The Income Tax Bill, 2025, circulated by Finance Minister Nirmala Sitharaman on February 12, 2025, is set to replace the Income Tax Act of 1961, marking a historic shift in India's direct tax system. The bill aims to simplify tax laws, introduce new tax slabs, and modernize compliance.
If passed in Parliament on February 13, 2025, and upon receiving the President’s assent, the new act will come into effect from April 1, 2026.
Here’s a breakdown of the key highlights and impact of the new Income Tax Bill, 2025:
🔹 Key Changes Introduced in the Income Tax Bill, 2025
1️⃣ Renaming the Income Tax Act
- The existing Income Tax Act, 1961, will be replaced by the Income Tax Act, 2025.
- Earlier discussions about introducing a Direct Tax Code have been dropped, and instead, the existing law has been revamped with a new structure.
2️⃣ Effective Date of the New Law
- Once the bill is passed and receives the President’s assent, it will become effective from April 1, 2026.
- This gives taxpayers and businesses ample time to adapt to the new provisions.
3️⃣ Simplification of Tax Laws
- The new tax law is reduced from over 800 pages to 622 pages, making it more concise and easier to understand.
- The total number of sections is now 533, simplifying legal interpretation and compliance.
4️⃣ Introduction of the ‘Tax Year’ Concept
- The term ‘previous year’ will be replaced with ‘tax year’, making it easier for taxpayers to understand their income assessment periods.
- This is expected to improve clarity and simplify compliance processes.
🔹 New Income Tax Slabs for Individuals
One of the biggest changes in the Income Tax Bill, 2025, is the revision of income tax slabs to reduce the tax burden for individuals.
🔸 Key Changes in Income Tax Slabs (FY 2025-26)
✅ No tax for individuals earning up to ₹12 lakh per annum.
✅ For salaried taxpayers, after accounting for a standard deduction of ₹75,000, income up to ₹12.75 lakh will be tax-free.
📌 New Tax Slabs for Individuals (FY 2025-26):
| Income Range | Tax Rate |
|---|---|
| Up to ₹12.75 lakh | 0% (No Tax) |
| ₹12.75 lakh to ₹16 lakh | 15% |
| ₹16 lakh to ₹20 lakh | 20% |
| ₹20 lakh to ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
💡 Impact: This revision significantly benefits middle-class taxpayers and reduces tax liability for salaried professionals.
🔹 TDS and TCS Rationalization
🔸 Higher TDS Limit for Senior Citizens
- The TDS exemption limit on interest for senior citizens has been increased from ₹50,000 to ₹1 lakh, providing greater relief.
🔸 Higher TDS Exemption for Rent Payments
- The annual limit for TDS on rent has been raised from ₹2.4 lakh to ₹6 lakh, reducing compliance burdens for tenants and landlords.
🔹 Extended Deadline for Filing Updated Returns
- The time limit to file updated income tax returns has been extended from two years to four years.
- This gives taxpayers more flexibility to correct mistakes and ensure compliance without penalties.
🔹 Tax Exemption for National Savings Scheme (NSS) Withdrawals
- Withdrawals from the National Savings Scheme (NSS) made on or after August 29, 2024, will be completely tax-free.
- This encourages savings and investments in NSS accounts.
🔹 Tax Audit Eligibility: Chartered Accountants Only
- Initially, there were discussions about allowing Company Secretaries (CS) and Cost Accountants (CMA) to conduct tax audits.
- However, under the Income Tax Bill, 2025, only Chartered Accountants (CA) in practice are authorized to conduct tax audits.
- Section 515(3)(b) defines an "Accountant" as a CA in practice, ensuring specialized oversight in tax audits.
🔹 Conclusion: A Major Shift in India’s Taxation System
The Income Tax Bill, 2025, is a landmark reform that modernizes India’s tax laws while making them more transparent and simplified. The new income tax slabs, higher TDS limits, and updated tax compliance timelines will significantly impact individuals and businesses.
💡 How to Prepare for the New Tax Law?
✅ Review your tax-saving strategies based on the new slabs.
✅ Stay updated on compliance changes to avoid penalties.
✅ Seek expert guidance to optimize your tax planning.
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Verotus Finlegal Solutions LLP provides expert tax advisory services to help you navigate the new tax regulations seamlessly.
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