New Income Tax Bill 2025: Simplified Laws & Tax Year Concept

February 13, 2025—Finance Minister Nirmala Sitharaman is set to present the new Income Tax Bill, 2025, in Parliament today. The bill aims to simplify tax laws, eliminate outdated provisions, and ease compliance. If approved, the new bill will replace the Income Tax Act of 1961 and is expected to come into effect on April 1, 2026.

What's the Big Deal?

Imagine your parents have a rule book that's super old and complicated. It has so many confusing words and extra rules that even they sometimes scratch their heads. That's kind of like the Income Tax Act of 1961. It's been around for over six decades, and so many changes have been made to it that it's become a bit of a mess. Now, FM Nirmala Sitharaman is introducing a brand-new rule book—the New Income Tax Bill 2025. Think of it as a simplified, shorter, and easier-to-understand version. The goal is to make paying taxes less scary and more straightforward.

Key Changes to Expect

Simpler Language: The new bill uses easy-to-understand language, so you don't need a law degree to figure out your taxes.
Bye-Bye "Assessment Year," Hello "Tax Year": The bill replaces the terms "assessment year" and "previous year" with the "tax year" concept. Previously, income earned in one year was taxed in the next year, but now taxation will follow a single tax year approach.
Shorter and Sweeter: The new bill is 622 pages long, which is nearly half the size of the amended 1961 Act, which has 823 pages.
More Sections, Fewer Complications: While the number of sections has increased from 298 to 536, the bill is still shorter because of the removal of extra provisions and simplified language.
Digital Assets Included: Virtual digital assets have been included in the provisions for searches to count it as part of any undisclosed income along with existing categories of money, bullion, jewellery.

What Remains the Same?

Tax Categories: There will be no change in tax heads, and the five existing categories will remain the same: salaries, house property, business/profession, capital gains, and other sources.
Old Tax Regime: The old tax regime will continue in the new legislation, but the new tax regime will remain selected as a default regime for taxpayers.

Goodies for Salaried Folks

Standard Deduction: A standard deduction of Rs 50,000 or the salary amount, whichever is lower.
Employment Tax & Gratuity: Fully deductible as per the Gratuity Act, 1972.
Pension and Compensation: Government, defense, and civil service pensions are fully deductible.

What's Next?

After being presented in Parliament, the bill will be sent to a Parliamentary Standing Committee on Finance for review. The committee will give its recommendations, and then the government will decide whether to include these amendments or add more. After this, the Bill will return to Parliament, and then the government will decide on its rollout date. According to sources, the new income tax bill will come into effect on April 1, 2026.The public was invited to contribute suggestions across four areas: language simplification, reduction in litigation, streamlining compliance, and identification of outdated provisions. The income tax department received 6,500 stakeholder suggestions regarding the Income Tax Act review.

What are the main benefits of the new Income Tax Bill for taxpayers?

The New Income Tax Bill aims to simplify tax laws, reduce compliance burdens, and make the tax system more transparent and taxpayer-friendly. It is expected to bring several benefits that could make tax filing easier.

Key benefits for taxpayers:

Simplified Tax Laws: The bill streamlines the complex tax structure by reducing the number of sections. This simplification is expected to reduce ambiguities for the taxpayer.
Simple Language: The bill proposes the use of simple language, which aims to make the tax laws easier to understand for laymen, eliminating complex tax jargon. A taxpayer will be able to gain a sensible understanding of the section by reading the section itself and they do not need to refer to other rules and sections.
Revenue Neutral: The new bill is designed to be revenue-neutral, meaning it will not introduce new taxes or alter existing tax rates and slabs. The focus is on simplifying the tax code without impacting the government’s revenue collection.
Reduced Compliance Burden: Simplifying the tax code is expected to make it easier for taxpayers to understand their obligations, thereby reducing the time and effort required for tax compliance. This could lead to fewer errors in tax filings and a decrease in litigation cases.
Tax Year: Introduction of a single ‘Tax Year,’ replacing the existing dual system of the financial year (April to March) and the assessment year. The primary benefit of the Tax Year is that this will remove the confusion between Previous Year and Assessment Year.
User-Friendly Tax Deduction System: Taxpayers may benefit from a more structured and user-friendly tax deduction system. The new bill consolidates these deductions into a single section, making it easier for salaried employees to understand their tax liabilities.
No additional tax burden: Experts believe the bill does not introduce new taxes or raise existing tax rates.
No change in ITR filing deadlines, income tax slabs, and capital gains: No changes have been made to the income tax. This decision ensures tax certainty for individuals and businesses, allowing them to plan their finances without unexpected changes.