To ease and modernize the tax system of India the new income tax bill 2025 is a bigger step. The bill which was announced by Finance Minister Nirmala Sitharaman, has the motive to ease tax compliance, lessen disputes, and improve clarity in taxation. It introduces a “Trust First, Scrutinize Later” approach, highlighting taxpayer confidence while ensuring compliance.
FM Sitharaman introduced the new Income Tax Bill for 2025 in the Lok Sabha on February 13, 2025. After it’s presented in the Lok Sabha, the Bill will be sent to the Rajya Sabha and then reviewed by a committee that focuses on financial matters in Parliament.
Latest Updates
- Income Tax Bill 2025: CBDT’s new executive summary on the comprehensive simplification of the Income-tax Act, 1961. read more
The New Income Tax Bill 2025 will take forward the spirit of ‘Nyaya,’ as specified in the Bharatiya Nyaya Sanhita. The bill will be clear and ask in its text decreasing the complexity of the current statute. It is anticipated to nearly halve the size of the existing tax legislation, which makes it more straightforward to interpret.
In her presentation of Union Budget 2025, Finance Minister Nirmala Sitharaman highlighted key points and plans:-
“Over the past 10 years, our government has implemented several reforms for the convenience of taxpayers, such as faceless assessment, taxpayers’ charter, faster returns, almost 99 per cent returns being on self-assessment, and Vivad se Vishwas scheme. Continuing these efforts, I reaffirm the commitment of the tax department to ‘trust first, scrutinize later’. I also propose to introduce the new income-tax bill next week.”
Current Tax Law Challenges
- Periodic Litigation: The indefinite provisions frequently directed to statutory disputes between the taxpayers and the tax authorities.
- Extreme Complexity: The existing income tax act has risen into a lengthy and intricate document with nearly 6 lakh words, making compliance challenging.
- Limited Tax Base: The current platform does not have large sections of the economy, specifically the informal sector lessening the tax collection efficiency.
- Duplicative Provisions: Various sections particularly those introduced before 2012-13 have lost relevance in the existing economic world.
New Income Tax Bill 2025
The Income Tax Act, of 1961, which has been in effect for over 6 decades, includes 298 sections and 23 chapters. Successive amendments in every Union Budget over the years have made the current tax system complex, lengthy, and challenging to navigate.
New Concept of ‘Tax Year’ to Replace ‘Assessment Year’
The new Income Tax bill will introduce the concept of ‘Tax Year’. This will substitute the current concept of assessment year (or previous year) from the Income Tax Act.
The “tax year” has been described as follows:
- 3. (1) For this Act, “tax year” represents the twelve months of the financial year commencing on the 1st of April.
- (2) In the case of a business or profession newly set up, or a source of income newly coming into existence in any financial year, the tax year shall be the period beginning with—
- (a) the date of setting up of such business or profession; or
- (b) the date on which these income source newly comes into force and ending with the said fiscal year. It is to mark that the tax year is anticipated to substitute the assessment year and no amendment in the definition of the financial year, which will start on April 1 and end on March 31.
Additional Developments Process
Here we have discussed some additional development processes in the finance bill 2025:
No Modification in Residency Laws
Residency law does not get amended in the new income tax bill. They seem to remain the same in the new act. The existing income tax laws classify the residency provisions into three classes-
- Ordinarily resident individual
- Non-ordinarily resident individuals
- Non-residents individuals
Income Tax Slabs for FY 2025-26
The individuals who are making up to Rs 12 lakh annually will not required to file any income tax under considering the new tax regime as the Finance Minister Nirmala Sitharaman on Saturday gave relief to the middle class by increasing exemption limits and rejigging slabs.
For salaried employees after taking into account a standard deduction of INR 75,000 this nil tax limit will be INR 12.75 lakh per annum.
The tax slabs are as follows:
| Total Income | Slab Rate |
|---|---|
| 0 – Rs.4 lakh | 0 |
| Rs. 4-8 lakh | 5% |
| Rs. 8-12 lakh | 10% |
| Rs. 12-16 lakh | 15% |
| Rs. 16—20 lakh | 20% |
| Rs. 20-24 lakh | 25% |
| More than Rs.24 lakh | 30% |
Tax-free Income Limit
As per the proposed new tax regime the maximum total income towards which the tax obligation for the individual taxpayer is NIL is Rs 12 lakh. Before that the income limit for the nil tax payments was Rs 7 lakh. Via raising this limit to Rs 12 lakh nearly 1 crore taxpayers who were before needed to file the tax ranging from Rs 20,000 to Rs 80,000 will not file the nil tax.
