New Income Tax Bill 2025: What’s Changing and What Remains the Same

Union Finance Minister Nirmala Sitharaman will present the Income Tax Bill 2025 in Parliament today. The bill aims to simplify tax laws, remove outdated provisions, and make tax compliance easier. If approved, it will replace the Income Tax Act of 1961 and take effect from April 1, 2026.

The bill will then be reviewed by the Parliamentary Standing Committee on Finance, which will hold consultations before it becomes law.

Key Changes in the New Tax Bill

• Shorter and Simpler Tax Law

The new bill is 201 pages shorter than the existing tax law. The Income Tax Act 1961 currently spans 823 pages, but the new bill will reduce it to 622 pages, making it easier to understand.

• Introduction of ‘Tax Year’

The term Assessment Year (AY) will be replaced with Tax Year to avoid confusion. For newly established businesses, the tax year will start from the date of their setup.

• Clarification on Business Taxes

The bill resolves uncertainties around Sections 44AD, 44AE, and 44ADA, which deal with presumptive taxation for businesses and professionals. It introduces the term “profit claimed to have been actually earned” to clarify income computation.

• New Income Tax Slabs (Proposed)

Additionally, under Section 87A, salaried individuals earning up to ₹12 lakh annually will not have to pay income tax due to rebates announced in the Union Budget 2025.

Key Taxation Updates

No Changes in Tax Categories

The bill keeps the 5 existing tax heads unchanged:

1. Salaries
2. Income from House Property
3. Business/Profession
4. Capital Gains
5. Other Sources

Deductions for Salaried Individuals

• Standard Deduction: ₹50,000 or salary amount, whichever is lower.
• Employment Tax & Gratuity (as per the Gratuity Act, 1972): Fully deductible.
• Other Gratuity Deductions: Capped at ₹75,000.

Pension and Compensation

• Government, Defence, and Civil Service Pensions: Fully deductible.
• Retrenchment Benefits: Deduction limit of ₹50,000.
• Voluntary Retirement Benefits: Deduction capped at ₹5,00,000.

Other Major Changes

Higher Business Threshold for Presumptive Taxation

• For businesses: The turnover limit for opting for presumptive tax under Section 44AD has increased from ₹2 crore to ₹3 crore.
• For professionals: The limit under Section 44ADA has increased from ₹50 lakh to ₹75 lakh.

Taxation on Virtual Digital Assets (VDAs)

• Cryptocurrencies and other virtual digital assets (VDAs) will now be classified as taxable assets, similar to property, jewellery, and stocks.

Tax Audit Rules

• Tax audits will continue to be conducted by Chartered Accountants (CAs).
• Company Secretaries (CS) and Cost Accountants (CMAs) are not authorized for tax audits.

No Major Changes in Capital Gains Tax

• Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) tax rules remain largely unchanged except for any specific amendments in the Union Budget.

What Stays the Same?

• ITR filing deadlines remain unchanged.
• The old tax regime is still available, even though the new tax regime is now the default.
• The bill aims to reduce tax disputes, simplify compliance, and modernize tax administration.

This new Income Tax Bill aims to simplify and streamline taxation, ensuring transparency and clarity in tax laws.

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