New Income Tax Bill 2025: Major Changes You Need to Know
The government has introduced the New Income Tax Bill 2025 in Lok Sabha, replacing the Income Tax Act of 1961. This reform simplifies tax rules and ensures easier compliance for individuals and businesses. It focuses on transparency and efficiency in tax collection.
Simpler and Digital-Friendly Tax System
The bill promotes digitalisation, making tax payments smoother and compliance easier. The old tax act had 880 pages, making it complex. The new bill is 622 pages long, with 536 sections and 23 chapters. These changes help taxpayers understand rules without confusion.
New ‘Tax Year’ Concept for Clarity
A major change is the introduction of the “Tax Year”, replacing “Assessment Year” and “Previous Year”. Many taxpayers struggled with these terms, leading to errors. Now, the Tax Year will align with the financial year (April 1 – March 31). For instance, April 1, 2025, to March 31, 2026, will be called Tax Year 2025-26. This makes filing simpler.
Revised Tax Slabs and Standard Deduction
The government has revised tax slabs to ensure fair taxation. The standard deduction remains ₹50,000 in the old regime but increases to ₹75,000 in the new one. This benefits salaried employees and pensioners.
New Tax Slabs:
- Up to ₹4 lakh – No tax
- ₹4 lakh to ₹8 lakh – 5% tax
- ₹8 lakh to ₹12 lakh – 10% tax
- ₹12 lakh to ₹16 lakh – 15% tax
- ₹16 lakh to ₹20 lakh – 20% tax
These rates aim to reduce the burden on middle-income groups.
More Power to CBDT for Quick Policy Changes
The bill gives CBDT (Central Board of Direct Taxes) more power to implement policies faster. Previously, the Income Tax Department had to wait for Parliament’s approval, causing delays. Now, CBDT can take quick action, ensuring smoother operations.
Capital Gains Tax Structure Unchanged
For investors in stocks and real estate, capital gains tax rates remain the same. The short-term capital gains tax stays at 20% for assets held less than 12 months, while long-term capital gains tax remains at 12.5% for assets held longer. This ensures stability for investors.
Tax Benefits on Savings and Investments Stay
The bill retains tax exemptions on pensions, NPS (National Pension System) contributions, and insurance premiums. Investments in Provident Fund (PF), gratuity, and ELSS mutual funds continue to be tax-free. These benefits encourage long-term financial security.
Stronger Penalties for Tax Evasion
Authorities will impose heavy fines, freeze bank accounts, and take legal action against tax evaders. The Income Tax Department will track undisclosed income more effectively. These measures aim to stop fraud and ensure compliance.
Mandatory e-KYC and Digital Tax Payments
The government has made e-KYC verification mandatory for better transparency. Online tax payments and e-filing will also be compulsory. These changes make tax transactions safer and error-free.
Tax Exemptions for Agriculture and Donations
The bill continues to provide tax exemptions on agricultural income, with specific conditions. Donations to religious trusts, charities, and electoral trusts remain tax-free. These exemptions encourage philanthropy and support social causes.
Fewer Disputes with Clearer Rules
The bill clarifies tax provisions to reduce legal disputes. Previously, taxpayers struggled with complex regulations, leading to conflicts. The new law simplifies compliance and prevents unnecessary litigation.
Implementation and Expected Impact
Finance Minister Nirmala Sitharaman presented the bill in Parliament. Once approved, it will replace the Income Tax Act of 1961 and take effect from April 1, 2026. The government expects it to simplify tax filing, improve transparency, and enhance compliance. However, its full impact will be seen after implementation.
With this reform, India is moving towards a modern and efficient tax system. Taxpayers must prepare for these changes to avoid last-minute issues when the new system begins.
