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 the Parliament. The new legislation has been introduced to replace the existing Income Tax Act, 1961.

The proposed legislation seeks to simplify the tax framework by eliminating outdated provisions, refining tax laws, and introducing structural reforms such as a unified tax year.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 pave the way for a more efficient and transparent tax regime, benefiting both individuals and businesses.

We explore the key highlights of the newly proposed legislation.

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 bill 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 1,647 pages, the new bill consolidates the content into 23 chapters with just 622 pages.

Introduction of a unified ‘tax year’

A major structural change in the new bill is the introduction of a standardized ‘Tax Year,’ replacing 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.

Unchanged tax slabs and rates

As per the draft version of the bill, there are no changes to the income tax slabs and rates from those announced in the 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 legislation also retains the old tax regime, providing taxpayers with the option to choose between the two.

The central government has confirmed that tax return filing deadlines will remain unchanged. Additionally, apart from the revised tax slabs under the new regime, all other existing tax structures, including capital gains tax rules, will remain intact.

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

Updates in salary deductions

The bill introduces new provisions for deductions available to salaried individuals. These are as follows:

• Standard deduction: INR 50,000 (US$574.8) or the salary amount, whichever is lower.
• Employment tax: fully deductible.
• Gratuity deduction:
• Payments made under the Payment of Gratuity Act, 1972: Fully deductible.
• Gratuity for defence personnel upon retirement: fully deductible.
• Death-cum-retirement gratuity: Fully deductible.
• Other forms of gratuity for retirement/termination: Deduction up to INR 75,000 (US$862.2) or the salary amount, whichever is lower.

Pension and compensation benefits

• Pension Commutation: Fully deductible for government, defence, and civil service pensioners.
• Retrenchment Compensation: Deductible up to INR 50,000 (US$574.8) or as per Section 25F(b) of the Industrial Disputes Act, 1947.
• Voluntary Retirement Payments: Deductible up to INR 500,000 (US$5,748.6).

Omission of outdated provisions

In the new proposed tax bill, several obsolete sections, including those related to fringe benefit tax, have been removed to streamline tax administration.

Key updates in presumptive taxation

The Income Tax Bill 2025 introduces a key change to presumptive taxation by adding the concept of ‘Profit claimed to have been actually earned’ while computing profits under the following sections:

1. Section 44AD: For small businesses with turnover up to INR 30 million/US$344,918 (previously INR 20 million/US$229,945.7).
2. Section 44AE: For transporters operating goods carriages.
3. Section 44ADA: For professionals with gross receipts up to INR 7.5 million/US$86,229 (previously INR 5 million/57,486.4).

Presumptive taxation is a simplified tax scheme designed to reduce the compliance burden for small businesses, professionals, and transporters. Under this system, eligible taxpayers can declare income at a prescribed percentage of their turnover or gross receipts, eliminating the need for maintaining detailed books of accounts.

Virtual digital assets

The newly proposed legislation 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 now 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

The Union Finance Minister has urged the Lok Sabha Speaker, Om Birla, to form a Joint Parliamentary Committee (JPC) to examine the proposed Income Tax Bill, 2025. At present, the Lok Sabha proceedings have been adjourned until March 10, 2025, which may allow a thorough review.

The bill’s approval process in Parliament may take additional time, as it will first undergo a detailed evaluation by the JPC. After careful scrutiny, the committee will submit its recommendations to the Lok Sabha, and the revised bill will then be forwarded to the central government via the cabinet for further deliberation.

Slated to take effect on April 1, 2026, the proposed legislation does not introduce major structural changes but focuses on simplifying the tax system. By adopting clearer language, eliminating outdated provisions, and broadening the definition of income, the bill aims to create a more efficient and transparent tax framework.

Conclusion

The Income Tax Bill 2025 marks a pivotal reform in India’s tax landscape, aiming to simplify the existing legal framework while ensuring greater efficiency and transparency. By reducing the number of sections and pages, the bill makes tax laws more accessible and less cumbersome for both taxpayers and administrators.

Key changes such as the introduction of a unified tax year, the streamlining of salary deductions, and the expansion of presumptive taxation limits reflect the government’s commitment to reducing compliance burdens. Meanwhile, the inclusion of VDAs under the ‘assets’ category ensures regulatory clarity for cryptocurrencies and NFTs, aligning them with traditional investment instruments.

Despite these structural changes, the bill maintains existing tax slabs, tax heads, and filing deadlines, ensuring stability for taxpayers. Additionally, the removal of outdated provisions, including the fringe benefit tax, contributes to a more modernized tax system.

As the yet-to-be-constituted JPC evaluates the bill, further refinements may emerge before its scheduled implementation on April 1, 2026. 

(US$1 = INR 86.97)

• Previous Article Pharmaceutical SMEs in India Gain Time to Meet Enhanced GMP Standards Under Revised Schedule M
• Next Article