Key Takeaways For Taxpayers From New Income Tax Bill 2025

Finance Minister Nirmala Sitharaman tabled the much anticipated New Income Tax Bill (ITB) 2025 in the Lok Sabha today. If approved, this Bill will replace the existing Income Tax Act of 1961 and will come into effect from April 1, 2026. The income tax bill was initially announced during the finance minister’s Budget speech on February 1 and was later approved by the Cabinet on February 7.

Once it is passed by the Lok Sabha, the new I-T bill will be sent to the Parliament's Standing Committee on Finance for further discussions and deliberations before making the rounds of both Houses of Parliament again.

Says CA (Dr.) Suresh Surana, "The copy of the ITB 2025 has been made available to the Members of Parliament (MPs) on 12 February 2025 and has been tabled in the Lok Sabha today. After the GST reform in 2017 wherein all the indirect taxes were subsumed, the effort made by the government to revamp completely the Income-Tax Act (which was legislated about 64 years ago) is quite appreciable."

As the parliamentarian proceeding continues to bring the new income tax rules into effect, let’s understand what this Bill would mean for the taxpayers of India.

No More Confusing Tax Jargon

Experts are pointing out a major benefit: fewer errors while filing returns.

Simply put, this will be a complete overhaul of the existing tax system with few takeaways from the previous Income Act and the birth of a tax system that focuses on making things simpler, clearer, and more taxpayer-friendly.

An example of this simple-to-understand tax system is the size of this new Bill. The original Income Tax Act has a massive 823 pages whereas the new Bill has been trimmed down to just 622 pages. Though it has more sections, some 536 in total, the language is supposed to be straightforward to cut down on legal jargon that often leaves many taxpayers scratching their heads.

Moreover, the concepts of explanations and provisos have been done away with in the Bill, for ease of interpretation and understanding of taxpayers.

Additionally, the Bill will tabulate key information related to deductions from salaries, such as standard deduction, gratuity, and leave encashment, in one place instead of putting it over different sections and rules. The changed version also simplifies the computation of depreciation for businesses by providing the formula.

Says Munjal Almoula, Head of Tax, BDO India, “As was expected, the New Income Tax Bill doesn’t seek to introduce any additional tax burden on taxpayers. What the bill attempts to do is simplify the language contained in the Income-tax Act of 1961, provide greater clarity through explanations, and provides more transparency to taxpayers. Another important aspect introduced through the new tax bill is providing guidance on the taxability of income streams emanating through new age business such as digital assets, etc.”

"The move to streamline the provisions of the Income Tax regulations was much awaited considering that it may not be easy for a layman to comprehend its provisions and there has been a long history of pending litigations at various appellate authorities. This also aligns with the government’s efforts to ease the administrative aspects of doing business and commitment of the tax department to “trust first, scrutinize later," adds Surana.

New Tax Regime as the Default Option

Though this is not new, the government has made New Tax Regime (NTR) the default option for taxpayers. This means that unless you specifically opt out of NTR (to move to the Old Tax Regime), you will be enrolled in the new system automatically.

However, note that the old tax regime still continues to exist for those who prefer it ensuring flexibility and choice for the taxpayers.

Key Changes Taxpayers Need to Know

Introduction of ‘Tax Year’: Say goodbye to the confusion of the ‘Assessment Year’ and ‘Previous Year.’ The new bill is introducing a simple term, called ‘Tax Year.’ The financial year remains unchanged, but this shift aims to bring more clarity to taxpayers.

No Change in Residency Rules: The criteria for determining whether you are a resident taxpayer remain the same, so no surprises for taxpayers here.

Higher Limits for Businesses and Professionals: According to some reports, the presumptive taxation scheme under Section 44AD has seen an increase in limits. For business, the revised limit is supposedly raised from Rs 2 crore to Rs 3 crore, and for professionals, it has been hiked from Rs 50 lakh to Rs 75 lakh. These changes, if implemented in the Bill, will help small businesses and professionals streamline their tax compliance.

Revision of Category of Virtual Digital Assets: If you are dealing in cryptocurrencies or any other such digital assets, the good news is that the Bill will classify VDAs under the same category as property, jewellery, paintings, and shares.

Relief for CAs: Earlier, there was speculation that tax audits might be extended to Company Secretaries (CS) and Cost and Management Accountants (CMA), but the bill confirms that only Chartered Accountants (CAs) will continue to handle audits.

No Change in Income Tax Heads: The five categories of income, namely, salaries, house property, business or profession, capital gains, and other sources will remain unchanged.

Capital gains: Long-term capital gains (LTCG) and short-term capital gains (STCG) remain the same as when they were introduced in the last financial year/budget.

No Change in ITR Deadlines: The new income tax brings no changes to your usual Income Tax Return filing deadlines.

Moreover, Says Sanjay Basu, Founding Partner, AQUILAW, "Now, all salary-related provisions have been consolidated in one place for easier understanding, so taxpayers no longer need to refer to separate chapters when filing their income tax return."

"Deductions previously allowed under section 10 of the Income Tax Act, 1961, such as gratuity, leave encashment, commutation of pension, compensation for VRS and retrenchment compensation, are now included in the salary chapter. Some allowances, like HRA, are now listed in Schedule II of the new Bill, which is referenced in the salary provisions. The goal was to improve readability by including tables and formulas," Basu explains.

What about Tax Rates?

If you were confused or concerned about whether the Bill would introduce any new taxes, rest assured as there is no introduction of additional taxes. However, take note of revised tax rates as announced in the Budget 2025 for the new tax regime.

The revised tax slab is as follows;

Upto Rs 4 lakh: Nil

Rs 4-8 lakh: 5 per cent

Rs 8-12 lakh: 10 per cent

Rs 12-16 lakh: 15 per cent

Rs 16-20 lakh: 20 per cent

Rs 20- 24 lakh: 25 per cent

Above Rs 24 lakh: 30 per cent

Additionally, a tax rebate has been introduced for taxpayers earning up to Rs 12 lakh annually, providing some much-needed relief to the middle class.

Watch this space and follow Outlook Money’s LIVE updates on the New Income Tax Bill for all the information you need.