New Income Tax Bill 2025: How It Impacts You

On July 21, 2025, the Lok Sabha witnessed a pivotal moment in India’s tax history as Finance Minister Nirmala Sitharaman tabled the report of the parliamentary committee reviewing the Income Tax Bill, 2025. Introduced on February 13, 2025, this bill aims to replace the 64-year-old Income Tax Act, 1961, with a simpler, more transparent, and taxpayer-friendly framework. With the Monsoon Session of Parliament (July 21 to August 21, 2025) underway, the bill is set for further discussion, potentially reshaping how millions of Indians file taxes. Here’s a breakdown of what the new bill entails and how it impacts you, based on available information.

A Simpler Tax Code: What’s Changing?

The Income Tax Bill, 2025, is designed to overhaul the complex and amendment-heavy 1961 Act, which spans 823 pages with 819 sections and over 5.12 lakh words. The new bill, condensed to 622 pages, 536 sections, 23 chapters, and 2.6 lakh words, prioritizes clarity and ease of compliance. Here are the key changes:

• Introduction of "Tax Year": The bill replaces the confusing terms "previous year" and "assessment year" with a single "tax year" aligned with the financial year. Currently, income earned in one year (e.g., 2023-24) is taxed in the next (2024-25). Under the new system, you’ll pay taxes in the same year you earn, simplifying calculations and reducing confusion.
• Streamlined Structure: Over 2,100 provisos and explanations have been eliminated, and the bill uses tables, formulas, and plain language to enhance readability. For example, tax deduction at source (TDS) and tax collected at source (TCS) provisions are now presented in clear tables for residents and non-residents.
• Exemption Clarity: Deductions like gratuity, leave encashment, and house rent allowance (HRA) are consolidated into schedules or a single salary chapter, making it easier to understand eligibility. Exemptions for specific incomes and entities are moved to separate schedules for quick reference.
• Presumptive Taxation Expanded: Small businesses and professionals benefit from raised turnover limits for presumptive taxation, which simplifies tax calculations based on a fixed percentage of income. The limit for businesses increases from ₹2 crore to ₹5 crore, and for professionals, from ₹50 lakh to ₹75 lakh.
• Virtual Digital Assets (VDAs): Cryptocurrencies and other VDAs are now explicitly recognized as capital assets, subject to capital gains tax, aligning India’s tax framework with the global digital economy.
• Tonnage Tax for Inland Vessels: The bill extends the tonnage tax scheme, previously limited to ships under the Merchant Shipping Act, 1958, to inland vessels registered under the Inland Vessels Act, 2021. This offers corporate tax exemptions for a mandatory 10-year period, boosting inland waterway transport.
• Refund Provisions Restored: A controversial clause denying refunds for late-filed returns was removed by the Select Committee, benefiting taxpayers, especially businesses and tax-exempt entities like NGOs, who incur losses or qualify for exemptions.
• Inter-Corporate Dividend Deduction: The deduction under Section 80M for inter-corporate dividends, omitted in the initial draft, has been reinstated, providing relief to companies under special tax regimes.
• Faceless Assessments and Digital Compliance: The bill retains provisions for faceless tax collection and assessment, empowering the government to introduce new schemes for efficiency, transparency, and reduced human interaction via technology.

What Stays the Same?

Despite its transformative intent, the bill maintains continuity with the 1961 Act to avoid disruption:

• Tax Rates and Slabs: No changes to individual or corporate tax rates. The new and old tax regimes, including slab rates and rebates (e.g., ₹12 lakh limit for new regime, ₹5 lakh for old), remain unchanged.
• Compliance Timelines: Deadlines for filing returns, paying taxes, and other procedural requirements are unaffected.
• Offences and Penalties: The bill retains existing penalties and prosecution provisions, ensuring no shift in enforcement.
• Rights and Benefits: Repeals and savings clauses protect taxpayers’ accrued benefits under the old law.

How Does This Impact You?

For Individual Taxpayers

• Easier Compliance: The simplified language and consolidated deductions (e.g., HRA, gratuity) make it easier to understand tax obligations, especially for salaried individuals. The “tax year” concept eliminates the need to track separate assessment years, reducing errors in filing.
• Crypto Investors: If you trade cryptocurrencies or other VDAs, you’ll face clearer capital gains tax rules, potentially increasing compliance but aligning with global standards.
• No Tax Hikes: The bill doesn’t introduce new taxes or raise rates, ensuring your tax liability remains predictable. The rebate limit of ₹12 lakh under the new regime benefits middle-class earners, with 76% of income tax now coming from those earning above ₹50 lakh.

For Small Businesses and Professionals

• Presumptive Taxation Relief: Higher turnover limits (₹5 crore for businesses, ₹75 lakh for professionals) mean more small entities can opt for simplified tax calculations, reducing bookkeeping burdens.
• Refund Access: The removal of the late-filing refund restriction ensures businesses with losses or exemptions can claim refunds, easing cash flow concerns.

For Corporations

• Inter-Corporate Dividends: Reinstatement of the Section 80M deduction supports companies under special tax regimes, reducing tax burdens on dividend income.
• Tonnage Tax Expansion: Shipping companies operating inland vessels gain tax exemptions, encouraging investment in this sector.
• Digital Compliance: Enhanced faceless assessment schemes and provisions for probing undisclosed digital transactions streamline corporate tax processes but may increase scrutiny of digital earnings.

For NGOs and Not-for-Profits

• A dedicated chapter with plain language clarifies tax exemptions and compliance, reducing litigation risks for charitable organizations.

Potential Concerns

While the bill has been broadly welcomed, some experts have raised issues:

• Lingering Complexity: Congress MP Manish Tiwari argued the bill remains complex, and certain definitions, like income, still reference the 1961 Act, requiring taxpayers to consult both laws.
• Implementation Challenges: With the bill set to take effect from April 1, 2026, stakeholders have time to adapt, but the transition to digital compliance and new terminologies may require robust taxpayer education.
• Opposition Pushback: The bill’s introduction faced protests from opposition parties, and the Monsoon Session is expected to be stormy due to other contentious issues, potentially delaying passage.

What’s Next?

The 31-member Select Committee, chaired by BJP MP Baijayant Panda, adopted 285 suggestions on July 16, 2025, which were tabled in the Lok Sabha on July 21. These include structural simplifications and taxpayer-friendly amendments like the refund and dividend deduction changes. The bill is now under discussion during the Monsoon Session, with the government seeking feedback before finalizing it. If passed by both houses and assented by the President, it will become the Income Tax Act, 2025, effective April 1, 2026.

The government has emphasized stakeholder consultation, with Finance Minister Sitharaman noting three critical stages—committee review, Cabinet approval, and final parliamentary passage—remain before implementation. The Central Board of Direct Taxes (CBDT) will issue regulations post-notification to clarify compliance details.

Conclusion

The Income Tax Bill, 2025, is a bold step toward modernizing India’s tax system, promising simpler language, reduced litigation, and enhanced clarity for taxpayers. For individuals, small businesses, corporations, and NGOs, the bill offers easier compliance and targeted benefits without altering tax rates. However, its success hinges on smooth implementation and addressing concerns about residual complexity. As the Lok Sabha debates this landmark reform, taxpayers can look forward to a more transparent and efficient tax regime, potentially transforming how they interact with India’s tax system come April 2026.

Sources: India Today, The Hindu, Times of India, Economic Times, LiveMint, Business Standard, PIB, ClearTax, Posts on X