New Income Tax bill 2025 tabled in parliament. Top 10 highlights you MUST know

Finance Minister Nirmala Sitharaman introduced the Income Tax Bill 2025 in the Lok Sabha on Thursday, 13 February. The much-anticipated new Bill will replace terminology like assessment and the previous year with the easier-to-understand ‘tax year’ as part of a move to simplify language while removing provisos and explanations.

The bill is 622 pages long and comprises 536 sections, 23 chapters, and 16 schedules. It does not introduce new taxes but only simplifies the language of the existing Income Tax Act of 1961, which has 298 sections and 14 schedules.

New Income Tax Bill 2025 tabled in parliament. Top 10 highlights you MUST know

1) The bill’s simple language will help reduce tax litigation, benefiting  taxpayers and the tax department equally. “Moreover, the language used in the bill is simple as compared to existing acts, which sometimes becomes difficult to understand and is open to different interpretations,” said Mumbai-based investment and tax expert Balwant Jain.

2) This new bill, tabled in Lok Sabha by Finance Minister Nirmala Sitharaman, seeks to introduce changes that affect different categories of taxpayers, including individuals, businesses, and non-profit organizations.

“Based on my cursory reading of the new income tax bill, I feel it is merely a good job of editing the existing Income Tax Act. No changes of consequences have been proposed in the bill. It is purely Babu’s product,” added Jain.

3) Looking at the space occupied by the new income tax bill, which is spread over 622 pages against the existing income tax act, which runs into 1647 pages, is a sign of an attempt towards simplification.

“The new bill runs into 536 sections against 298 existing sections; it seems complicated provisions have been broken into small and simple sections for easy interpretation and implementation. Against existing 52 chapters, the bill has only 23 chapters, indicating that redundant chapters have been removed and cohesive matters have been clubbed together to make them simple,” said Jain.

4) Revised Income Tax Slabs:

Income up to ₹12 lakh is now exempt from taxation, with a standard deduction of ₹75,000, effectively making income up to ₹12.75 lakh tax-free for salaried individuals. Revised tax slabs and higher exemption limits will give the middle class more money, potentially boosting consumer spending and savings.

5)Simplification of tax laws

The new bill aims to reduce the number of sections by 25-30 per cent, making the tax code more straightforward and user-friendly. This simplification is expected to ease compliance and reduce disputes.

The bill also brings changes to deductions and exemptions. Earlier, Sections 10 and 80C to 80U of the Income Tax Act, 1961, allowed deductions in investments, donations, and specific expenses.

6) Time limit for filing updated income tax returns

The time frame for filing updated returns is extended from two to four years. This provides taxpayers with an extended period to rectify any omissions or errors. The government believes these changes will make tax compliance easier while ensuring a fair tax structure for all categories of taxpayers.

7) Introduction of ‘tax year’

The new bill introduces the term “tax year” instead of the existing terminologies like financial year and assessment year systems, as part of a move to simplify language while removing provisos and explanations.

In terms of scope of total income, the new bill makes certain clarifications while maintaining the existing tax principles. Under the previous law, Sections 5 and 9 of the Income Tax Act, 1961, stated that Indian residents were taxed on their global income, while non-residents were taxed only on the income they earned in India.

8) The new income tax bill, in Clauses 67 to 91, introduces explicit provisions for virtual digital assets and updates beneficial tax rates. This ensures that digital assets, such as cryptocurrency, are covered under a proper tax framework.  It defines “virtual digital asset” and “electronic mode”, reflecting the growing importance of digital transactions and cryptocurrency in today’s financial landscape.

9) For non-profit organizations, the previous law, under Sections 11 to 13, provided income tax exemptions for certain charitable purposes but had limited compliance guidelines. The new bill, in Clauses 332 to 355, establishes a more detailed framework, clearly defining taxable income, compliance rules, and restrictions on commercial activities. This introduces a stricter compliance regime while also providing well-defined framework.

10) The new bill, under Clauses 11 to 154, consolidates these deductions and introduces new provisions to support startups, digital businesses, and renewable energy investments. Changes have also been made to the term capital gains tax. Under the previous law, Sections 45 to 55A categorized capital gains into short-term and long-term based on holding periods, with special tax rates for securities.

Union Budget 2025

The Union Budget, announced on February 1, 2025, introduced significant reforms through the New Income Tax Bill, aiming to simplify the tax structure and provide substantial relief to taxpayers.

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