How The New Income Tax Bill 2025 Will Impact Individual Taxpayers

The revised New Income Tax Bill 2025, which was recently passed by Parliament, aims to establish a straightforward method to replace the complicated Income Tax Act of 1961. This new legislation will simplify tax procedures and compliance requirements for taxpayers.

Key Changes And Positives Of The New I-T Bill:

The new legislation minimises taxpayer compliance requirements while providing straightforward tax rules through clearer wording of ambiguous sections. The following points highlight the main benefits of the New I-T Act for individual taxpayers:

• The use of simplified language makes the law more accessible.

• Outdated and unnecessary provisions have been removed to improve clarity.

• The Bill creates digital-first, faceless compliance through faceless assessment mechanisms that decrease human contact while fighting corruption and providing convenience to taxpayers.

• The Bill ensures quicker refunds and procedural fairness, allowing TDS refunds after return deadlines and requires the issuance of notices prior to enforcement measures.

• Transparency in Donations: Religious trusts that want to receive anonymous donations must engage in social services to qualify for this exception.

• The definition of income receives an expansion through the inclusion of digital virtual assets as undisclosed income.

• The legislation keeps established taxation concepts intact while making the process more user-friendly.

The New I-T Bill, thus, provides various benefits which aim to make tax regulations easier to understand and follow. The law uses clear language to make tax information more accessible to taxpayers together with professionals.

"It consolidates various amendments into one place, reducing the confusion caused by scattered provisions. Outdated and redundant rules have been removed, providing greater clarity and relevance. Additionally, the law has been structurally reorganised with the use of tables and formulae, making complex information more readable and easier to interpret," informs CA Mrinal Mehta, Joint Secretary, Bombay Chartered Accountants' Society (BCAS).

The Bill includes a major provision which removes the existing framework of 'previous year' and 'assessment year' while establishing 'tax year' as the new 12-month period starting April 1.

"The implementation of 'tax year' will minimise compliance challenges that stemmed from tracking 'previous year', 'assessment year' and 'financial year' under the Act," says Mehta.

According to ClearTax, in the previous Bill, only residents under 60 years could claim a Nil Tax Deduction certificate for TDS on items such as the accumulated balance of PF, insurance commission, mutual fund units, interest, rent, and LIC payment. All residents, regardless of age, are now eligible to claim it. The drafting error has been eliminated.

Moreover, the earlier Bill restricted pre-construction interest application to self-occupied property, but now includes self-occupied and let-out properties.

Changes For Salaried Taxpayers, Small Businesses, And HNIs

According to tax experts, no major changes have been proposed in the way income from salary is taxed. The fundamental aim of the new Bill was to streamline current regulations rather than transform them completely. The Bill creates better clarity and operational efficiency while preserving existing continuity.

The sections addressing income from business or profession now contain merged provisions for presumptive taxation of residents and non-residents to streamline content and consolidate all applicable scenarios into a single section.

Mehta explains that the conversion of all provisos and explanations into sub-sections serves to eliminate ambiguity and provide clear understanding.

Changes in Filing Returns, Claiming Tax Refund

The I-T Act of 1961, under Section 139, distributes different types of assessees throughout multiple subsections. The new I-T Bill combines every type of assessee into a single section to improve accessibility for each category to complete their return filing obligations.

"Though the due dates for filing returns of income for each category of assessees are still the same, they are now presented in a tabular format for easier understanding," informs Mehta.

The rules about filing belated returns, revised returns and return updates maintain their current form as in the old I-T Act.

A positive change is that "the income tax refund can now be claimed in the revised or belated tax return as well, against the probable interpretation from the previous version that refund should be claimed only in the original tax return," says Rahul Jain, Partner at Khaitan & Co.

The law also requires tax authorities to issue notices before initiating any enforcement action, giving taxpayers a fair chance to respond.

Deductions and Exemptions Under The New Law

The different 80C deductions have been rearranged into a simpler format that lists eligible savings instruments in the proposed Schedule XV.

"Section 80G, which provides deductions for donations, has been revised to clearly segregate deductions based on the percentage of eligible deductions—100 per cent and 50 per cent -- without making any policy change. This makes it easier for taxpayers to identify and claim the correct deduction amount," says Mehta.

Exemption For Commuted Pension

Exemption from tax on the full amount of pension commuted from notified approved pension funds (e.g., LIC Pension Fund) is now extended to all, irrespective of employment.

Previously, this was a salaried class benefit. Now it applies to all investors and pensioners under approved plans, including non-employees like independent contributors and nominees.

What It Means for Pensioners: This reform provides equal treatment for all pensioners, both from government service and private employment, as well as self-invested schemes. "With the whole commuted pension tax-free, retirees would have more money in their pockets, which means they can better take care of expenses and plan their finances. A clear definition of qualifying schemes also eliminates doubts about which pensions are exempt," says Abhishek Soni, co-founder, Tax2Win.

Clarification On Advance Tax Penalty Interest  

The interest provision for shortfall in advance tax payment under Clause 425 of the revised Income-Tax Bill has been aligned with the old I-T Act.

"A drafting error in the new Bill briefly suggested a steep 3 per cent per month penal interest on advance tax defaults, sparking concern. Within a day, a corrigendum set the record straight: the charge remains 3 per cent flat per instalment on shortfalls in the first three instalments (1 per cent per month for three months) and 1 per cent for one month on the final instalment (due March 15). The status quo, thus, has been restored," says Amit Baid, Head of Tax at BTG Advaya.

To conclude, the provisions in the revised New Income Tax Bill, 2025, broadly align with the provisions of the Income Tax Act of 1961. The revised Income Tax Bill, 2025, majorly focuses on reducing the litigations by providing necessary clarification and simplifying the language of the sections, wherever required. Taxpayers, however, must be aware of the modified and simpler version of the sections drafted in revised Bill.