Union Finance Minister Nirmala Sitharaman will present the new Income Tax Bill 2025 in the Lok Sabha today. This bill, designed to make tax regulations more accessible to the general public, will replace the existing Income Tax Act of 1961. The bill will then be referred to the Parliamentary Standing Committee on Finance, which will begin its consultation process.
Key changes expected
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1. Simpler rules
The updated Income Tax Bill 2025 stands at 622 pages, representing a significant reduction in length compared to the current Income Tax Act of 1961, which is 823 pages long as of 2024. This reduction in length translates to a simplified and more succinct piece of legislation, with fewer provisions and explanations to enhance readability and comprehension for all stakeholders.
Feroze Azeez, Deputy CEO, Anand Rathi Wealth Limited, said: “The Income Tax Bill 2025 is a significant step towards simplification compared to the Income Tax Act 1961. With clearer language and a more structured layout, it substantially increased the common man’s ability to interpret the law. The government has also lived up to its promise of not making substantial changes compared to the existing law, and most of the laws remain unchanged.”
2. Tax year from Financial Year
The new bill simplifies tax language by adjusting terminology: ‘Assessment Year’ is now ‘Tax Year’ and ‘Previous Year’ is now ‘Financial Year’. This alignment of the tax year with the financial year (April 1 to March 31) will make record-keeping and tax calculations more efficient. These changes will make tax terms easier for taxpayers to understand. Currently, income tax is calculated using the financial year (April to March) and tax returns are assessed in the assessment year. The bill aims to eliminate confusion by creating a single ‘Tax Year’ concept.
3. New Tax Regime
According to the new Bill, taxpayers may not be allowed to switch between the old and new tax regimes. Once a taxpayer opts for the new tax regime, they cannot go back for the same or any following tax year unless certain conditions are breached.
Tax slabs under the new tax regime (already proposed in Budget 2025)
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
4. Simplified tax filing
Currently, the Income Tax Department offers 7 forms for individual taxpayers. A simplified tax code should offer taxpayers clear information on their obligations and exemptions. Stabilizing provisions to reduce frequent changes will enable businesses to strategically plan their finances.
Sandeep Bhalla, Partner, Dhruva Advisors, said: “With simplified rules, the compliance process should also be streamlined. Reducing paperwork, integrating digital platforms, and simplifying return filing mechanisms should be priorities. Here again, the number of forms/returns to be filed by the taxpayers needs to be reduced significantly. Several tax forms could be built into the same form instead of the multiplicity of forms to be filed before the tax administration.”
5. VDAs like cryptocurrencies
Income Tax Bill 2025: The Income-Tax Bill has broadened the definition of “virtual digital assets” (VDAs) to now encompass “any crypto-asset,” as they are digital representations of value that depend on a cryptographically secured distributed ledger. This expansion was part of the changes outlined in the 2025 union budget for search and seizure proceedings, where the definition of ‘undisclosed income’ has also been expanded to include VDAs.
As per Section 2, Clause 111 of the new income tax bill, “virtual digital asset” means—
any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, called by any name, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account, including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically;
a non-fungible token or any other token of similar nature, by whatever name called;
any other digital asset, as the Central Government may, by notification, specify,
any crypto-asset being a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions
6. Simplified tax residency criteria
The new bill aims to address the complexity of determining an individual’s tax residency in India by potentially simplifying the current conditions required for qualifying as a tax resident.
As per the new income tax bill, a resident is defined as:
“For the purposes of this Act, the residence of a person in India shall be determined as per this section.”.
An individual shall be resident in India in a tax year if he––
(a) is in India for a total period of one hundred and eighty-two days or more in that tax year; or
(b) is in India cumulatively for sixty days or more during that year and has been in India cumulatively for three hundred and sixty-five days or more
in the four years preceding such tax year
7. 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.
8. Other changes
Business threshold: The threshold for businesses to qualify for the presumptive tax scheme under Section 44AD has been raised to Rs 3 crore from Rs 2 crore. Similarly, professionals can now opt for the scheme under Section 44ADA if their turnover is between Rs 50 lakh and Rs 75 lakh.
Tax Audits: Tax audits are predominantly conducted by chartered accountants (CAs) while company secretaries (CS) and cost accountants (CMAs) are not authorized to perform tax audits.
LTCG and STCG: The rules pertaining to long-term capital gains (LTCG) and short-term capital gains (STCG) taxes have remained consistent with previous years, with minimal changes unless specified in the Budget.