Income Tax Bill 2025: What It Means for Paycheck, Deductions & ITR Filing

Finance Minister Nirmala Sitharaman tabled the new Income Tax Bill 2025 in Lok Sabha today, seeking to repeal the 60-year-old Income Tax Act 1961. She first announced the new bill during her Budget speech on first of this month and the Cabinet approved it on February 7.

The new bill, if approved by the parliament and upon the President's nod, will be effective from April 2026 onward. It is now will be referred to the Standing Committee on Finance for review.

Why a New I-T BIll?

The primary objective behind the new I-T Bill is to make tax laws crisp, clear and easier to understand.

“The Income-tax Act passed in 1961 has been subjected to numerous amendments since its passage sixty years ago. As a result of these amendments the basic structure of the Act has been overburdened and language has become complex, increasing cost of compliance for taxpayers and hampering the efficiency of direct-tax administration,” Sitharaman stated in her ‘statement of objects and reasons’ included in the bill.

To streamline the law, the new bill reduces the number of pages from 823 to 622, removing redundant provisos and explanations.

"While the language has been simplified, a taxpayer will need to approach a tax expert to determine his tax liability," says Sneha Pai, senior director of Direct Tax at Nexdigm.

What Are The Major Changes?

The bill has proposed to replace 'assessment year' with 'tax year' to eliminate confusion. In terms of new businesses, the tax year will begin from their inception date.

The revised income tax slabs (proposed) as follows -

Up to Rs 4,00,000 – Nil

Rs 4,00,001 to Rs 8,00,000 – 5%

Rs 8,00,001 to Rs 12,00,000 – 10%

Rs 12,00,001 to Rs 16,00,000 – 15%

Rs 16,00,001 to Rs 20,00,000 – 20%

Rs 20,00,001 to Rs 24,00,000 – 25%

Above Rs 24,00,000 – 30%

However, salaried individuals earning up to Rs 12 lakh per annum do not have to pay tax under the new regime due to tax rebates announced under Section 87A.

New tax bill consolidated all the provisions about salary in one place for ease of understanding so that the taxpayers do not have to refer to separate chapters for filing their return of income.

Under deductions for salaried individuals, the standard deduction set at Rs 50,000 or salary amount, whichever is lower. Employment tax and gratuity is entirely deductible, under the Gratuity Act, 1972. Gratuity received on death or retirement is also entirely deductible.

"Amendments to Section 17 of the Income-tax Act ensure that employer-covered medical treatment abroad remains tax-exempt under specific conditions. Additionally, tax benefits under Section 80CCD have been extended to include deductions for contributions to the National Pension Scheme (NPS) Vatsalya Accounts," explains Kiran Gandhi, a Pune-based financial mentor.

The bill also classified virtual digital assets, which include cryptocurrencies, as assets under the tax regime. Now they will be taxed along with other assets like property, jewellery and shares.

The bill also addressed further on tax clarity and underscored a major concern for professionals--Sections 44AD, 44AE, and 44ADA. It clarifies profit computation by introducing the term “profit claimed to have been actually earned.”

Businesses opting for the presumptive tax scheme (Section 44AD) will see the turnover limit raised from Rs 2 crore to Rs 3 crore. Professionals under Section 44ADA will now have a higher threshold of Rs 75 lakh, up from Rs 50 lakh.

What Remains Unchanged?

There is no change in tax slabs in the new bill. Furthermore, keywords and phrases defined in court filings also remain the same.

The deadlines for income-tax return (ITR) filing are also unchanged. The old tax regime will still be available while the new tax regime is the default.

How Will Old and New Provision Co-Exist?

Various facets of compliance for the respective years have been mentioned in the Repeals and Savings clause in the Bill, which will safeguard all rights and liabilities accrued under the old law, said the finance ministry.

"It will be interesting to see whether the cost of changes required to be made to ERP systems and the administrative framework to adopt the new law will eventually outweigh the benefits of simplification of the law," adds Pai.