The much-anticipated Income Tax Bill 2025 is set to be introduced in the Lok Sabha on February 13, 2025. This landmark legislation aims to simplify and modernize India’s tax system, replacing the Income Tax Act of 1961, which has undergone multiple amendments over six decades.
NEW DELHI : The much-anticipated Income Tax Bill 2025 is set to be introduced in the Lok Sabha on February 13, 2025. This landmark legislation aims to simplify and modernize India’s tax system, replacing the Income Tax Act of 1961, which has undergone multiple amendments over six decades.
The new bill, comprising 536 sections across 23 chapters, intends to bring greater clarity, reduce litigation, and improve compliance mechanisms. One of the significant changes is the introduction of a “tax year” instead of the previous “assessment year” and “previous year” system, making tax administration more straightforward.
Income Tax Bill 2025 vs. Old Regime: Major Differences
The new tax legislation introduces several structural and administrative changes:
- Introduction of “Tax Year”: The traditional system of paying tax for income earned in the previous year during the assessment year is being replaced. Now, a single “tax year” will determine tax payments, simplifying compliance.
- Increase in the Number of Sections and Schedules:
- The new bill consists of 536 sections, up from 298 in the existing law.
- The number of schedules has increased from 14 to 16.
- Despite these additions, the bill is more concise at 622 pages, significantly shorter than the 880 pages in the existing Act.
- Delegation of Powers to CBDT: The Central Board of Direct Taxes (CBDT) will have expanded authority to implement tax schemes, compliance measures, and digital monitoring systems without requiring frequent legislative amendments.
- Enhanced Clarity on ESOP Taxation: The bill provides detailed provisions on the taxation of Employee Stock Options (ESOPs) to minimize disputes and offer better tax certainty for employees and companies.
- Public Consultation and Stakeholder Feedback: The government sought 6,500 suggestions from taxpayers, businesses, and legal experts to refine the bill, focusing on simplifying language, reducing litigation, and improving compliance.
Revised Income Tax Slabs Under the New Regime
The Income Tax Bill 2025 introduces a revised tax slab structure that significantly increases the tax-free income threshold and lowers tax rates for middle-income earners.
| Income Slab (₹) | Current Tax Rate (FY 2024-25) | Proposed Tax Rate (FY 2025-26) |
|---|---|---|
| Up to Rs.3 lakh | No tax | – |
| Up to Rs.4 lakh | – | No tax |
| Rs. 3-4 lakh | 5% | – |
| Rs.4-7 lakh | 5% | – |
| Rs. 4-8 lakh | – | 5% |
| Rs.7-8 lakh | 5% | – |
| Rs. 7-10 lakh | 10% | – |
| Rs. 8-10 lakh | – | 10% |
| Rs. 10-12 lakh | 15% | 10% |
| Rs. 12-15 lakh | 20% | – |
| Rs. 12-16 lakh | – | 15% |
| Rs. 15-16 lakh | 30% | – |
| Rs. 16-20 lakh | – | 20% |
| Rs. 20-24 lakh | – | 25% |
| Above Rs. 15 lakh | 30% | – |
| Above Rs. 24 lakh | – | 30% |
Key Changes
- Higher tax-free income limit: The no-tax threshold increases from ₹3 lakh to ₹4 lakh.
- Wider tax brackets: Each tax slab covers a broader income range.
- More progressive tax structure: A gradual increase in tax rates ensures a smoother transition between slabs.
- Reduction in the highest tax rate threshold: The 30% tax rate now applies only to income above Rs. 24 lakh, instead of Rs. 15 lakh.
The new tax regime increases the tax-free income threshold from Rs 3 lakh to Rs 4 lakh, reducing the tax burden for lower-income earners. Additionally, individuals earning up to Rs 12 lakh annually will be entirely exempt from tax due to revised exemptions and deductions.
No Tax Liability for Income Up to Rs 12 Lakh
Under the new tax regime, individuals earning up to Rs 12 lakh annually will not have to pay any tax. When factoring in the standard deduction of Rs 75,000, taxpayers with an income of up to Rs 12.75 lakh will have zero tax liability.
This move is expected to increase disposable income, benefiting middle-class taxpayers and promoting economic growth.
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A Simplified and Modernized Tax Structure
The Income Tax Bill 2025 is a comprehensive reform aimed at reducing complexity, minimizing disputes, and enhancing compliance. By increasing the tax-free threshold, introducing a streamlined tax year system, and delegating more authority to the CBDT, the new bill promises to make tax administration more efficient and taxpayer-friendly.
As the bill is set to be introduced in Parliament, it will likely undergo further scrutiny before being enacted. However, the proposed changes already signal a significant shift towards a simpler, digital-driven, and taxpayer-centric tax regime.
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