On Thursday, February 13, Finance Minister Nirmala Sitharaman introduced the Income Tax Bill 2025 in the Lok Sabha. The much-anticipated bill, once passed by Parliament, will replace the 63-year-old Income Tax Act of 1961. The new bill aims to simplify tax terminology, making it more understandable by replacing terms such as Assessment Year (AY) and Financial Year (FY) with a single term, Tax Year (TY). Additionally, unnecessary provisions and explanations have been removed to make tax regulations more accessible and streamlined. The new bill comprises 622 pages, 536 sections, 23 chapters, and 16 schedules. Rather than proposing new taxes, it simplifies the language of the existing Income Tax Act, which currently has 298 sections and 14 schedules.
1. Reduction in Tax Disputes
The simplified language of the new income tax bill aims to reduce tax-related disputes. This will benefit both taxpayers and tax authorities. The bill removes the complexities of the current law, which often leads to multiple interpretations and legal challenges.
2. Concise and Simplified Legislation
The new bill is an effort to make tax compliance easier for individuals, businesses, and non-profit organizations. Compared to the current Income Tax Act, which spans 1,647 pages with all amendments, the new bill is considerably shorter at 622 pages. It also increases the number of sections from 298 to 536 while reducing unnecessary provisions, making tax law more user-friendly.
3. Introduction of ‘Tax Year’
The new bill replaces the concepts of Assessment Year, Previous Year, and Financial Year with a unified term—Tax Year (TY). This eliminates confusion surrounding AY, PY, and FY. For example, the period from April 1, 2025, to March 31, 2026, will now be called Tax Year 2025-26.
4. Revisions in Income Tax Slabs
According to the 2025-26 budget announcement, income up to ₹12 lakh will now be tax-free. With a standard deduction of ₹75,000, salaried individuals earning up to ₹12.75 lakh will be exempt from tax. The revised slabs aim to provide relief to the middle class by encouraging savings and increasing disposable income.
5. Extended Deadline for Filing Updated Tax Returns
The bill extends the deadline for filing updated tax returns from two years to four years, allowing taxpayers additional time to rectify any errors or omissions. This change is expected to enhance compliance and create a fairer tax structure.
6. Provisions for Virtual Digital Assets (VDAs)
Sections 67 to 91 of the new bill provide explicit tax provisions for virtual digital assets such as cryptocurrencies. The bill ensures that digital assets fall under a proper tax framework by defining “Virtual Digital Asset” and “Electronic Mode.”
7. Clearer Guidelines for Non-Profit Organizations
Previously, income tax exemptions for non-profits were provided under Sections 11 to 13, but compliance guidelines were limited. The new bill, under Sections 332 to 355, provides a more detailed framework regarding taxable income, compliance requirements, and restrictions on commercial activities.
8. Tax Exemptions for Startups and Digital Businesses
The bill introduces new deductions for startups, digital businesses, and renewable energy investments under Sections 11 to 154. Additionally, capital gains tax terminology has been revised, although tax rates remain unchanged. The classification of short-term and long-term capital gains based on the holding period remains as per existing laws.
9. No Changes in Standard Deduction and Tax Rates
There are no modifications to the standard deduction in the new bill. Salaried individuals will continue to receive ₹50,000 standard deduction under the old tax regime, whereas those opting for the new tax regime will benefit from a ₹75,000 deduction. Additionally, tax rates remain unchanged.
10. Enhanced Powers for CBDT
The bill increases the authority of the Central Board of Direct Taxes (CBDT). Previously, the tax department had to seek parliamentary approval for new tax schemes. Under the 2025 tax bill, the CBDT will be able to introduce tax-related initiatives independently, reducing bureaucratic delays.
11. Continued Tax Exemptions on Pension, Insurance, and NPS
The bill retains tax exemptions on pension funds, NPS contributions, and insurance policies. Contributions to retirement funds, gratuity, and provident funds remain tax-free. ELSS mutual fund investments also continue to enjoy tax exemptions.
12. Tax Exemption on Agricultural Income and Mandatory e-KYC
Agricultural income remains tax-free under certain conditions. Donations will also continue to enjoy tax exemptions. Additionally, electoral trusts will retain tax benefits. The bill proposes making e-KYC and online tax payments mandatory to improve transparency and modernize the tax system.
Conclusion
The new Income Tax Bill 2025 is a significant step toward simplifying India’s tax laws. By reducing ambiguities, streamlining compliance, and incorporating digital assets, the bill ensures a more transparent and taxpayer-friendly system. While it does not introduce new taxes, it refines the existing framework to make tax administration more efficient and equitable. With major relief for the middle class and enhanced provisions for businesses, the bill sets the stage for a more structured and simplified tax regime in India.