Total Tax Net on Brand Collaborations and Endorsement Agreements
People who are in digital content creation along with social media influencers and online platforms will mandated to enroll for the Goods and Services Tax (GST) if their turnover surpasses Rs 20 lakh in a financial year (Rs 10 lakh for special category states).
Any payment surpassing Rs 30,000 in a fiscal year for the professional services along with the brand sponsorships will need to file a 10% tax deducted at source (TDS) under section 194J. It directed the brands should deduct tax before making the payments.
Earnings via brand collaborations, social media promotions, and digital content creation will likely be treated as profits and gains of business or profession (PGBP). It signifies that the influencers could claim the deductions on expenses though their income will be within taxation.
The bill references “virtual digital space,” which contains social media platforms. Influencers getting cryptocurrency or NFTs as payment will be taxed at 30%, with no deductions except for the cost of acquisition.
Amortisation of Specific Preliminary Fees
Under the current Income Tax Act, 1961, Section 35D cited that where a taxpayer being an Indian company or a person (other than a company) who is resident in India, makes after the 31st day of March 1970, any expenditure specified in sub-section (2), (i) before the commencement of his business, or (ii) post start of his business concerns with the extension of his undertaking or in association with his setting up a new unit thereafter the taxpayer will following and within the provisions of this section be permitted a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years” starting with the earlier year in which the business starts or as the case may be the last year in which the extension of the undertaking is finished or the new unit begins production or operation.
As the new income tax bill 2025, Section 44 mentions that if the taxpayer being an Indian company or a person (other than a company), who is resident in India makes any expenditure mentioned in sub-section (2), (a) before the beginning of its business; or (b) after the beginning of its business, about the extension of its undertaking or in connection with its setting up a new unit, the taxpayer will be allowed a “deduction of an amount equal to one-fifth of such expenditure for each of the five successive tax years” beginning with (i) the tax year in which the business commences, for clause (a); or (ii) the tax year in which the extension of the undertaking is completed or the new unit begins production or operation, for clause (b).
New Income Tax Bill 2025 Significant Features
Finance Minister Nirmala Sitharaman in the union budget speech has outlined that the new tax bill will be easier, clever, and more structured.
Simplification and Deduction in Word Count
The new bill has the purpose of reducing nearly 3 lakh words, lessening the statute’s complexity by half. By eliminating the expired provisions the statute will be concise, direct, and easier to comprehend for both the taxpayers and administrators.
Alignment with Global Tax Standards
The new framework shall be structured to fulfil the international taxation norms, which makes the tax system of India more effective for business. The same will promote investor confidence drawing more foreign and domestic investments.
‘Trust First, Scrutinize Later’ Approach
The updated bill is taxpayer-friendly assuring less scrutiny and effective trust in the taxpayer. The manual interventions have been lessened by the government ensuring that 99% of tax returns are furnished on a self-assessment basis.
Evolution of the Tax Base
The income tax exemption limit has surged to Rs 12 lakh from Rs 7 lakh giving relief to lower-income taxpayers. But to balance the contraction in the tax base the bill would be focused on drawing more entities from the informal sector into the tax net.
Facilitated Litigation Management
The objective of the bill is to reduce tax disputes by introducing clearer tax provisions ensuring effective statutory certainty. The important provisions for search and seizure actions against companies and individuals in cases of tax evasion have been carried on by the government.
Rationalization of TDS/TCS and Compliance Measures
The bill will comprise the rationalized Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) rates lessening the compliance loads. Additional compliance actions such as Safe Harbor Rules and simplified tax filing procedures will be incorporated.
How Will the New Income Tax Bill Provide an Advantage to Taxpayers?
The new income tax bill 2025 will seek to furnish noteworthy advantages to taxpayers via a sequence of strategic adjustments and enhancements:-
For Businesses and Corporations
- Higher tax certainty, allowing more promising financial planning.
- Lower compliance burden with explicit tax laws.
- Alignment with international tax norms, promoting India’s ease of doing business ranking.
For Individual Taxpayers
- Faster tax refunds due to improved assessment mechanisms.
- Lesser statute disputes with well-stipulated tax provisions.
- Easier tax filing with a structured and logical arrangement of statutes.
For the Indian Economy
- Robust statutory framework ensuring fairness in taxation.
- Higher tax compliance as of the surged clarity and ease of filing.
- Motivate investors which leads to higher economic growth.
