Lok Sabha’s Amendments in Finance Bill 2025: Analysis

Introduction

On 25^th March 2025, Lok Sabha passed the Finance Bill 2025 (now Finance Act 2025). While most of the proposals made in the Finance Bill are the same, but certain modifications have been made to the few provisions relating to the block assessment, omission of equalization levy and giving overriding powers to Section 44BBD over Section 115A as well as changes are there in Section 44DA.

On the 29th of March 2025, the President of India gave his assent, making it “The Finance Act, 2025”; hence in this article, I will help you in analyzing the main changes made in Finance Bill 2025 when it was passed by the Lok Sabha, along with its analysis.

Adjustments to be made for inconsistencies in ITR compared to previously filed ITRs governed by Section 143(1)(a) of Income tax act

Section 143(1)(a) of the Income-tax Act allows the Income tax department to process Income-tax Returns and check for basic errors, incorrect calculations, and mismatches in tax payments. However, this process does not involve a detailed income verification. The returns are processed as per the Centralised Processing of Returns Scheme, 2011.

A new sub-clause (iia) has been added to this section through the Finance Bill (Lok Sabha).

It states that, “(iia) any such inconsistency in the return, with respect to the information in the return of any preceding previous year, as may be prescribed;”

This means that if there is a difference between the details provided in the current ITR and the ITRs of previous years, the tax department can make adjustments while processing the return. These inconsistencies could include:

• Mismatch in income figures
• Differences in deductions or exemptions claimed
• Variations in capital gains reporting
• Changes in disclosures under different schedules of the return
• Any other conflicting information in tax filings over the years

The tax department will define what qualifies as an inconsistency under this provision. If any such mismatch is found, the taxpayer may be asked to clarify or correct the return before final processing

New Proviso in Section 44BBD(2) 

The Finance Bill 2025 introduced Section 44BBD, which provides a presumptive taxation scheme for non-residents engaged in providing services or technology for setting up electronics manufacturing facilities in India. Under this scheme, 25% of the total specified income is considered as taxable profits.

A new proviso has been added to Section 44BBD(2), which states that Section 44DA and Section 115A will not apply to income calculated under Section 44BBD. This mainly affects the taxation of royalty and fees for technical services earned by non-residents.

What is the Impact?

No Disallowance under Section 44DA

Section 44DA normally applies when a non-resident has a permanent establishment (PE) in India and earns royalty or FTS. It disallows deductions for expenses that are not fully related to the PE’s business in India as well as the payments made by the PE to its head office or other branches.

Now, with the proviso in Section 44BBD(2), these disallowances will not apply if the income is taxed under the presumptive scheme of Section 44BBD.

Concessional tax rate under Section 115A not available

Section 115A offers a lower tax rate for non-residents earning royalty or FTS without a PE in India, Since the new proviso excludes Section 115A, this concessional rate will not apply if the income is calculated under Section 44BBD.

Tax rate for non-residents under different situations

 Changes in Block Assessment Provisions

What is Block Assessment?

Block assessment under Chapter XIV-B (Sections 158B to 158BI) is a special procedure for assessing undisclosed income found during a search or requisition by tax authorities.

From 01-09-2024, any search cases will be assessed using the revised provisions introduced in the Finance Bill 2025. 

Clarification in Terminology

Earlier, the law referred to “total income” instead of “total undisclosed income”, leading to confusion. The Finance Bill 2025 has corrected this in multiple sections, ensuring that only undisclosed income is assessed under block assessment. 

New & simplified method for computing undisclosed income

Earlier, the law followed a complicated process, first one was required to compute total income (both disclosed & undisclosed), then subtract disclosed income to get undisclosed income, but now process is made easy by directly computing undisclosed income as the sum of income declared by the assessee and income determined by the Assessing Officer. 

Key changes in Section 158BB:

New sub-section (1A) clearly define what qualifies as disclosed income, ensuring correct assessment, and the omission of sub-section (6) is made which stated losses declared under block assessment will be ignored. 

Taxability of certain assessees without mandatory return filing 

A new clause (d) in Section 158BB(1A) clarifies that the some incomes will be treated as disclosed (and excluded from undisclosed income) like income of non-residents & foreign companies earning interest, dividends, royalty, or fees for technical services as per Section 115A, non-resident Indians earning income from foreign exchange assets or long-term capital gains (Chapter XIIA) and resident senior citizens earning only pension & interest income (tax deducted under Section 194P) 

More time to file returns in search cases 

Earlier, after a search, the AO had to issue a notice asking for a return within 60 days, with no option to extend, but now AO can extend this period by 30 more days if the search happened before the return filing deadline of the last financial year, or the assessee is subject to audit under Section 44AB, or if accounts are not yet audited when notice is issued or when the assessee requests more time to file the return.

This helped the taxpayers to file accurate returns with audited accounts, hence to match this extension, the deadline for completing block assessment is also extended to 13 months from the quarter in which the last search/requisition was executed. 

Omission of Section 158BI

Section 158BI (which said Chapter XIV-B won’t apply to searches before 01-09-2024) has been removed, the reason for this change is to ensure that past proceedings under this Chapter remain valid, even though block assessment was replaced by Sections 153A, 153B, and 153C in 2003.

