New Income Tax Bill, 2025 – New Updates &  Highlights

Finance Minister Nirmala Sitharaman presented the Income Tax Bill 2025 in the Lok Sabha on February 13. The bill aims to make the tax system simpler by using easy language, removing difficult terms, and reorganizing rules without adding any new taxes.

New Simplified Income Tax Bill, 2025

The new bill is 622 pages long and has 536 sections, 23 chapters, and 16 schedules. This is much shorter than the 1961 Income Tax Act, which had 298 sections in 14 schedules but was more the 1000 pages long. The main goal of the new bill is to make tax rules simpler for people, businesses, and organizations by removing unnecessary details.

When it will Operation?

After the Lok Sabha approves the bill, it will go to the Parliament’s Finance Committee for review. Then, it will be discussed again in both Houses of Parliament. The new Income Tax Bill 2025 will replace the old Income Tax Act of 1961. Once passed, it will be called the Income Tax Act, 2025, and is expected to take effect in April 2026.

What are the income tax rates in the new system?

Here are the tax rates based on income:

• Up to ₹4 lakh – No tax
• ₹4-8 lakh – 5% tax
• ₹8-12 lakh – 10% tax
• ₹12-16 lakh – 15% tax
• ₹16-20 lakh – 20% tax
• ₹20-24 lakh – 25% tax
• Above ₹24 lakh – 30% tax

New Updates and Changes

Tax Exemptions : People who earn up to Rs 12 lakh per year will not have to pay tax.

Standard Deduction : Standard deduction of Rs 75,000, which means income up to Rs 12.75 lakh will be tax-free.

Introduction of “Tax Year” :  The Income Tax Bill 2025 introduces the concept of a “tax year” replaces complex terms like ‘assessment year’ and ‘previous year’, defined as a twelve-month period starting from April 1.

Clarifying Legal Text : The word “notwithstanding” is changed to “irrespective,” and tables and formulas are used instead of difficult explanations.

Backlog Deadline : A deadline has been set to resolve appeals at the first appeal level to reduce backlog.

Provisions on Capital Gains : The bill updates the rules on capital gains tax by combining different rules from the 1961 Act, making it simpler for securities and other investments.

Deadline extended for tax payers : Instead of two, taxpayers now have four years  to fix mistakes or add missing information on their tax returns, giving them more time to make corrections.

Simplified deductions & exemptions : Earlier, tax deductions were spread across different sections like 10 and 80C to 80U. The new bill combines them into one place, making them easier to understand and use.

Unveiling of the Taxpayer’s Charter : The bill has a taxpayer’s guide that explains their rights and duties, making sure the tax system is clear and fair.

Enhanced Regulatory Clarity for Non-Profit Organizations : Clauses 332 to 355 set clear rules for tax-exempt organizations, making sure they follow strict guidelines when doing business.

Including crypto in Virtual Digital Assets (VDA) : Clauses 67 to 91 set clear rules for taxing digital assets like cryptocurrency. This is an important step by the Indian government, as it brings crypto under the country’s financial system. By officially recognizing Virtual Digital Assets (VDAs), it helps create clearer regulations, making it easier for blockchain-based financial tools to be accepted and used widely.

Empowerment of CBDT : The Central Board of Direct Taxes (CBDT) will have the authority to set tax administration rules and implement digital tax monitoring systems.

Updates to sections & clauses in the new Income Tax Bill, 2025

The Income Tax Bill 2025 will introduce significant revisions in numbers, clauses, and sections from the Income Tax Act, 1961.

• The new tax regime, currently under Section 115BAC, will be renumbered as Section 202 in the new bill.
• Income Tax Returns (ITRs), presently filed under Section 139, will be filed under Section 263 in the new bill.
• Tax Deduction at Source (TDS) sections (currently Sections 192 to 196) will be grouped under Clause 393 in the new bill.
• Tax Collection at Source (TCS) (currently under Section 206C) will be categorized under Clause 394 in the new bill.

Interesting updates on new income tax bill, 2025

• The Income Tax Bill 2025 aims to simplify India’s direct tax system.
• Over 6,500 stakeholder suggestions were considered before drafting the bill.
• The bill simplifies language by using shorter sentences and removing obsolete provisions.
• Tables, notes, and formulae are introduced to improve taxpayer comprehension.
•  Important tax principles like GAAR, capital gains, indirect transfers, and tax rates remain largely the same.

Suggested Read :

Union Budget 2025-26

Online Income Tax Challan

ELSS Under Income Tax Act

Intimation notice of Income Tax Act

12A & 80G Compliance of Income Tax Act