New Income Tax Bill 2025: What changes, what remains, and how it may impact taxpayers

New Income Tax Bill 2025: Finance Minister Nirmala Sitharaman introduced the New Income Tax Bill 2025 in Lok Sabha on Thursday, aiming to simplify and modernise India’s direct tax system. The bill seeks to remove outdated provisions, make tax laws more accessible, and replace the decades-old Income Tax Act of 1961. If passed, the new framework will come into effect from April 1 2026.  

While the bill simplifies the language, it doesn’t bring any major structural changes. One key update is the introduction of a “tax year,” which refers to the 12-month period starting from April 1, effectively replacing the term “assessment year.” The bill also clarifies that virtual digital assets, like cryptocurrency, will now be considered a part of an assessee’s capital assets.  

In essence, this bill aims to streamline a tax law that had become overly complicated due to numerous amendments over the past six decades.

New Income Tax Bill: What is changing?

1. Simplified and shorter structure

   - The new bill has nearly halved the word count from 5.12 lakh to 2.60 lakh, making it more straightforward to understand.
   - It eliminates over 1,200 provisos and 900 explanations, removing outdated provisions related to capital gains, deductions, and dispute resolution.
   - The current Income Tax Act has expanded to over 800 sections; the new bill streamlines it to just five key sections.

2.  Introduction of 'Tax Year'

    - The bill introduces a 'tax year' concept, replacing the existing 'assessment year' (AY) and 'previous year' terms.
   - Under the current system, income earned in FY 2023-24 is assessed in AY 2024-25. Under the new system, tax on income will be paid in the same tax year, making it easier for taxpayers to track.

3.  Clearer and more organised provisions

   - Key tax-related details, including TDS (Tax Deducted at Source), TCS (Tax Collected at Source), deductions, and exemptions, are now clearly structured in tables.
   - Provisions concerning non-profit organisations are consolidated into a single chapter.
   - Deductions for salaried individuals, previously scattered across various sections, are now grouped under the salary chapter.

4. Recognition of Virtual Digital Assets (VDAs) as property

   - Cryptocurrencies and other digital assets are now officially recognised as taxable assets under the capital gains framework.

5. Expansion of presumptive taxation

   - The turnover limit for businesses eligible for presumptive taxation has been increased from Rs 2 crore to Rs 5 crore.
   - For professionals, the threshold has been raised from Rs 50 lakh to Rs 75 lakh, making tax compliance easier for smaller businesses and self-employed individuals.

6. Updated rules on revenue recognition and withholding tax

   - New provisions clarify revenue recognition for service contracts and inventory valuation.
   - Withholding tax (TDS) provisions have been reorganised into a table for easier reference.

7.   Capital gains exemptions adjustments

   - Section 54E, which detailed exemptions for capital gains on transfers of assets before April 1992, has been removed.
   - Deductions have been streamlined, and outdated exemptions eliminated.

New Income Tax Bill: What remains the same

1. No changes to tax rates and slabs

   - The bill does not alter the current income tax rates or slabs, ensuring stability for taxpayers.
   - The new tax regime’s slabs are provided in tabular format, but there is no table for tax rates under the old regime.

2. Filing deadlines and compliance rules stay the same

   - Timelines for filing tax returns and paying taxes remain unchanged.

3. Legal definitions and court rulings remain valid

   - Important terms and definitions established in previous court rulings remain the same to ensure consistency in tax interpretation.
   - Existing deductions for rent, life and health insurance premiums, provident fund contributions, and home loans are unchanged.

How many taxpayers will benefit from the new tax rates and slabs?  

According to the Income Tax Department, around 8.75 crore individuals have filed their income tax returns for the assessment year 2024-25. All taxpayers who were paying tax under the new tax regime will benefit from the revised rates and slabs.  

Is the standard deduction on salary applicable in the new tax regime?  

Yes, a standard deduction of Rs 75,000 is available to taxpayers under the new tax regime. This means that a salaried individual with an income of up to Rs 12,75,000 before the standard deduction will not be required to pay any tax.  

How much additional money will taxpayers receive due to these changes?  

The Income Tax Department stated that approximately Rs 1 lakh crore will be made available to taxpayers due to the revisions in tax slabs, rates, and rebates.