New Income Tax Bill tabled in LS: Here's what's changing & what's not

If passed, the new Income Tax Bill, 2025 will replace the Income Tax Act of 1961 and come into effect on April 1, 2026

Union Finance Minister Nirmala Sitharaman has presented the new Income Tax Bill, 2025, in Parliament on Thursday. The bill aims to simplify tax laws, eliminate outdated provisions, and ease compliance. If approved, it will replace the Income Tax Act of 1961 and come into effect on April 1, 2026.

 

The bill will then be referred to the Parliamentary Standing Committee on Finance, which will begin its consultation process.

 

Here is a closer look at the changes and what will remain the same under the new Income Tax Bill.

 

What’s changing?

 

Simpler, shorter law: The new bill is 201 pages shorter than the current Act, with fewer provisos and explanations, making it easier to understand. The amended Income Tax Act of 1961 is 823 pages (as of 2024), while the new Income Tax Bill is streamlined to 622 pages.

 

New ‘Tax Year’ concept: The assessment year will now be called the tax year to reduce confusion. For new businesses, the tax year will begin from their establishment date.

 

Taxation clarity: The new bill addresses the long-standing debate on Sections 44AD, 44AE, and 44ADA, a key concern for professionals. It clarifies profit computation by introducing the term “profit claimed to have been actually earned.”

 

Revised income tax slabs (proposed)

 

Up to Rs 4,00,000 – No tax

Rs 4,00,001 to Rs 8,00,000 – 5 per cent

Rs 8,00,001 to Rs 12,00,000 – 10 per cent

Rs 12,00,001 to Rs 16,00,000 – 15 per cent

Rs 16,00,001 to Rs 20,00,000 – 20 per cent

Rs 20,00,001 to Rs 24,00,000 – 25 per cent

Above Rs 24,00,000 – 30 per cent

 

It is important to note that as per the Union Budget 2025, salaried individuals earning up to Rs 12 lakh annually do not have to pay tax under the new regime due to tax rebates announced under Section 87A.

 

Key taxation updates

 

Under the new bill, there will be no change in tax heads and the five existing categories will remain the same which include salaries, house property, business/profession, capital gains, and other sources.

 

Deductions for salaried individuals

 

Standard Deduction: Rs 50,000 or salary amount, whichever is lower.

 

Employment Tax & Gratuity (as per the Gratuity Act, 1972): Fully deductible.

 

Other gratuity deductions: Capped at Rs 75,000.

 

Pension and compensation

 

Government, defence, and civil service pensions: Fully deductible.

 

Retrenchment and voluntary retirement benefits: Deduction limits at Rs 50,000 and Rs 5,00,000, respectively.

 

Other notable changes

 

Business threshold: The turnover limit for a business to opt for the presumptive tax scheme under Section 44AD has been increased from Rs 2 crore to Rs 3 crore. For professionals, the threshold for opting under Section 44ADA has been raised from Rs 50 lakh to Rs 75 lakh.

 

Virtual digital assets (VDAs): Virtual digital assets (including cryptocurrencies) are now classified as assets under the tax regime. This means they are taxed alongside other assets such as property, jewellery, and shares.

 

Tax audits: The scope of tax audits continues to be carried out by chartered accountants (CAs). However, company secretaries (CS) and cost accountants (CMAs) are not included in this capacity for tax audits.

 

LTCG and STCG: Long-term capital gains (LTCG) and short-term capital gains (STCG) tax rules largely remain the same, with no major changes compared to the previous year, unless otherwise specified in the Budget.

 

What stays the same?

There will be no changes in ITR filing deadlines.

 

Also, the old tax regime is still available while the new tax regime is the default, the old regime remains an option.

With a clearer and more concise structure, this bill aims to reduce disputes, simplify compliance, and modernise tax administration.