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New Income Tax Bill 2025

New Income Tax Bill, 2025: "A familiar taste with a fresh twist?

"The New Income Tax Bill, 2025, aims to simplify tax laws by removing obsolete provisions and making the language more accessible. It seeks to enhance clarity without introducing additional tax burdens on taxpayers. At first glance, the bill appears largely aligned with the existing Income Tax Act, with no major structural changes. However, a detailed analysis and thorough scrutiny are essential to fully grasp its implications and any subtle modifications."

Key Takeaways from the New Income Tax Bill, 2025

1. Shorter and Simpler Tax Law

  • The existing Income Tax Act consists of 52 chapters spanning 1,647 pages.
  • The new bill streamlines this, reducing it to 23 chapters and 622 pages.
  • Obsolete provisions have been eliminated, making the law more concise and easier to understand.

2. Introduction of ‘Tax Year’

  • The term ‘Assessment Year’ is replaced with ‘Tax Year’ to minimize confusion.
  • For new businesses, the tax year will begin from the date of establishment or when a new source of income starts.

3. Expected Implementation Timeline

  • The bill is likely to be effective from April 2026.
  • However, further refinements may be introduced in the 2026 Budget (February 2026).

4. Clarifications on Presumptive Taxation (Sections 44AD, 44AE & 44ADA)

  • Addresses the long-standing debate around profit computation under these sections.
  • Introduces the phrase “profit claimed to have been actually earned” to bring more clarity to calculations.

5. No Changes in Residency Rules

  • The residential status criteria remain unchanged.
  • The bill simply rephrases existing provisions and replaces ‘previous year’ with ‘Tax Year’.

6. Revised Tax Slabs (New Regime)

The bill proposes a revised income tax structure:

Annual Income (?)

Tax Rate (%)

Up to 4,00,000

No Tax

4,00,001 – 8,00,000

5%

8,00,001 – 12,00,000

10%

12,00,001 – 16,00,000

15%

16,00,001 – 20,00,000

20%

20,00,001 – 24,00,000

25%

Above 24,00,000

30%
  • A tax rebate has been introduced for individuals earning up to ?12 lakh annually.

 

7. Retention of Old Regime & No New Tax Burden

  • The bill retains the old tax regime alongside the new tax regime.
  • No additional tax liability or compliance burden for taxpayers.
  • A well-defined penalty and compliance structure will be introduced to empower tax officials in resolving disputes efficiently.

 

8. No Changes in Income Tax Heads

The five existing categories of income remain unchanged:

  1. Salaries
  2. Income from house property
  3. Profits and gains from business or profession
  4. Capital gains
  5. Income from other sources

9. Changes in Salary Deductions

  • Standard Deduction: ?50,000 or salary amount, whichever is lower.
  • Employment Tax: Fully deductible.
  • Gratuity Deductions:
    • Payment under the Payment of Gratuity Act, 1972: Fully deductible.
    • Defence service retiring gratuity: Fully deductible.
    • Death-cum-retirement gratuity: Fully deductible.
    • Other gratuity on retirement/termination: Deduction up to ?75,000 or salary amount, whichever is lower.

10. Pension & Compensation Benefits

  • Pension commutation: Fully deductible for government, defence, and civil service pensioners.
  • Compensation on retrenchment: Deductible up to ?50,000 or as per Section 25F(b) of the Industrial Disputes Act, 1947.
  • Voluntary retirement payments: Deductible up to ?5,00,000.

11. No Change in ITR Filing Deadlines

  • The deadlines for Income Tax Returns (ITR) remain the same.
  • No changes in capital gains tax rules apart from those introduced in the new regime.

12. Changes in Presumptive Taxation Thresholds

  • Business turnover limit (Section 44AD): Increased from ?2 crore to ?3 crore.
  • Professional income limit (Section 44ADA): Increased from ?50 lakh to ?75 lakh.

13. Tax Audits

  • Tax audits will continue to be conducted by Chartered Accountants (CAs).
  • Company Secretaries (CS) and Cost Accountants (CMAs) are not included for tax audits.

14. Capital Gains Tax (LTCG & STCG)

  • No significant changes in long-term capital gains (LTCG) and short-term capital gains (STCG) taxation, unless specified in future budgets.

15. Simplified TDS Provisions

  • All TDS-related sections have been consolidated into a single clause with simplified tables for better clarity.
  • However, new reporting formats and updates in tax forms/utilities will be required post-implementation.

16. Elimination of Obsolete & Redundant Sections

  • The bill removes outdated provisions, making tax laws more transparent and taxpayer-friendly.
  • Fringe Benefit Tax and other obsolete sections have been removed.
  • Income not forming part of total income has been shifted to schedules to simplify the main statute.

