India’s New Income Tax Bill 2025: An Overview

India’s central government has tabled the new Income Tax Bill 2025 in the lower house of Parliament to replace the Income Tax Act, 1961. The bill aims to simplify the tax framework by eliminating outdated provisions, refining tax laws, and introducing structural reforms such as a unified tax year. As the bill undergoes parliamentary review, it is expected to bring in a more efficient and transparent tax regime, benefiting both individuals and businesses. We discuss the proposed revisions to the country’s income tax law.

On February 13, 2025, a new income tax bill was introduced in India’s Lok Sabha (lower house of the parliament). The much-anticipated bill was first announced in 2024 during the previous year’s budget speech. India’s finance minister, Nirmala Sitharaman, highlighted that the updated income tax law (Income Tax Bill 2025) would be uncomplicated, transparent, and readily comprehensible.

Simplified and concise tax laws

The proposed Income Tax Bill 2025 aims to reduce the complexity of India’s current tax framework. This includes simplifying the language of the direct tax laws, deleting obsolete and redundant provisions, and reducing litigation.

While the existing Income Tax Act, 1961, consists of 52 chapters spread across 823 pages, the new bill consolidates the content into 23 chapters and 16 schedules over 622 pages.

Introduction of a unified ‘tax year’

A major structural change in the Income Tax Bill 2025 is the introduction of a standardized ‘Tax Year,’ indicating a 12-month period, which will replace the dual financial year (April to March) and assessment year system. This change is particularly beneficial for new businesses or professionals, as their tax year will commence from:

• The date they establish their business or profession, or
• The date they generate a new source of income.

No new changes to tax slabs, rates, return filing [i.e., retains Union Budget 2025 announcements]

The draft version of the Income Tax Bill 2025 includes no changes to the income tax slabs and rates (under the new tax regime) from those announced in the Union Budget 2025 for the fiscal year 2025-26. This move ensures continuity for taxpayers while simplifying the legislative framework.

The new tax regime will continue to serve as the default system; however, the Income Tax Bill 2025 retains the old tax regime, providing taxpayers with the option to choose between the two.

Under the new tax regime, no income tax will be payable on income up to INR 1.2 million (excluding special rate income such as capital gains). For salaried taxpayers, this limit increases to INR 1.275 million due to the INR 75,000 standard deduction introduced in the Union Budget 2025. (The tax rebate, combined with the revised slab rates, ensures that eligible taxpayers incur no tax liability within these limits.)

Besides the revised tax slabs under the new regime—as announced in the Union Budget 2025—all other existing tax structures, including capital gains tax rules, remain intact.

Tax returns

Tax return filing deadlines remain unchanged, but taxpayers will have four years instead of two to correct omissions and errors.

No changes to income tax heads

Within the new income tax bill, the five categories of taxable income also remain unchanged. These are:

1. Salaries
2. Income from house property
3. Profits and gains from business or profession
4. Capital gains
5. Income from other sources

Deductions in salaries, such as standard deduction, gratuity, and leave encashment, will be tabulated in one section, rather than spread over different sections or rules. This will enable salaried employees to calculate their taxable income more efficiently.

TDS and TCS provisions

The Income Tax Bill 2025 proposes Tax Deducted at Source (TDS) on various income sources, including salaries, professional fees, interest income, and rent. Tax Collected at Source (TCS) will apply to specific transactions, such as:

• Sale of alcohol, tendu leaves, minerals, and scrap materials (1-5 percent)
• Sale of motor vehicles above INR 1 million (1 percent)
• Foreign remittances exceeding INR 700,000 (5 percent)

Non-compliance with TDS/TCS regulations will result in default status, along with a 1 percent monthly interest charge on outstanding amounts.

Under the Income Tax Act, 1961, TDS provisions are outlined in various sections, such as:

• Section 194A – Interest income
• Section 194I – Rent
• Section 194J – Professional fees, technical services, royalty payments
• Section 194H – Commission
• Section 194C – Contracts

While most provisions remain similar, differences exist in tax rates and thresholds. To simplify TDS regulations (excluding salaries), the Income Tax Board (ITB) has consolidated these provisions under Section 393 of the Income Tax Bill 2025 in a structured tabular format.

