The new Income Tax Bill 2025 will replace the Income Tax Act of 1961 and come into effect on April 1, 2026. Union Finance Minister Nirmala Sitharaman is set to present the Bill in Parliament on Thursday, February 13th. The bill aims to simplify tax laws, eliminate outdated provisions, and ease compliance. If approved, it will replace the Income Tax Act of 1961 and come into effect on April 1, 2026.
What shall change in the Income Tax Bill?
It is meant to be more straightforward and less complicated. The amended Income Tax Act of 1961 is 823 pages (as of 2024), while the new Income Tax Bill is streamlined to 622 pages.
New ‘Tax Year’ concept: The assessment year will now be called the tax year to reduce confusion. For new businesses, the tax year will begin on their establishment date.
Taxation clarity: The new bill addresses the long-standing debate on Sections 44AD, 44AE, and 44ADA, a key professional concern. It clarifies profit computation by introducing the term “profit claimed to have been earned.”
Key taxation updates
Under the new bill, tax heads will not change, and the five existing categories, which include salaries, house property, business/profession, capital gains, and other sources, will remain the same.
Deductions for salaried individuals
- Standard Deduction: ₹50,000 or salary amount, whichever is lower.
- Employment Tax & Gratuity (as per the Gratuity Act, 1972): Fully deductible.
- Other Gratuity Deductions: Capped at ₹75,000.
Pension and Compensation
- Government, Defence, and Civil Service Pensions: Fully deductible.
- Retrenchment Benefits: Deduction limit of ₹50,000.
- Voluntary Retirement Benefits: Deduction capped at ₹5,00,000.
Other Major Changes
Taxation on Virtual Digital Assets (VDAs)
- Cryptocurrencies and other virtual digital assets (VDAs) will now be classified as taxable assets, similar to property, jewellery, and stocks.
Tax Audit Rules
- Tax audits will continue to be conducted by Chartered Accountants (CAs).
- Company Secretaries (CS) and Cost Accountants (CMAs) are not authorised for tax audits.
No Major Changes in Capital Gains Tax
- Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) tax rules remain unchanged except for any specific amendments in the Union Budget.
Updated income tax return time extension
The extended window for filing Updated Income Tax Returns (ITR-U) from two years to four years, would give taxpayers more time to rectify errors and declare missed income, ensuring better compliance
What Stays the Same?
- ITR filing deadlines remain unchanged.
- The old tax regime is still available, even though the new tax regime is now the default.
- The bill aims to reduce tax disputes, simplify compliance, and modernise tax administration.
