The draft Income-Tax Bill 2025, which aims to replace the old Income Tax Act of 1961, will be presented in Parliament on Thursday. This 622-page bill introduces simpler tax terms, updates tax rules, and modernises compliance processes. If passed, the law will come into effect from April 1, 2026.

Simplified Terminology

The new bill will use simpler language, such as replacing ‘Assessment Year’ with ‘Tax Year’ and ‘Previous Year’ with ‘Financial Year.’ The tax year will now match the financial year (April 1 to March 31), making tax calculations easier.

Expanded Tax Regulations

The bill updates tax rules to keep up with changes in the financial world. It includes new definitions for digital transactions, electronic records, and crypto-assets, ensuring that tax laws remain relevant in the digital age.

New Rules for Businesses

For new businesses or income sources, the tax year will start from the business’s setup or income generation date and end on the next March 31. This change will simplify tax filing for startups.

Changes for Financial Institutions

The bill introduces rules for ‘Finance Companies’ and ‘Finance Units,’ which could impact how financial institutions and investors are taxed.

Updated Tax Slabs

Under the new tax regime, the updated income tax slabs are:

• Income up to ₹4 lakh – No tax
• Income between ₹4 lakh and ₹8 lakh – 5%
• Income between ₹8 lakh and ₹12 lakh – 10%
• Income between ₹12 lakh and ₹16 lakh – 15%
• Income between ₹16 lakh and ₹20 lakh – 20%
• Income between ₹20 lakh and ₹24 lakh – 25%
• Income above ₹24 lakh – 30%

Salary Deductions and Compliance Reforms

The bill keeps the standard deduction of ₹50,000 for salaried individuals under the old tax system. It also allows full deduction for professional taxes paid by employees. A new Taxpayer’s Charter will improve transparency and protect taxpayer rights. Additionally, the bill may classify foreign companies as Indian tax residents, which could impact global businesses in India.

Full Deduction for Government Pension Commutation

Pension commutation under government schemes for civil, defence, and other services will now be fully deductible. This will benefit retired government employees by providing more financial relief.

Key Shift Towards Modernised Tax System

The Income-Tax Bill 2025 represents a major change in India’s taxation system, aiming for a more transparent, efficient, and technology-driven approach to tax compliance. Finance Minister Nirmala Sitharaman introduced this bill during the July Budget session, marking a step towards tax modernisation.

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