New Income Tax Bill tabled in LS: Here's what's changing & what's not
If passed, the new Income Tax Bill, 2025 will replace the Income Tax Act of
1961 and come into effect on April 1, 2026
Union Finance Minister Nirmala Sitharaman has presented the new Income
Tax Bill, 2025, in Parliament on Thursday. The bill aims to simplify tax
laws, eliminate outdated provisions, and ease compliance. If approved, it
will replace the Income Tax Act of 1961 and come into effect on April 1,
2026.
The bill will then be referred to the Parliamentary Standing Committee on
Finance, which will begin its consultation process.
Here is a closer look at the changes and what will remain the same under
the new Income Tax Bill.
What’s changing?
Simpler, shorter law: The new bill is 201 pages shorter than the current Act,
with fewer provisos and explanations, making it easier to understand. The
amended Income Tax Act of 1961 is 823 pages (as of 2024), while the new Income
Tax Bill is streamlined to 622 pages.
New ‘Tax Year’ concept: The assessment year will now be called the tax year
to reduce confusion. For new businesses, the tax year will begin from their
establishment date.
ITR
Only 1% of tax returns are selected for scrutiny, 99% accepted on trust
Taxation clarity: The new bill addresses the long-standing debate on
Sections 44AD, 44AE, and 44ADA, a key concern for professionals. It
clarifies profit computation by introducing the term “profit claimed to
have been actually earned.”
Revised income tax slabs (proposed)
Up to Rs 4,00,000 – No tax
Rs 4,00,001 to Rs 8,00,000 – 5 per cent
Rs 8,00,001 to Rs 12,00,000 – 10 per cent
Rs 12,00,001 to Rs 16,00,000 – 15 per cent
Rs 16,00,001 to Rs 20,00,000 – 20 per cent
Rs 20,00,001 to Rs 24,00,000 – 25 per cent
Above Rs 24,00,000 – 30 per cent
It is important to note that as per the Union Budget 2025, salaried
individuals earning up to Rs 12 lakh annually do not have to pay tax under
the new regime due to tax rebates announced under Section 87A.
Key taxation updates
Under the new bill, there will be no change in tax heads and the five
existing categories will remain the same which include salaries, house
property, business/profession, capital gains, and other sources.
Deductions for salaried individuals
Standard Deduction: Rs 50,000 or salary amount, whichever is lower.
Employment Tax & Gratuity (as per the Gratuity Act, 1972): Fully
deductible.
Other gratuity deductions: Capped at Rs 75,000.
Pension and compensation
Government, defence, and civil service pensions: Fully deductible.
Retrenchment and voluntary retirement benefits: Deduction limits at Rs
50,000 and Rs 5,00,000, respectively.
Other notable changes
Business threshold: The turnover limit for a business to opt for the
presumptive tax scheme under Section 44AD has been increased from Rs 2
crore to Rs 3 crore. For professionals, the threshold for opting under
Section 44ADA has been raised from Rs 50 lakh to Rs 75 lakh.
Virtual digital assets (VDAs): Virtual digital assets (including
cryptocurrencies) are now classified as assets under the tax regime. This
means they are taxed alongside other assets such as property, jewellery,
and shares.
Tax audits: The scope of tax audits continues to be carried out by
chartered accountants (CAs). However, company secretaries (CS) and cost
accountants (CMAs) are not included in this capacity for tax audits.
LTCG and STCG: Long-term capital gains (LTCG) and short-term capital gains
(STCG) tax rules largely remain the same, with no major changes compared to
the previous year, unless otherwise specified in the Budget.
What stays the same?
There will be no changes in ITR filing deadlines.
Also, the old tax regime is still available while the new tax regime is the
default, the old regime remains an option.
With a clearer and more concise structure, this bill aims to reduce
disputes, simplify compliance, and modernise tax administration.
K Rajaram IRS 13225
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