Equalisation levy withdrawn 

What is Equalisation Levy?

The Equalisation Levy was introduced in 2016 to tax online advertisement services provided by non-residents to Indian businesses. In 2020, it was expanded to cover e-commerce transactions by foreign companies.

What Has Changed?

The levy on e-commerce transactions was already removed from 01-08-2024 (Finance (No 2) Act 2024 ), Now, the Finance Bill 2025 removes it completely from 01-04-2025.

 What does this mean?

Equalisation Levy will not apply to payments for online ads after 01-04-2025 which was governed by Sections 163 & 165 via Finance Act 2016 also, Exemption for Equalisation Levy ends from Assessment Year 2026-27 as governed by Section 10(50) 

Securities Invested by Investment Funds Under IFSCA Act Now Treated as Capital Assets 

What is a Capital Asset?

As per Section 2(14) of the Income Tax Act (ITA), a capital asset includes any property held by an assessee, securities held by Foreign Institutional Investors (FIIs) under SEBI regulations and certain ULIPs where tax exemption under Section 10(10D) does not apply. 

What Has Changed?

Finance Bill 2025 had proposed to classify ULIPs (not exempt under Section 10(10D)) and securities held by investment funds under SEBI rules as capital assets, now it have been expanded by bill in Lok Sabha by including securities held under IFSCA regulations as well, resulting in, investments under both SEBI and IFSCA rules will be treated as capital assets. 

Exclusion of Indirect Participation from 5% Threshold in Section 9A 

What is Section 9A?

Section 9A ensures that an eligible investment fund managed by an Indian fund manager is not considered to have a business connection or residency in India. To qualify, the fund must meet certain conditions, one of which is “Indian residents’ investment in the fund should not exceed 5% of its corpus” 

What Has Changed?

Earlier, the both direct and indirect investments by Indian residents were counted under the 5% limit, but now the phrase “or indirectly” has been removed which means only direct investments by Indian residents will be considered and indirect investments (like through foreign funds) will be excluded from the 5% calculation. 

Retail Schemes & ETFs Under IFSC (Fund Management) Regulations as per Section 10(4D) 

What is Section 10(4D)?

Section 10(4D) provides tax exemption for certain income earned by a specified fund, where a specified fund includes investment funds operating in the IFSC (International Financial Services Centre). 

What Has Changed?

Earlier, Retail schemes & ETFs were included as “specified funds” under Section 10(4D) and they were required to comply with IFSC (Fund Management) Regulations, 2022 and additional conditions prescribed under the Income Tax Act.

Now, they don’t need to follow any extra conditions under the Income-tax act and Lok sabha have changed finance act 2024 by stating, Retail schemes & ETFs only need to comply with IFSC (Fund Management) Regulations, 2022. 

OTC Derivatives Now Exempt Under Section 10(4E)

This section exempts certain incomes earned by non-residents from derivatives, Previously, the income from transfer of offshore derivative instruments (ODIs) and OTC derivatives as well as income distribution on offshore derivatives were exempt.

Now, income distribution on OTC derivatives is also exempt, after amendment, both offshore and OTC derivatives get tax exemption. 

Removal of “Intermediary” from IFSC Insurance office in Section 10(10D)

Section 10(10D) exempts life insurance proceeds from tax. However, exemption is not available in cases like Keyman policies, High-premium policies (ULIPs & others) and excess-premium policies

Here, earlier the exemption was applied to policies issued by “International Financial Services Centre Insurance Intermediary Office” but now, the word “Intermediary” is removed, which means exemption now applies to all IFSC insurance offices issuing policies.

Definition of resultant fund is amended to include retail funds or ETF as per Section 47(viiad)

To promote IFSC as a global investment hub, tax neutrality was introduced for relocating foreign funds. Section 47(viiac) stated that the transfer of capital assets from the original fund to an IFSC-based resultant fund is not considered a transfer hence no capital gains tax was applied, and this section 47(viiad) stated that the allotment of shares/units in the resultant fund to investors of the original fund is not considered a transfer hence no capital gains tax would apply.

Earlier, Only specific categories of funds were classified as “resultant funds” under Section 47(viiad), but now, Retail funds and ETFs in IFSC are also classified as “resultant funds”, hence they no longer need to qualify as a “specified fund” under Section 10(4D) or meet its conditions.

This definition is merged with Alternative Investment Funds (AIFs) to create a single, broader category.

Conclusion

The amendments introduced in the Finance Bill 2025, as passed by the Lok Sabha, reflect the government’s continued efforts to streamline tax administration, enhance clarity in compliance, and promote economic growth.

As the amendments take effect, clarity in rules and compliance mechanisms will be crucial for a smooth transition. Overall, the Finance Bill 2025 aims to create a more efficient, transparent, and internationally competitive tax framework while addressing key policy concerns.

On the 29th of March 2025, the President of India gave his assent, making it “The Finance Act, 2025

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Author can be contacted at aman.rajput@mail.ca.in