New Income Tax Bill 2025: Simplifying Taxation for a Modern India

The New Income Tax Bill 2025 is a significant step towards modernizing and simplifying India's tax system. Announced by Finance Minister Nirmala Sitharaman, the bill aims to ease tax compliance, reduce disputes, and enhance clarity in taxation. It introduces a "Trust First, Scrutinize Later" approach, fostering taxpayer confidence while ensuring compliance. The bill is expected to be implemented from April 1, 2026 (FY 2026-27), and will not alter tax calculations for FY 2024-25 and FY 2025-26, which will still be governed by the existing Income Tax Act, 1961.

Key Features

• Simplification and Reduction in Word Count: The new bill aims to reduce the complexity of the existing statute by nearly half, potentially eliminating around 3 lakh words. This makes the statute more concise, direct, and easier to understand for taxpayers and administrators.
• Alignment with Global Tax Standards: The framework is structured to align with international taxation norms, enhancing the effectiveness of India's tax system for business and promoting investor confidence.
• 'Trust First, Scrutinize Later' Approach: This taxpayer-friendly approach assures less scrutiny and greater trust in taxpayers. The government has reduced manual interventions, with approximately 99% of tax returns being furnished on a self-assessment basis.
• Evolution of the Tax Base: While the income tax exemption limit has been increased to Rs 12 lakh from Rs 7 lakh, providing relief to lower-income taxpayers, the bill focuses on drawing more entities from the informal sector into the tax net to balance the contraction in the tax base.
• Facilitated Litigation Management: The bill aims to reduce tax disputes by introducing clearer tax provisions and ensuring effective statutory certainty. Important provisions for search and seizure actions against companies and individuals in cases of tax evasion have been retained.
• Rationalization of TDS/TCS and Compliance Measures: The bill includes rationalized Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) rates to reduce compliance burdens. Additional compliance actions, such as Safe Harbor Rules and simplified tax filing procedures, are incorporated.
• Introduction of the ‘Tax Year’ Concept: The new Income Tax Bill is expected to introduce the concept of a 'Tax Year', merging the terms Assessment Year (AY) and Financial Year (FY) to reduce confusion among taxpayers when filing their Income Tax Returns (ITRs) and depositing taxes.
• No Changes in Residency Laws: The residency laws determining whether an individual is an Ordinarily Resident, Non-Ordinarily Resident, or Non-Resident remain unchanged.
• Simplified Interpretation for Taxpayers: The bill aims to remove complex legal jargon and introduces a single section for all salary deductions, along with a straightforward depreciation formula for businesses.
• Stricter Penalties for Non-Compliance: The bill includes higher fines for late tax filings and non-compliance, along with improved AI-based scrutiny to detect tax evasion.

New Tax Slabs

The bill proposes a new tax regime for individuals, Hindu Undivided Families (HUFs), and other entities under Section 202. The updated tax slabs are as follows:

Under this new system, certain exemptions and deductions, such as house rent allowance and capital gains exemptions, may not be available.

Expectations and Impact

The New Income Tax Bill 2025 is expected to simplify tax laws, stimulate investment, and improve the ease of doing business in India. By focusing on clear language, reducing litigation, and eliminating obsolete provisions, the bill aims to be user-friendly and understandable for all citizens. It is designed to be revenue-neutral, ensuring that it does not increase the tax burden on taxpayers.

Written By- Hexahome