident status must provide clear employment contracts or official documentation from foreign employers.
🚫 Potential Exclusion of Self-Employment
Those Seafarers engaged in independent work abroad may face challenges in proving eligibility for non-resident status.
💸 Higher Tax Liability Risks
If a Seafarer cannot substantiate employment abroad, they may be classified as a resident and subject to taxation on global income in India.
⚖️ Legal Ambiguities
Previously, courts had interpreted “for the purpose of employment” broadly, including self-employment and business engagements. The new phrasing may lead to further legal scrutiny and challenges.
💰 TDS/TCS Provisions
The new Income Tax Bill 2025 introduces streamlined Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions:
🔹 TDS will apply to a variety of income sources, including salaries, professional fees, interest income, and rent.
🔹 TCS will be enforced on specific transactions, such as the sale of motor vehicles above Rs 10 lakh (1%) and foreign remittances exceeding Rs 7 lakh (5%).
🔹 Failure to comply with TDS/TCS regulations will result in penalties, including a 1% monthly interest charge on outstanding amounts.
🔹 Various sections covering TDS (such as interest, rent, and professional fees) have been consolidated to enhance clarity and ease of compliance.
📈 Capital Gains Taxation
Many investors, including seafarers investing in stocks or mutual funds, were concerned about potential changes to the capital gains tax regime in the Income Tax Bill 2025. However, it has been confirmed that there are no changes to the capital gains tax structure.
🔹 Capital gains tax remains unchanged from the previous Budget and there are no new tax rates or holding period modifications.
🔹 Listed securities and unlisted securities retain existing tax classifications.
🔹 Taxation on equity mutual funds and shares remains as per existing provisions.
🔹 The bill’s simplifications do not alter capital gains taxation for seafarers investing in Indian markets.
Conclusion 📜
The change from "for the purpose of employment" to "for employment outside India" in the Income Tax Bill 2025 may seem like a minor wording adjustment but carries
significant implications for Indian Seafarers. Previously, the broad interpretation of "for the purpose of employment" allowed seafarers to qualify for relaxed tax residency rules.
However, the new phrasing appears to restrict this benefit to those with a clear employer-employee relationship, potentially excluding freelancers, entrepreneurs, and those seafarers seeking job opportunities outside India.
While the government’s intent remains unclear, it can be believed that this change could lead to stricter tax residency criteria, requiring seafarers to provide formal contract letters or employment proof to claim non-resident status. If not clarified by the authorities, this may result in increased litigation and impact tax planning for many Indian seafarers.
🗞️ Coming up next...Detailed analysis of residential status i.e. NRI days calculation for Seafarers as per New Income Tax Bill 2025 in our next news letter.
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