17. Strengthened Dispute Resolution Panel (DRP) – Section 275(6)

  • The DRP must now provide detailed directions, explicitly stating:
    • Points of determination
    • Final decision
    • Clear reasoning behind the decision
  • This amendment ensures greater transparency and reduces reliance on past rulings.

18. Amendments in Block Assessment for Search & Requisition Cases (Chapter XIV-B)

  1. Inclusion of Virtual Digital Assets (VDAs):
    • The definition of “undisclosed income” under Section 158B will now include Virtual Digital Assets (VDAs).
  2. Alignment of Abatement & Revival Provisions:
    • Section 158BA(2) & (3): Assessments, reassessments, recomputation, references, or orders pending at the time of search/requisition will abate.
    • Section 158BA(5): If block assessment is annulled, the abated assessments will revive, aligning with the above.
  3. Clarification on Pending Assessments:
    • Section 158BA(4): Instead of assessments being “pending,” the law will specify that assessments “required to be made” will be completed first before block assessment applies to a subsequent search.
  4. Refinements in Income Computation for Block Period (Section 158BB):
    • Clause (i): Instead of “total income disclosed,” the focus will be on “undisclosed income” in returns.
    • Clause (iii): Income declared in returns filed before search/requisition (under Sections 139, 142(1), or 148) will be included in block assessment with credit given.
    • Clause (iv): Clarifies taxability of income in previous years where return filing due date had not expired before search—such income will be taxed under normal provisions.
  5. Exclusion of International & Specified Domestic Transactions:
    • Section 158BB(3): Income related to international transactions & specified domestic transactions will not be part of block assessment but will be assessed separately under normal provisions.
  6. Revised Time Limit for Completion of Block Assessment (Section 158BE)

    Current Provision:

  • Time limit: 12 months from the end of the month in which the last search/requisition authorization was executed.

    Proposed Amendment:

  • New time limit: 12 months from the end of the quarter in which the last authorization for search or requisition was executed.

    Purpose of Change:

  • Ensures uniformity in group cases where multiple searches occur, preventing multiple time-barring dates and allowing coordinated investigation & assessment.

    Effective Date:

  • Applicable from February 1, 2025.

19. Key Amendments for International Financial Services Centre (IFSC) – Budget 2025

1. Extension of Tax Benefits for IFSC Units

  • The deadline for starting operations or relocating funds to IFSC to avail tax benefits has been extended to March 31, 2030.
  • Relevant sections amended: Section 80LA(2)(d), Section 10(4D, 4F, 4H), Section 47(viiad).
  • Effective from April 1, 2025.

2. Tax Exemption for Life Insurance Policies from IFSC Insurance Offices

  • Currently, life insurance proceeds are tax-exempt only if premiums do not exceed ?2.5 lakh (ULIP) or ?5 lakh (non-ULIP).
  • New Amendment: Life insurance proceeds from IFSC Insurance Offices will be tax-exempt without these premium limits for non-residents.
  • Effective from April 1, 2025.

3. Tax Exemptions for Ship Leasing in IFSC

  • Similar to aircraft leasing, ship leasing units in IFSC will now get:
    • Capital gains tax exemption on transfer of equity shares of IFSC-based ship leasing units.
    • Dividend tax exemption for dividends paid between IFSC-based ship leasing units.
  • Effective from April 1, 2025.

4. Exclusion of Certain Treasury Transactions from ‘Deemed Dividend’

  • Currently, loans or advances from companies to significant shareholders or their related entities are treated as dividends.
  • New Amendment: This will not apply to transactions between group entities where one entity is a Finance Unit in IFSC acting as a corporate treasury centre, provided its parent company is publicly listed outside India.
  • Effective from April 1, 2025.

5. Simplified Regulations for Fund Managers in IFSC

  • The 5% Indian investment limit in offshore funds will now be tested twice a year (April 1 & October 1), with a 4-month grace period for compliance.
  • Fund managers based in IFSC can relax other conditions for funds that start operations by March 31, 2030.
  • Effective from April 1, 2025

6.  Tax-Neutral Relocation of Retail Schemes & ETFs (Section 47 Amendment)

  • Fund relocation to IFSC-based Alternative Investment Funds (AIFs) is already tax-neutral.
  • The benefit is now extended to Retail Schemes & ETFs in IFSC, ensuring a seamless tax-free transition.

Effective April 1, 2026 (AY 2026-27 onwards).

7. Exempt Income for Non-Residents (Section 10 Amendment)

  • Currently, income from certain financial instruments transacted with an IFSC offshore banking unit is tax-exempt.
  • The exemption is now extended to Foreign Portfolio Investors (FPIs) in IFSC, subject to conditions.
  • Effective April 1, 2026 (AY 2026-27 onwards).

I have taken due precautions while drafting the Budget 2025 provisions. However, if you notice any corrections or have any suggestions for improvement, please let me know.