Income Tax Bill, 2025 – Key Changes that every Taxpayers Need to Know

08/12/2025

Introduced on : 11th August, 2025
Effective from : 1st April, 2026 (Tax Year 2026–27 onwards)

The Government of India has tabled the New Income Tax Bill, 2025, marking one of the most significant overhauls of tax law since the Income Tax Act, 1961. While the tax rates and slabs remain unchanged, the bill focuses on simplification, clarity, and ease of compliance for individuals, businesses, and professionals.

In this blog, we break down the key provisions of the bill in simple terms — so you can quickly understand what’s changing and how it might impact you or your Income.

1. Simplified Law Structure:

The law has been restructured to make it easier to read and apply as compared to Old Income Tax Act, 1961:

Reduced from 819 to 536 sections and 48 to 23 chapters.
Outdated and redundant provisions removed for e.g., Fringe Benefit Tax references.
Drafting principles follow S.I.M.P.L.E. – Streamlined, Integrated, Minimise litigation, Practical, Learning-based, Efficient.

This will make compliance easier and reduce interpretation disputes as per the makers of the law.

2. No Change in Tax Rates or Slabs:

The New Tax Regime (as per Budget 2025) continues, the slab for New Tax Regime which is continued in New Income Tax Bill, 2025 is as follows :

Income Range	Tax Rate
Up to ₹4 lakh	0%
₹4–8 lakh	5%
₹8–12 lakh	10%
₹12–16 lakh	15%
₹16–20 lakh	20%
₹20–24 lakh	25%
Above ₹24 lakh	30%

Even Capital gains tax rates and other categories also remain unchanged — providing stability for taxpayers and investors.

3. Same Rebate as Budget 2025:

The Rebate under section 87A has not changed in New Income Tax Bill, 2025.

Rebate of up to ₹60,000 for moderate incomes under the new regime.
Effective tax relief up to incomes of around ₹12 lakh.
Tapering mechanism applies beyond this limit.

4. “Tax Year” Concept Introduced:

One of the most significant changes that has been made in Income Tax Bill, 2025 is introduction of the Tax Year Concept,

“Previous Year” and “Assessment Year” concepts are replaced by Tax Year.
Example: Income earned in 2025–26 will be taxed in Tax Year 2025–26, instead of AY 2026–27.
This makes the system more intuitive and confusion free for taxpayers.

5. Updated Definitions for Modern Alignment:

Clear definitions for capital asset, beneficial owner, and MSME.
MSME definition aligned with the MSME Act, 2020:
- Micro: Investment < ₹1 crore, Turnover < ₹5 crore
- Small: Investment < ₹10 crore, Turnover < ₹50 crore

This removes inconsistencies between tax law and other legislations which was the major issue with the old Income Tax Act, 1961.

6. Changes in House Property Income Rules:

Annual Value of House Property: Higher of reasonable expected rent or actual rent; no notional rent if property is fully vacant.
Standard Deduction: 30% deduction applies after municipal taxes are deducted.
Interest Deduction: Allowed for all property types, including pre-construction interest (spread over 5 years).
No Notional Tax on Vacant Business Premises: Idle commercial property won’t be taxed as house property.

7. Deductions & Exemptions – Targeted Enhancements:

Commuted Pension: Fully deductible for both salaried and non-salaried individuals (specified funds).
Section 80M Restored: Inter-corporate dividend deduction to avoid double taxation.
LLPs: Alternate Minimum Tax (AMT) scrapped — a big relief for LLPs and investment funds.
Charitable Trusts: Benefits for capital gains roll-over and unspent income carry-forward restored.

8. Compliance & Administration Reforms:

Refunds allowed even if returns are filed late, in genuine cases.
No ₹200 per day late fee for minor TDS filing delays.
Easier NIL-TDS certificates for residents and non-residents.
More CBDT powers for digital-first tax administration — expect faster, more automated processing.

9. Key Changes from the February 2025 Draft:

Income Tax Refund bar for late returns removed in this Bill.
“In normal course” phrase removed from property rent rules to avoid disputes.
Commuted pension deduction extended even to non-employees.
Clarification: Vacant business premises not taxed as house property.

Conclusion

The Income Tax Bill, 2025 is not a rate-changing reform but a structure-changing reform. By simplifying the law, updating definitions, and reducing unnecessary compliance hurdles, the government aims to make tax administration more transparent and taxpayer-friendly.

While the actual tax liability for most individuals and businesses won’t change immediately, the shift to a Tax Year system, clearer property income rules, and restored deductions could make a noticeable difference in ease of filing and reduced disputes.

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