Income Tax Bill 2025: Important Takeaways for Taxpayers
The new Bill, introduced by Union Finance Minister Nirmala Sitharaman, was passed after discussions and incorporates 285 recommendations from Parliament’s Select Committee
Lok Sabha passed the 2025 Income Tax Bill on August 11, to replace the 1961 law from April 1, 2026. The aim of the new legislation are simpler rules, lower taxes for many, and a more digital, transparent system. Whether you are a salaried professional, a business owner, or an investor, this bill will change the way you plan your finances.
Why a New Tax Law Was Needed
For over six decades, the 1961 Income Tax Act grew into a complex, 500,000-word web of amendments — difficult to understand, costly to comply with, and a frequent source of disputes. The 2025 Bill aims to:
- Simplify language and remove outdated sections
- Reduce litigation through clearer rules
- Go more digital with faceless assessments
- End confusion over “previous” and “assessment” years by unifying the tax year
- Make compliance easier for individuals and businesses
What Changes for Individuals
Here’s how the new default tax regime impacts your pocket:
New Income Tax Slabs (FY 2025–26, AY 2026–27)
| Annual Income (₹) | Tax Rate |
| 0 – 4,00,000 | Nil |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Key Benefits:
- Higher basic exemption: ₹4 lakh (up from ₹3 lakh)
- Bigger rebate: up to ₹60,000 — effectively making income up to ₹12 lakh tax-free (₹12.75 lakh for salaried taxpayers with standard deduction)
- Fairer pension tax rules for non-employees
- Less need for complicated deduction planning — focus shifts to higher take-home pay
The middle-class households are likely to have more disposable income, boosting spending, savings, and investments.
Major Changes for Businesses and Investors
Apart from the personal taxes, the corporate tax and investment rules are also restructured under the new Bill.
- TDS/TCS Simplification
- TCS on sale of goods scrapped from April 1, 2025
- Lower TDS on securitisation trust income (from 25–30% to 10%)
- Easier “Nil” TDS certificates for those not liable
- Extended Tax Holidays and Incentives
- Startup tax holiday extended till April 1, 2030
- Sovereign wealth and pension fund investment window extended till March 31, 2030
- IFSC benefits extended to offshore funds and leasing businesses
- Higher Foreign Investment in Insurance
- Limit raised from 74% to 100%, provided all premiums are invested in India
- Unified Capital Gains for FPIs
- Flat 12.5% on all securities for foreign portfolio investors
- MSME Support
- Higher presumptive tax thresholds (₹2 crore for businesses, ₹75 lakh for professionals)
- Higher credit guarantee limits and standardised definitions
Tax Year from Now On
- Easier return filing without confusion
- Tax year will replace assessment year
- Clearer guidelines to avoid disputes
- More favourable to small traders and MSMEs
- Refunds will not be blocked for late return filing
- TDS and interest deductions for income from housing projects
Relief for Home Loan Borrowers
- Municipal tax on properties will be excluded, and a 30% standard deduction will apply before computing taxable income from house property.
- Concessions will also apply to tax collected before property construction is complete.
- Commuted pension deductions will be allowed on pension fund income.
- Old rule denying refunds for late tax payment has been removed — refund eligibility will now be based on the actual tax payment date.
- The Bill also proposes concessions for inter-corporate dividend benefits.
The new Bill, introduced by Union Finance Minister Nirmala Sitharaman, was passed after discussions and incorporates 285 recommendations from Parliament’s Select Committee. Once passed by the Rajya Sabha and approved by the President, it will become law, replacing the 1961 Indian Income Tax Act.