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Income Tax Bill 2025: Changes under the new bill that taxpayers must know. Check FAQs
The Simplified Income Tax Bill 2025, introduced by Finance Minister Nirmala Sitharaman, will replace the outdated Income Tax Act. The bill simplifies terms, introduces a 'tax year', and improves clarity, ensuring taxpayers can navigate the new regulations more easily
On February 13, Finance Minister Nirmala Sitharaman introduced the Simplified Income Tax Bill 2025 in the Lok Sabha. Once passed, the Bill will replace the 64-year-old Income Tax Act. The new Bill spans 2.6 lakh words and consists of 536 sections, with the number of chapters reduced to 23.
The government has also released a set of FAQs addressing key concerns, ensuring transparency and ease of compliance for taxpayers.
What are the provisions of The Income Tax Bill 2025?
Shefali Mundra, Tax Expert, at ClearTax, said there are several provisions under the Income Tax Bill 2025, the important ones are:
- The introduction of the concept of Tax Year
- Use of modern mechanisms for compliance and a more structured tax recovery structure under Chapter XIX-D of the Bill
- Provisions related to Tax on Updated Returns are covered under section 267 of the Income Tax Bill 2025
- Procedure for Assessment
- Broader definition of Virtual Digital Asset under section 2(111)
- Consolidation of TDS provisions under one single section
The new Income Tax Bill FAQs
What is a ‘tax year’? What does it replace? What was the need for introducing it? Why was the term ‘financial year’ not used instead of ‘tax year’?
A ‘tax year’ is a period of twelve months contained in a financial year. It replaces the term ‘previous year’ used in the Income-tax Act of 1961. Further, with the discontinuance of the use of the term ‘assessment year’ in the income tax bill, the term ‘tax year’ will now be used to calculate the rate or rates of income tax. In addition, any assessment of the income or total income will also be done for a ‘tax year’.
Using the terms ‘previous year’ and ‘assessment year’ created confusion in taxpayers' minds as they represented two different financial years. The rationale for using two terms is no longer valid in view of the alignment of the ‘previous year’ with the financial year or part of the financial year (in specific cases). The term ‘Tax year’ is commonly used in income tax legislation in comparable tax jurisdictions.
As a tax year can be a period which is less than the financial year in some instances, the term ‘financial year’ has not been used while doing away with the terms ‘previous year’ and ‘assessment year’. However, many actions are carried out by tax authorities and other stakeholders while implementing the tax law, including procedural actions and compliances, such as periods for filing returns, rectifications, etc., which require reference to a financial year.
In such cases, the period denoted by a financial year has more relevance. This means that the term ‘financial year’ is required separately.
Will the concept of ‘tax year’ conflict with an ‘assessment year’ at any particular time? For example, if the new Act comes into effect from 1st April, 2026, will the tax year 2026-27 of the new Act conflict with the Assessment Year 2026-27 of the Income-tax Act, 1961?
No. The reasons are as follows:
i. The Assessment Year 2026-27 of the Income-tax Act, 1961 will pertain to the income of a taxpayer for the previous year 2025-26 and not to the income of the financial year 2026-27;
ii. The tax year 2026-27 of the new Act will pertain to the income of a taxpayer for the financial year 2026-27;
iii. The assessment for income of the previous year (financial year) 2025-26 of a taxpayer shall be done as per the provisions of the Income-tax Act, 1961 for the assessment year 2026-27;
iv. The taxpayer's income for tax year (financial year) 2026-27 shall be assessed as per the provisions of the Bill for tax year 2026-27.
Have the provisions related to capital gains under section 11(1A)been addressed? Can you explain the rationale behind that?
Section 11(1A) of the present Income-tax Act provides that a capital asset, property held under trust wholly for charitable or religious purposes, is transferred. Suppose the whole or any part of the net consideration is utilised to acquire another capital asset to beheld. In that case, the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent provided under the said section.
Since the acquisition cost of an asset for the objects of the registered non-profit organisation is considered an application of income, these provisions were redundant and, therefore, removed.
Why have more changes not been carried out in the Chapter for ‘Salary’ and ‘House Property’?
This exercise aimed to simplify the existing framework rather than completely overhaul it. The proposed Bill maintains continuity while ensuring improved clarity and efficiency.
Especially for the part on ‘Income from House Property’, it was noted that the provisions are already fairly simple and have been well received by the general public. Concepts like Annual Value of House Property, Self-occupied property, etc., have been accepted well, and there is a minimal dispute in interpreting the provisions and computing this Head of Income.
Hence, minimal changes have been proposed in this part to ensure a smooth transition and minimal confusion.
What major restructuring has been done in Section 80C?
The various sums eligible for deduction under Section 80C, which were previously spread throughout the section, have now been transformed into a simplified arrangement of eligible savings instruments in the proposed Schedule XV. The section's deduction limit remains clearly stated, while the Schedule provides an easy-to-understand breakdown of eligible deductions. This simplifies the process for taxpayers, making it more transparent and organized. The changes have been made for better accessibility and comprehension.
