The Income Tax Bill 2025 was presented in the Lok Sabha by the Union Finance Minister Nirmala Sitharaman today (13th January). Earlier on several occasions, the Finance Minister expressed the intention to have a direct tax law that simplifies the tax system to enhance compliance, widen the tax base to increase revenue and provide clarity to reduce litigation. While presenting the Union Budget in Parliament earlier this month, Sitharaman mentioned that an improved and simplified Income Tax Act will soon be introduced to replace the existing Income Tax Act of 1961.
Key Features of the Bill
The existing Income Tax Act has 23 chapters containing 536 sections and 16 schedules in 880 pages. The new Bill with 298 sections and 14 schedules in a total of 622 pages will be more concise than the existing act. Once passed in Parliament, the Bill will come into effect on April 1, 2026.
The bill seeks to minimize disputes and foster voluntary compliance among taxpayers by clarifying ambiguous provisions and removing obsolete sections. While simplifying the law, the bill ensures that existing tax obligations remain intact, maintaining the current tax structure.
Tax Year
The Bill which uses simpler terminology has replaced the terms ‘Financial Year’ and ‘assessment year’ with single term ‘Tax Year’. Under the current law, the financial year which counts from April to March is used to calculate income tax and it has the assessment year which is the 12-month period following the financial, meant for filing taxes and returns on the revenue generated in the previous financial year. So, for the financial year 2024-25, the assessment year will be 2025-26. The new Bill has done away with this distinction and introduces a single ‘Tax Year’ which will coincide with the financial year and start from April 1.
The tax year for a newly set-up business or profession will begin on the date of setting up of such business or profession. In case of a new source of income, the tax year will begin from the date on which such source of income comes into existence and end with the financial year.
Undisclosed Income
In the new Bill, virtual digital assets uncovered during searches will be included under the category of ‘undisclosed income’. This ensures that digital assets, such as cryptocurrency, are covered under a proper tax framework. The category currently includes money, bullion and jewellery.
Delegation of rule-making powers
The new Bill allows the Central Board of Direct Taxes to make tax administration rules, implement compliance measures and enforce digital monitoring systems without requiring frequent legislative changes.
Income Tax Filing Dates
The income tax filing dates and the penalty for late filing of the return remain unchanged under the new Bill. However, the time frame for filing updated returns is extended from two to four years.
Heads of Income
The five heads of income viz. Salaries, Income from house property, Profits and gains from business or profession, Capital gains and Income from other sources, provided under the existing act have remained unchanged.
Salary deductions
For salaried individuals, the following changes are proposed under the new Bill:
Standard deduction: Rs 50,000 or salary amount, whichever is lower. Employment tax is fully deductible. Also, gratuity, as or the Pay, ent of Gratuity Act, 1972, is fully deductible. Retiring gratuity for defence service members and death-cum-retirement gratuity is also fully deductible. There is deduction up to Rs 75,000 or the salary amount, whichever is lower on other gratuity or retirement.
Pension commutation is fully deductible for pensioners from government, defence, and civil services. Compensation on retrenchment is deductible up to Rs 50, 000 and voluntary retirement payments are deductible up to 5, 00,000.
