Understanding the New Income Tax Bill 2025

The Income Tax Bill 2025 is set to make significant changes to India’s tax landscape. This comprehensive document spans 622 pages and includes 536 sections divided into 23 chapters. It is expected to be introduced in the Lok Sabha on February 13, 2025. The new bill aims to replace the outdated Income Tax Act of 1961, which has become increasingly complex due to numerous amendments over the years. The proposed legislation seeks to simplify tax administration and provide clarity for taxpayers.

Key Changes in the New Income Tax Bill

One of the most notable changes in the Income Tax Bill 2025 is the terminology shift. The term “previous year” will be replaced with “tax year,” and the concept of an “assessment year” will be eliminated. Currently, taxpayers pay taxes for income earned in the previous year during the assessment year. The new bill streamlines this process by introducing a single “tax year,” making it easier for individuals and businesses to understand their tax obligations.

The new bill also expands the number of sections from 298 in the existing Income Tax Act to 536. While this may seem like an increase in complexity, the overall length of the legislation has been significantly reduced to 622 pages, nearly half of the current Act. This reduction is a result of consolidating and simplifying various provisions. The original Income Tax Act of 1961 consisted of 880 pages, highlighting the need for a more efficient tax framework.

Rajat Mohan, Senior Partner at AMRG & Associates, noted that the increase in sections reflects a more structured approach to tax administration. The new law incorporates modern compliance mechanisms and digital governance, which are essential in today’s digital age. Additionally, it aims to clarify the tax treatment of stock options (ESOPs) to minimize disputes and enhance legal certainty by incorporating judicial pronouncements from the past 60 years.

Empowering the Central Board of Direct Taxes

A significant shift in the new Income Tax Bill is the delegation of powers to the Central Board of Direct Taxes (CBDT). Under the current system, the Income Tax Department must seek parliamentary approval for various procedural matters and tax schemes. The new bill empowers the CBDT to introduce these schemes independently, which is expected to reduce bureaucratic delays and improve tax governance.

According to Clause 533 of the proposed legislation, the CBDT will have the authority to establish tax administration rules, implement compliance measures, and enforce digital tax monitoring systems without requiring frequent legislative amendments. This change is aimed at making tax administration more efficient and responsive to the needs of taxpayers.

After its introduction, the bill will likely be referred to a parliamentary standing committee for further scrutiny. Finance Minister Nirmala Sitharaman announced in the 2025-26 Budget that the new tax bill would be introduced during the ongoing session of Parliament. The comprehensive review of the Income Tax Act, 1961, was first announced in the July 2024 Budget, signaling the government’s commitment to reforming the tax system.

Revised Tax Slabs for Greater Relief

The Income Tax Bill 2025 proposes significant changes to tax slabs, aiming to provide relief to taxpayers. Under the new regime, individuals earning up to Rs 12 lakh annually will not face any tax burden, except for special income. This change is designed to increase disposable income for taxpayers and stimulate economic growth.

The proposed tax slabs for the financial year 2025-26 are as follows:
– Up to Rs 4 Lakh: Nil
– Rs 4-8 Lakh: 5%
– Rs 8-12 Lakh: 10%
– Rs 12-16 Lakh: 15%
– Rs 16-20 Lakh: 20%
– Rs 20-24 Lakh: 25%
– Above Rs 24 Lakh: 30%

In comparison, the current tax slabs for the financial year 2024-25 are:
– Up to Rs 3 Lakh: Nil
– Rs 3-7 Lakh: 5%
– Rs 7-10 Lakh: 10%
– Rs 10-12 Lakh: 15%
– Rs 12-15 Lakh: 20%
– Above Rs 15 Lakh: 30%

The new tax structure eliminates tax for those earning up to Rs 12 lakh annually. Additionally, with a standard deduction of Rs 75,000, taxpayers with an annual income of up to Rs 12.75 lakh will pay zero tax. This reform is expected to ease the financial burden on middle-class families and promote greater compliance with tax regulations.

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