📘 Day 1: Introduction & Framework of the New Income Tax Act, 2025

 1. The Context – Why a New Act in 2025?

 The Income-tax Act, 1961 has been in force for more than six decades. In that period, India transformed from a manufacturing-heavy, license-raj economy to a services-driven, digital-first, globally integrated economy. With over 3,000 amendments, numerous circulars, clarifications, and case laws, the Act had become:

• Bulky – difficult to interpret even for seasoned professionals.
• Fragmented – multiple sections dealing with similar issues, often leading to litigation.
• Outdated – unfit for digital assets, cross-border taxation, start-ups, and new-age businesses.

To address this, Parliament enacted The Income Tax Act, 2025 (No. 30 of 2025), with assent received on 21st August 2025, consolidating and amending the law relating to income tax.

📌 Section 1(3): The Act will come into force on 1st April, 2026. 👉 This means the first applicable year will be FY 2026–27 (AY 2027–28).

🔎 Why this matters to finance leaders now:

• FY 2025–26 is the transition year. Businesses must realign systems, accounting processes, ERP modules, payroll, and tax compliance procedures before April 2026.
• Strategic structuring of income, investments, and cross-border holdings done in FY 2025–26 can lock-in advantages or avoid pitfalls under the new regime.

2. Structure of the Act – A Modern Framework

Unlike ITA 1961, which grew organically through patches, ITA 2025 is structured with clarity:

• Chapter I – Preliminary (Definitions & Scope)
• Chapter II – Basis of Charge
• Chapters III–X – Heads of income (Salary, House Property, Business & Profession, Capital Gains, Other Sources)
• Procedural Chapters – Assessment, Appeals, Advance Tax, TDS/TCS, Recovery, Penalties
• Schedules – Detailed lists of exemptions, deductions, special categories of income.

📌 For CXOs & Controllers: Think of this as an ERP upgrade. If ITA 1961 was SAP ECC, the ITA 2025 is SAP S/4HANA – redesigned, modular, more scalable.

3. Core Definitions Every Finance Professional Must Master

(a) Assessee (Section 2(11))

An assessee is:

• Any person liable to pay tax.
• Any person against whom proceedings are initiated.
• A person deemed to be in default.

🔹 Live Example:

• If a company deducts TDS from employees but fails to deposit within the due date, the company becomes an assessee in default, even if the employee has paid tax through their ITR.
• This exposes CFOs and Finance Controllers to personal liability under Section 271 (penalties).

 (b) Person (Section 2(77))

The Act widens “person” to cover:

1. Individual
2. HUF (Hindu Undivided Family)
3. Company (Indian & foreign)
4. Firm (including LLP)
5. AOP/BOI (incorporated or not)
6. Local authority
7. Artificial juridical person

🔹 Case Study: A charitable trust registered under Societies Act, earning rental income → treated as “person” → taxable unless exempt under Schedule XI.

(c) Tax Year (Section 3)

• Always 1st April – 31st March.
• Newly set-up business: tax year begins from date of setup till 31st March.

🔹 Example:

• A fintech start-up incorporated on 1 January 2027 → its first tax year will be 1 Jan – 31 Mar 2027 (3 months).

(d) Income (Section 2(49))

“Income” is an inclusive definition, much wider than ordinary usage. It covers:

• Profits & gains (business, profession)
• Dividend
• Salary & perquisites
• Winnings (lotteries, gambling, game shows)
• Subsidies, grants, reimbursements
• Fair market value of inventory converted into capital asset
• Capital gains (Section 67)
• Virtual Digital Assets (crypto, NFTs)

🔹 Example:

• A state government reimburses 20% capex for setting up a semiconductor plant. Earlier, interpretation varied if it was capital receipt. Under ITA 2025, unless specifically exempt, all subsidies are income.

(e) Capital Asset (Section 2(22))

A capital asset = property of any kind. Excludes:

• Rural agricultural land.
• Personal effects (but not jewellery, paintings, art, etc.).
• Stock-in-trade.

🔹 Example:

• Gold jewellery of a founder = Capital Asset (not “personal effect”). Sale triggers capital gains.
• Company’s machinery = Capital Asset (eligible for depreciation & capital gains on sale).

(f) Virtual Digital Asset (Section 2(111))

Specifically introduced for crypto, NFTs, and tokens.

• Transfer of VDA = taxable as capital gains.
• Valuation based on fair market value.

🔹 Example: A CFO invests ₹10 lakh in Bitcoin in June 2026 and sells for ₹15 lakh in Jan 2027 → ₹5 lakh is capital gain, taxable as per holding period rules.

4. Scope of Total Income (Section 5)

Resident (Individual/Company):

• Taxable on global income.

Not Ordinarily Resident (NOR):

• Taxable on income from business/profession controlled in India.

Non-Resident (NR):

• Taxable only on income received or accruing in India.

🔹 Live Examples:

1. Resident Director receiving dividend from US stocks → Taxable in India (global income), with DTAA relief.
2. NRI Angel Investor earning gains from Indian start-up shares → Taxable in India.
3. Indian IT company’s Singapore subsidiary controlled by Indian HQ → POEM in India → treated as resident company.

5. Residential Status (Section 6)

Individuals

• Resident if: 182+ days in India, OR 60+ days + 365 days in last 4 years.

Exceptions:

• Indian citizens leaving for employment/ship crew → 182-day rule applies.
• Visiting Indians (with income > ₹15 lakh) → threshold reduced to 120 days.

Companies

• Indian company → always resident.
• Foreign company → resident if Place of Effective Management (POEM) in India.

🔹 Case Study: A US-incorporated SaaS company has board meetings, strategy, and financial control run from Bengaluru HQ. Even if registered abroad, POEM = India → company treated as Indian resident → global profits taxable in India.

6. What This Means for Finance Teams & CXOs

1. Compliance Shift Payroll teams must reconfigure perquisites, allowances, and benefit definitions. Controllers must integrate subsidy and grant accounting into taxable income.
2. Globalisation Impact CXOs must recheck expat residency and board meeting locations (POEM). Cross-border holdings need restructuring.
3. Litigation Risk New definitions (especially around VDAs, subsidies, POEM) will be litigation hotspots in the next 5 years.
4. Strategic Planning Transition year FY 2025–26 is critical: reorganise businesses, restructure shareholding, optimise deductions before April 2026.

7. Day 1 Workshop Activity

• Step 1: Map your company/clients against assessee, person, income, and residency definitions.
• Step 2: Identify grey areas — e.g., subsidies, cross-border income, VDAs.
• Step 3: Document at least 2 compliance changes required by April 2026 (ERP update, payroll structure, expatriate residency policy).

 ✅ Day 1 Key Takeaways

1. ITA 2025 = Reset, not revision. It modernises tax law for a digital, global economy.
2. Section 1–6 (Preliminary + Basis of Charge) are the foundation. Every finance decision flows from them.
3. Residency & Income Scope will create maximum impact for CXOs, controllers, and global businesses.
4. Definitions drive compliance. Misinterpretation = penalties + litigation.
5. Transition planning in FY 2025–26 is the difference between smooth adoption and expensive disputes.

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  📌IN Murthy Strategic CFO Partner Beyond Numbers for Next-Gen Businesses

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