Key Features of the New Income Tax Bill 2025

Key Features of the New Income Tax Bill 2025

The government has introduced the Income Tax Bill 2025, aiming to bring significant changes to India’s taxation system. This bill is designed to simplify tax laws, enhance transparency, and ensure tax compliance while reducing unnecessary litigation. The reforms also focus on making the tax system more efficient, modern, and taxpayer-friendly. Below are the key features of the New Income Tax Bill 2025:

1. Simplification of Tax Laws

One of the biggest challenges of the previous tax regime was its complexity. The Income Tax Bill 2025 aims to address this by:

• Reducing redundant provisions and legal jargon.
• Introducing simpler definitions to avoid multiple interpretations.
• Consolidating related tax provisions for easier understanding.
• Ensuring that taxpayers find it easier to comply with tax regulations.

2. Revision of Income Tax Slabs

The new tax bill proposes a revised tax slab structure aimed at benefiting middle-income and lower-income groups. The key changes include:

• Nil Tax on Annual Income up to ?4 Lakhs: This is a relief for low-income earners.
• Revised Tax Rates:
  • ?4 Lakhs – ?8 Lakhs: 5%
  • ?8 Lakhs – ?12 Lakhs: 10%
  • ?12 Lakhs – ?16 Lakhs: 15%
  • ?16 Lakhs – ?20 Lakhs: 20%
  • ?20 Lakhs – ?24 Lakhs: 25%
  • Above ?24 Lakhs: 30%
• Increased Standard Deduction: The standard deduction has been increased from ?50,000 to ?75,000.

3. Introduction of ‘Tax Year’ Concept

The traditional system of ‘Assessment Year’ and ‘Previous Year’ has been replaced with the ‘Tax Year’, which will align directly with the financial year (April 1 – March 31). This change is expected to reduce confusion among taxpayers and simplify tax filings.

4. Enhanced Digital Tax Administration

To ensure transparency and minimize tax evasion, the bill proposes:

• A fully digital tax-filing and assessment process.
• Enhanced use of Artificial Intelligence (AI) and Data Analytics to detect discrepancies in tax filings.
• Real-time tracking of high-value transactions to prevent fraud.
• Introduction of a Mobile App for Tax Compliance for easier tracking and filing of taxes.

5. New Tax Benefits for Startups and MSMEs

Recognizing the role of Startups and Micro, Small, and Medium Enterprises (MSMEs) in the economy, the bill introduces:

• 5-Year Tax Holiday for startups with an annual turnover below ?50 crore.
• Reduced Corporate Tax rate of 20% for MSMEs.
• Investment-based Deductions to encourage business expansion.

6. Simplified Tax Deducted at Source (TDS) Provisions

The new bill aims to streamline TDS provisions by:

• Combining multiple TDS provisions into a single, comprehensive section.
• Introducing a fixed TDS rate for various income categories.
• Reducing penalties for minor delays in TDS payments.

7. Stronger Measures to Combat Tax Evasion

To curb tax fraud and evasion, the bill includes:

• Increased Scrutiny on Offshore Accounts: Taxpayers with offshore accounts will face stricter compliance checks.
• Real-time Monitoring of High-Net-Worth Individuals (HNIs).
• New Anti-Benami Laws to prevent illegal property holdings.

8. Revised Capital Gains Tax Regime

The bill restructures the capital gains tax system by:

• Reducing holding period requirements for long-term gains.
• Unifying the tax rates for different asset classes, including real estate, stocks, and mutual funds.
• Offering additional exemptions for reinvestment in green energy projects.

9. Changes in Tax Refund Process

Taxpayers will now receive faster refunds, thanks to:

• A 24-hour refund processing system for eligible taxpayers.
• Automatic interest on delayed refunds beyond a certain time period.
• An option for taxpayers to prevalidate their bank accounts for quicker disbursal.

10. Empowerment of Taxpayers

The bill introduces the Taxpayer’s Charter, which guarantees:

• Fair and respectful treatment of taxpayers by tax authorities.
• Right to appeal against unjust tax demands.
• Quick resolution of grievances through a dedicated helpline and online support system.

11. Incentives for Digital Payments

To encourage cashless transactions, the government has proposed:

• Additional tax rebates for businesses adopting 100% digital payments.
• Reduction in GST compliance burdens for digital transactions.
• Special incentives for e-commerce platforms.

12. Abolition of Dividend Distribution Tax (DDT)

Companies will no longer have to pay Dividend Distribution Tax, shifting the tax burden to individual shareholders based on their income slab.

13. Implementation Timeline

The Income Tax Bill 2025 is scheduled to take effect from April 1, 2026, giving taxpayers, businesses, and financial institutions ample time to adjust to the new framework.