The draft Income-Tax Bill, 2025 has been circulated among Members of Parliament and is expected to be tabled in Parliament on Thursday. The 622-page bill seeks to replace the six-decade-old Income Tax Act of 1961, introducing simpler terminology, expanded tax provisions, and modern compliance structures. If passed, the new law will come into effect from April 1, 2026.
Here are the highlights mentioned in the draft Income-Tax Bill, 2025:
Changes in terminology
The bill introduces simpler language, replacing ‘Assessment Year’ with ‘Tax Year’ and ‘Previous Year’ with ‘Financial Year’. The tax year will now align with the financial year (April 1 to March 31), streamlining record-keeping and tax calculations.
Expanded scope of tax regulations
The proposed legislation broadens the scope of tax regulations to account for the evolving financial landscape. It includes updated definitions for digital transactions, electronic record-keeping, and crypto-assets, ensuring taxation frameworks remain relevant in the digital era.
New business taxation rules
For newly established businesses or sources of income, the tax year will commence from the date of business setup or income generation and conclude on the next 31 March. This change aims to simplify tax filing requirements for startups and new ventures.
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Implications for financial institutions
The bill introduces specific references to ‘Finance Companies’ and ‘Finance Units’ in relation to dividends, which could impact taxation policies for financial institutions and investors.
Updated tax slabs under the new tax regime
Income up to Rs 4 lakh – No tax
Income between Rs 4 lakh and Rs 8 lakh – 5 per cent
Income between Rs 8 lakh and Rs 12 lakh – 10 per cent
Income between Rs 12 lakh and Rs 16 lakh – 15 per cent
Income between Rs 16 lakh and Rs 20 lakh – 20 per cent
Income between Rs 20 lakh and Rs 24 lakh – 25 per cent
Income above Rs 24 lakh – 30 per cent
Salary deductions and compliance reforms
The bill proposes retaining the standard deduction of Rs 50,000 for salaried individuals under the old tax regime. Additionally, taxes paid by employees under Article 276(2) of the Constitution – which governs professional tax – will be fully deductible.
A Taxpayer’s Charter is also being introduced to enhance transparency and taxpayer rights, ensuring fair treatment and reducing bureaucratic hurdles. Furthermore, the bill includes provisions suggesting that foreign companies may be classified as Indian tax residents, potentially affecting global businesses operating in the country.
Full deduction for govt pension commutation
Pension commutation under civil, defence, and other government services schemes will now be fully deductible. This move is expected to benefit retired government employees, offering greater financial relief.
The new Income-Tax Bill marks a significant shift in India’s taxation system, ensuring a more streamlined, transparent, and technology-driven approach to tax compliance. Finance Minister Nirmala Sitharaman announced the introduction of the Income-Tax Bill, 2025 during the July Budget session last year. The move is seen as a major step towards tax modernisation, ensuring greater transparency, ease of compliance, and a taxpayer-friendly environment.
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