How has Section 80G been improved?
Section 80G, which provides deductions for donations, has been revised to clearly segregate deductions based on the percentage of eligible deductions—100% and 50%, without making any policy change. This makes it easier for taxpayers to identify and claim the correct deduction amount.
What changes have been made to Sections 80TTA and 80TTB?
Previously, Sections 80TTA and 80TTB provided deductions on interest earned from savings accounts—80TTA for the general public and 80TTB for senior citizens. These sections have now been merged into a single proposed section, with clearly defined sub-sections. The eligibility criteria and deduction limits for different categories of assessees are now explicit, reducing the need to refer to multiple sections. This change enhances clarity and ease of use, particularly for senior citizens.
I have opted for the New tax regime under the Income Tax Act, 1961. Do I have to opt for it again in the new Income Tax Bill, 2025?
No, all taxpayers' rights and duties will remain intact. The transition is expected to be seamless.
Will new rules and forms be prescribed for the proposed Act, especially for opting for a new tax regime or for claiming MAT?
The proposed Bill has been tabled in the Parliament. As and when the law is enacted, the administrative measures for implementing them will be made operational, considering the convenience of taxpayers and all stakeholders. The necessary details will be provided in due course.
Have the changes made in the recent budget been incorporated into the proposed Act, especially for individual taxpayers?
Yes, the changes made in the slab rates and the related rebate have been incorporated into the proposed bill.
Are there any changes in the provisions related to special rates for domestic taxpayers?
There are no policy changes. However, the provisions have been made easy with the following approach:
a) The New Tax Regime is now a separate part dedicated to a special rate of taxation for individual taxpayers, domestic companies, cooperative societies, and other eligible taxpayers.
b) Redundant provisions have been removed.
c) Tables have been provided to eliminate multiple explanations and provisions and to group various special types of income that attract special rates under the Act.
What simplification has been carried out for salaried employees in the new bill?
All the provisions about salary have been consolidated in one place for ease of understanding so that the taxpayer does not have to refer to separate chapters for filing his return of income. The earlier allowed deductions under section 10 of the Income Tax Act,1961, like gratuity, leave encashment, commutation of pension, compensation on VRS and retrenchment compensation, are now part of the salary chapter itself. Some allowances, like HRA, are now provided in Schedule II of the new bill, which finds reference in the provisions relating to salary. The objective was to improve readability by way of providing tables and formulas.
While the chargeability of all the perquisites has been retained in the Act, their valuation, conditions, and exceptions have been shifted to Rules as they do not affect every taxpayer.
Similarly, redundant and repetitive provisions have also been removed for better readability.
Have the due dates for filing returns of income changed?
No, the due dates for filing income returns for each category of assessees remain the same. They are now presented in a tabular format for easier understanding.
What are the highlights of simplification made in TDS/TCS provisions?
In the existing Act, 43 sections specify the various sums that are liable to TDS, depending on the status of the payer/payee, and are subject to applicable monetary limits. The sections provide the rate at which tax can be deducted at source. All these sections have been merged into one section in the proposed Bill. Section 393 of the proposed bill contains 3 Tables applicable to three broad categories of Payees- Residents, Non-residents and any person. The respective Table for each category in turn, specifies the nature of income or sum, monetary threshold, payer/person and the applicable rate of TDS.
In the table for Resident payees, sums of similar nature have been clubbed together, such as Commission, Rent, Interest, Income from theCapital Market, etc. Further, a separate Table has been provided covering the cases/conditions where TDS is not required to be deducted.
Similarly, the provisions relating to TCS have been merged and placed in one section. Section 394 of the proposed bill contains a Table that specifies the nature of receipts, monetary threshold, collector, and rate of TCS. The said section also lays down the conditions for not collecting TCS.
Furthermore, provisions relating to the following matters, which were present throughout the Chapter in the existing Act, have been merged and placed together as independent sections in the proposed Bill:
a. Certificates including Lower Deduction/Collection Certificates
b. Compliance and reporting (filing of statements etc.)
c. Consequences of failure to deduct or collect tax or pay the tax deducted or collected
d. Processing of Statements
“With over 1,200 provisos removed, a streamlined structure, and the replacement of ‘assessment year’ with ‘tax year,’ the new bill aims to make tax laws more accessible and easier to understand,” said Abhishek Soni, CEO and Co-founder ofTax2win.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
Key Takeaways
- Section 80G has been revised for easier deduction claims based on eligible percentages.
- Sections 80TTA and 80TTB are merged for clarity, reducing complexity for senior citizens.
- The introduction of the ’tax year’ concept aims to eliminate confusion around previous and assessment years.
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Business NewsMoneyIncome Tax Bill 2025: Changes under the new bill that taxpayers must know. Check FAQs
First Published:17 Feb 2025, 02:15 PM IST
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