Key updates in presumptive taxation

The Income Tax Bill 2025 makes a key change to India’s presumptive taxation scheme by adding the concept of ‘Profit claimed to have been actually earned’ while computing business income.

Section 58 of the Income Tax Bill 2025, which covers the presumptive taxation scheme, applies to resident individuals, Hindu Undivided Families (HUFs), and firms (excluding LLPs) engaged in any business other than plying, hiring, or leasing goods carriages. Professionals like doctors, lawyers, and architects can also avail the scheme.

Taxpayers under this scheme cannot claim deductions for profits and gains from specified industrial undertakings (excluding infrastructure development undertakings) or under Chapter VIII-C for the relevant tax year.

Additionally, the scheme is not available to those engaged in specified professions, earning commission or brokerage income, or operating agency businesses.

Turnover thresholds

The scheme applies to businesses with total turnover or gross receipts of up to:

• INR 20 million, or
• INR 30 million, if cash transactions do not exceed 5 percent of total turnover.

For professionals, the limit has been raised from INR 5 million to INR 7.5 million. They need to declare 50 percent of their gross receipts as income.

The new income tax bill thus simplifies compliance for small and medium businesses and professionals, enabling more taxpayers to leverage the presumptive taxation scheme without the hassle of maintaining detailed books of accounts.

Income computation

The taxable income is computed as the higher of:

• 6 percent of total turnover or receipts received through banking or online modes.
• 8 percent of total turnover or receipts received through other modes.
• The actual profit claimed.

Compliance for lower profits

If a taxpayer reports lower profits and their total income exceeds the tax-exempt limit, they must:

• Maintain books of accounts.
• Get the accounts audited and submit an audit report.

Five-year lock-in period

Taxpayers opting for the presumptive taxation scheme must declare profits under this scheme for five consecutive tax years. If they discontinue within this period and their total income exceeds the tax-exempt threshold, they will be required to maintain books of accounts and undergo an audit.

Virtual digital assets

The Income Tax Bill 2025 has officially categorized Virtual Digital Assets (VDAs), including cryptocurrencies, NFTs (non-fungible tokens), and other digital assets, under the “assets” category. This classification puts VDAs in the same category as property, jewelry, paintings, drawings, and shares for taxation purposes.

Key implications

1. Clear legal classification of cryptocurrency: Cryptocurrencies and other digital assets are now legally recognized as taxable assets, bringing more clarity to their regulatory treatment.
2. Potential tax treatment: Since VDAs are classified as assets, they may be subject to capital gains tax similar to stocks and real estate rather than being treated as regular income.
3. Inclusion with other assets: By grouping VDAs with traditional assets like property and shares, the central government reinforces its stance that digital assets should be regulated and taxed similarly to physical investments.
4. Stronger compliance and oversight: This classification might lead to increased scrutiny and stricter compliance requirements for individuals and businesses dealing in cryptocurrencies and digital assets.

Review and approval process for the Income Tax Bill 2025

The Union Finance Minister has requested the Lok Sabha Speaker, Om Birla, to establish a Joint Parliamentary Committee (JPC) to review the proposed Income Tax Bill, 2025.

The bill’s approval will involve a detailed examination by the JPC, which will submit recommendations to the Lok Sabha. Following revisions, the bill will be forwarded to the Union Cabinet for further consideration.

As the JPC evaluates the bill, additional refinements may be introduced before its scheduled implementation from April 1, 2026. Businesses should monitor developments closely to assess potential regulatory impacts.

Conclusion

Slated to take effect on April 1, 2026, the Income Tax Bill 2025 aims to simplify the existing legal framework while ensuring greater efficiency and transparency. By reducing the number of sections and pages and deleting explanations or provisios, the bill makes for easier reading by taxpayers and administrators. The rules of implementation will come into effect once the bill gets notified as an act of law.

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