The Indian government is set to introduce a transformative change in the country’s taxation system with the New Income Tax Bill 2025, which will replace the existing Income Tax Act of 1961.
Scheduled for presentation in Parliament on February 13, the bill spans 622 pages and is expected to take effect from April 2026. With 536 sections, 16 schedules, and 23 chapters, the new law aims to simplify tax regulations, improve compliance, and enhance taxpayer convenience.
Table of Contents
Major Revisions in the New Income Tax Bill
The bill introduces several significant changes, including:
- Replacement of “Previous Year” with “Tax Year”
The terminology used in the current tax system will be revised, replacing the term “previous year” with “tax year.” Additionally, the concept of an assessment year has been eliminated. - Introduction of New Tax Regime as Default
The new tax regime will be the default structure unless a taxpayer opts for the old regime. It includes revised income tax slabs and eliminates most exemptions and deductions. - Standard Deduction & Salary-Based Deductions (Section 19)
- Standard Deduction: Employees will be eligible for a ₹50,000 standard deduction under the old tax regime.
- Tax on Employment: The sum paid as a professional tax (as per Article 276(2) of the Constitution) will be fully deductible.
Revised Tax Slabs Under the New Income Tax Bill 2025 (Section 202)
One of the most anticipated changes is the modification of tax slabs for individuals and Hindu Undivided Families (HUFs):
- Up to ₹4,00,000 – No Tax
- ₹4,00,001 to ₹8,00,000 – 5% Tax
- ₹8,00,001 to ₹12,00,000 – 10% Tax
- ₹12,00,001 to ₹16,00,000 – 15% Tax
- ₹16,00,001 to ₹20,00,000 – 20% Tax
- ₹20,00,001 to ₹24,00,000 – 25% Tax
- Above ₹24,00,000 – 30% Tax
The new tax regime will not provide exemptions on house property income or capital gains.
Capital Gains Tax Changes
Profits from the sale of capital assets will be taxable in the year of transfer, as per sections 82, 83, 84, 86, 87, 88, and 89. The new framework aims to streamline capital gains taxation by eliminating ambiguities in computation.
Deductions for Pension and Compensation
- Pension Commutation: Commuted pensions under government service rules (Civil, Defense, or other schemes) will be fully deductible.
- Voluntary Retirement Scheme (VRS) Compensation: Employees opting for VRS will receive a tax exemption of ₹5,00,000 or as per government specifications.
Government’s Push for Simplified Tax Compliance
Finance Minister Nirmala Sitharaman emphasized that the new tax bill aligns with the government’s “Trust First, Scrutinize Later” approach. Reforms include:
- Faceless assessment for tax returns.
- 99% of tax returns being self-assessed.
- Faster refunds and dispute resolution through the Vivad Se Vishwas scheme.
Expected Impact of the New Income Tax Bill
- Taxpayers will experience a simplified filing process with fewer deductions and exemptions to claim.
- Middle-class and lower-income groups will benefit from increased tax exemption limits.
- Businesses and high-income earners will need to reassess tax-saving strategies, as several deductions are removed.
- Improved compliance and digitization efforts will lead to faster tax processing and refunds
