The new Income Tax Bill that was tabled in Lok Sabha on 13th February 2025 is all set to transform the Indian taxation landscape significantly. The bill will replace the sixty-four years old Income Tax Act of 1961 and might be called the Income Tax Act, 2025, if voted through in the Parliament.
This article provides insights into the new Income Tax Bill and the major changes it can bring to the Indian taxation system.
New Income Tax Bill 2025
The new Income Tax Bill aims to simplify the Indian tax laws by making the laws simpler to understand for taxpayers and by removing unnecessary provisions. The new bill will take the place of the Income Tax Act 1961 if it gets cleared by the Parliament.
The central government cabinet on 7th February 2025, approved the new bill. This bill was then presented in Lok Sabha on 13th February 2025 and was sent to a Standing Committee on Finance for further review.
The Income Tax Act, 1961, is 1,647 pages long and has 52 chapters. The new Income Tax Bill contains 23 chapters across 622 pages. The new bill will contain 536 sections and 16 schedules. If passed, the bill will be implemented from 1st April 2026.
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New Income Tax Bill 2025: What has changed?
Let us look at some of the major changes that can be seen in the new bill:
1. Simplified language
The new Income Tax Bill aims to introduce very simple and easy-to-understand language. The laws will be written in clear and straightforward sentences, therefore making their interpretation easy for taxpayers and authorities.
The bill also focuses on replacing confusing words with simple words. For example, the words “financial year” and “assessment year” will be replaced by the common word “tax year”. Many similar changes will make it less confusing to understand, and the chances of errors will be reduced. The new bill will also remove outdated and unnecessary provisions and sections.
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2. Virtual digital assets
The new Income Tax Bill has officially classified digital assets like Non-Fungible tokens (NFTs) and crypto-currencies under the “asset” category. This is the same category as property, jewelry, etc. This move shows that the government is recognizing the importance of digital assets.
However, the taxation on crypto assets has remained the same in the new Income Tax Bill. The gains from digital asset transactions will be taxed at a 30% rate without any exemption or deduction. A tax deducted at source (TDS) of 1% will also remain in effect on digital asset transactions.
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3. Central Board of Direct Taxes (CBDT)
As per the current rules, the CBDT needs parliamentary approvals for matters related to procedural issues, tax and compliance issues, which leads to unnecessary delays and inefficiency.
The new Income Tax Bill will introduce Clause 533, which will give CBDT the independence to make decisions regarding tax and compliance on its own. The CBDT will also be able to enforce digital tax monitoring systems more effectively.
4. Deductions
The bill introduces new salary deduction provisions for salaried individuals. The salary amount or the standard deduction, whichever is lesser, is applicable. Employment tax (TDS while receiving salary) is fully deductible.
Gratuity payments under the Payment of Gratuity Act, 1972, for defense personnel and death-cum-retirement cases, are fully deductible, while other retirement gratuities have a deduction limit of ₹75,000.
Pension commutation will be completely deductible for pensions of government, defense, and civil service employees. Retrenchment compensation is deductible up to ₹50,000, and voluntary retirement payments qualify for a deduction of up to ₹5,00,000.
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New Income Tax Bill 2025: What has not changed?
1. Income tax slabs
The tax slabs in new budget have not been changed in the new Income Tax Bill. Similarly, major provisions and exemptions are also unchanged. The existing filing deadlines will remain the same, and the tax structure for capital gains tax is also unchanged.
Although, to rectify errors in the previous income tax filings the government has increased the time limit to file updated returns from two to four years.
2. Fundamental taxation
All the major fundamental rules of taxation remain the same. For example, there will be the same five heads of income – profits from business, salaries, capital gains, income from house property, and income from other sources.
The laws have been written in simple language, and not needed provisions have been eliminated. This is expected to make the taxation process more streamlined.
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What is the need for a new bill?
The government felt the need to replace the Income Tax Act after six decades, but what is the reason for this change now?
- Complex language: The current Income Tax Act is written with a very complex method. There are a lot of long paragraphs and a lot of cross-referencing among different sections. This becomes very difficult to navigate through the tax laws.
This also results in errors while filing taxes. The new Income Tax Bill aims to change this and make the bill more taxpayer-friendly.
- Outdated provisions: The current Income Tax Act, 1961, came into existence six decades ago. This act has been amended nearly 65 times, and over 4000 amendments have been introduced.
This has made this act very complex to understand. The current Income Tax Act contains some provisions and sections that have lost relevance in today’s economic landscape.
- Litigation: The complex nature of tax laws often leads to filing errors. This leads to constant disputes between tax authorities and taxpayers.
As of 31 January 2024, there are over 5,44,000 pending cases relating to income tax in the courts. The new bill aims to lower the litigations by introducing more clarity.
Conclusion
The new Income Tax Bill does not introduce any major changes in the fundamental system of taxes. However, the bill aims to make the tax laws easier to understand and interpret for taxpayers. This move will ensure that there are fewer errors during tax filing, and this can lead to fewer litigations relating to income tax.
