New Income Tax Bill 2025: Check Key Changes and Features

 

New Income Tax Bill 2025: Check Key Changes and Features

India’s Income Tax Bill 2025, tabled in Parliament on August 11, 2025, aims to overhaul the country’s direct tax framework by replacing the six-decade-old Income Tax Act, 1961. The proposed law introduces progressive tax slabs, an enhanced rebate structure, and simplified provisions for capital gains and MSMEs. Emphasizing faceless assessments and digital compliance, it seeks to make tax administration more transparent and efficient.

Shaped by recommendations from a parliamentary select committee, the bill addresses long-standing ambiguities, modernizes compliance requirements, and aligns tax laws with current economic realities. Once passed, it will come into effect from April 1, 2026, marking a transformative shift in India’s tax regime.

1. Purpose & Objectives

·         Simplicity and Clarity: The bill employs simple language, restructures sections logically, and does away with duplicative provisions.

·         Faceless Administration: Facilitations for faceless collection of information and evaluation persist, minimizing personal interface and ensuring transparent digital proceedings.

·         Unified Tax Year: Attempts towards harmonized assessment timelines for improved compliance and fewer litigations.

·         Reduction of Disputes: Improved rules and more precise definitions seek to reduce ambiguities and court challenges.

2. Revised Income Tax Slabs (New Regime)

Annual Income	Rate
Up to ₹4,00,000	Nil
₹4,00,001 to ₹8,00,000	5%
₹8,00,001 to ₹12,00,000	10%
₹12,00,001 to ₹16,00,000	15%
₹16,00,001 to ₹20,00,000	20%
₹20,00,001 to ₹24,00,000	25%
Above ₹24,00,000	30%

·         Increased Rebate: 100% rebate of income tax (limited to ₹12,500) for incomes up to ₹5 lakh. New tapering rebate system provides up to ₹60,000 rebate for incomes up to ₹12 lakh, with tapering off for increased incomes.

·         Normal Deduction: 30% normal deduction of house property income, worked out after municipal tax.

·         Interest Deduction: Interest on pre-construction homeloans can be deducted for self-occupation as well as rented homes, in five equal installments after completion.

·         Commuted Pension Deduction: Now equally available to both employees and non-employees if received under listed funds.

·         Simplified Capital Gains: Entire capital gains provisions restructured and clarified; official inclusion and taxation of cryptocurrencies and digital assets as capital gains.

3. Business & MSMEs

• Presumptive Taxation: Threshold increased to ₹2 crore for business and ₹75 lakh for professionals, facilitating convenience for MSMEs and professionals. Need to report profits under this scheme for five continuous years, otherwise, keep audited books.
• MSME Redefinition: MSMEs now harmonized with official MSME Act definitions for harmonization and inclusion.
• Inter-Corporate Dividends: 80M deduction revoked, impacting tax treatments for groups of corporates.
• NIL-TDS Certificates: Taxpayers with nil liability can issue advance certificates, facilitating convenience.

4. Important Administrative, Structural, and Compliance Reforms

• Faceless Assessment Continued: Enhances faceless schemes of assessments, gathering of information, and appeals, minimizing human interface and maximizing efficiency.
• Grouping of Sections: Logical grouping of sections of deductions and TDS/TCS provisions to facilitate easy accessibility.
• Procedural Simplification: Advance ruling charges, TDS on withdrawal from PF, and penal powers made clear for increased fairness.
• Refund Policy: Taxpayers are allowed refunds even on delayed returns, in bona fide situations such as sickness or system breakdowns—more taxpayer protection and convenience.
• Digital Compliance & Dispute Resolution: More robust systems of e-filings and redressal of grievances online.

5. Reforms for Asset Owners & Investors

• House Property Valuation: Tax now calculated on the higher of actual rent received or deemed rent, with words clarified to prevent confusion regarding "normal course".
• Vacant Property Relief: Exemption from notional rent tax on temporarily vacant commercial buildings.
• Associated Enterprises: Modifying the shareholding limit for tax effects in cross-border deals.

6. Special Provisions & Exemptions

• Unified Pension Scheme: Exemption from taxation for certain subscribers under the 2025 plan.
• International Investors: Exemption from taxation for Saudi Public Investment Fund and its affiliates.

7. Implementation Timeline

• Anticipated Start Date: April 1, 2026—provides taxpayers, businesses, and agencies with time to prepare for new provisions.

Features of Income Tax Bill 2025

Area	Old Law (1961 Act)	New Law (2025 Bill)
Structure	Dispersed, complex, 75-year old	Simplified, grouped, clearly-worded
Tax Slabs	Multiple, less progressive	Raised limits, new progressive bands
Deductions	Fragmented, confusing	Standardized, clear rules for deductions
Capital Gains	Vague on digital assets	Cryptocurrencies, digital assets now fully defined
MSME Definition	Different from official MSME Act	Aligned with MSME Act
Compliance	Paper-driven, manual interface	Faceless, digital-first processes
Asset Valuation	Occasional ambiguity	Clearer valuation rules, vacant relief
Refund Policy	Refund denied for late returns	Refund granted for late returns in valid circumstances
TDS/TCS	Spread across sections	Logically grouped for clarity
Pension Deduction	Employees only	Equal for employees and non-employees
Effective Date	N/A	April 1, 2026