Income Tax Bill 2025: 10 Key Takeaways You Need to Know

Income Tax Bill

Income Tax Bill 2025: 10 Key Takeaways You Need to Know

Income Tax Bill

Finance Minister Nirmala Sitharaman introduced the much-anticipated Income Tax Bill, 2025, in the Lok Sabha, proposing a significant revamp of India’s personal tax laws. The bill will now undergo a review by a designated committee, which will provide recommendations before it is reintroduced for final approval. Here are the top 10 highlights of the proposed changes:

1. Introduction of the Tax Year Concept

A major shift in the new bill is the introduction of a ‘Tax Year’ to eliminate confusion between the Assessment Year (AY) and the Financial Year (FY). This change aims to streamline tax filing and improve clarity for taxpayers.

2. Financial Year Remains Unchanged

Despite the introduction of a tax year, the financial year structure will remain the same, beginning on April 1 and ending on March 31.

Income Tax Bill

3. Structural Changes to Tax Sections

The bill proposes a restructuring of the sections under which tax laws are defined. For example, rules related to tax return filing, previously covered under Section 139, will now be found under Section 115BAC in the new law.

4. No Alterations to Residency Laws

The existing residency classification remains unchanged. Individuals will continue to be categorized as:

  • Ordinarily Resident

  • Non-Ordinarily Resident

  • Non-Resident

5. A More Comprehensive and Concise Law

The new bill consists of 536 sections, compared to the 298 sections in the existing Income Tax Act, 1961. While the number of schedules increases from 14 to 16, the bill has been made more concise, reducing the word count to nearly half of the existing Act. Despite the increase in sections, the number of chapters remains at 23.

6. Simplification for Taxpayers

To ease compliance, all salary-related deductions have been consolidated into a single section. Additionally, depreciation calculations for businesses have been simplified with the introduction of a standard mathematical formula.

7. Streamlined TDS Compliance

Provisions related to Tax Deducted at Source (TDS) have been consolidated under a single clause, presented in simple tabular formats. However, implementing these changes will require modifications in tax filing forms and utilities.

8. No Change to ITR Filing Deadlines

The bill does not propose any changes to the deadline for filing Income Tax Returns (ITR), ensuring consistency for taxpayers.

9. No Changes to Income Heads

The classification of income heads remains unchanged from the existing Act. The bill also aims to streamline tax regulations by removing around 300 outdated provisions.

10. Expected Implementation Timeline

The proposed law is expected to come into effect from April 1, 2026, aligning with the fiscal year 2026-27.

Read More: New TDS Correction Rules: Limited Time for Amendments

The Income Tax Bill, 2025, introduces significant reforms aimed at modernizing tax compliance, making it more structured and easier to interpret. While the bill brings much-needed clarity and consolidation, its impact will largely depend on how effectively these changes are implemented. Stay updated as further recommendations and refinements are made before its final enactment.

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        Optimizing Tax Savings Under the 2025 New Regime: A Complete Guide

        New Regime

        Optimizing Tax Savings Under the 2025 New Regime: A Complete Guide

        New Regime

        Taxation plays a fundamental role in a nation’s economy, and every earning individual is required to comply with the Income Tax Act, 1961. With the 2025 revisions to the new tax regime, several traditional tax-saving provisions have been removed, leaving taxpayers unsure about the best strategies for minimizing their tax liabilities.

        The new tax structure provides reduced tax rates but significantly limits exemptions. This guide breaks down the key updates, deductions, and exemptions available, helping taxpayers make informed decisions about choosing the right tax regime.

        Overview of the 2025 Tax Regime

        The Income-tax Act, 1961, offers two taxation frameworks:

        • Old Regime – Retains various deductions and exemptions, potentially lowering tax liability.

        • New Regime – Features lower tax rates but removes most exemptions.

        Initially introduced under Section 115BAC in 2020 as an optional scheme, the new tax regime became the default system with the Union Budget 2023. The 2025 tax reforms maintain this approach, making it crucial for taxpayers to evaluate their choices carefully.

        Revised Income Tax Slabs (FY 2025-26)

        Annual Income BracketApplicable Tax Rate
        Up to ₹4,00,000NIL
        ₹4,00,001 – ₹8,00,0005%
        ₹8,00,001 – ₹12,00,00010%
        ₹12,00,001 – ₹16,00,00015%
        ₹16,00,001 – ₹20,00,00020%
        ₹20,00,001 – ₹24,00,00025%
        Above ₹24,00,00030%

        Individuals earning up to ₹4,00,000 are fully exempt, while those in higher brackets follow a progressive taxation system.

        Key Tax Benefits Under the 2025 New Regime

        1. Higher Tax Rebate (Section 87A)

        • New Rebate Limit: ₹12 lakh (FY 2025-26)

        • Previous Limit: ₹7 lakh (FY 2024-25)

        • Effective tax-free income (including standard deduction): ₹12.75 lakh

        2. Increased Basic Exemption Threshold

        Age GroupOld Regime (FY 2025-26)New Regime (FY 2024-25)New Regime (FY 2025-26)
        Below 60 years₹2.5 lakh₹3 lakh₹4 lakh
        60 – 80 years₹3 lakh––
        80+ years₹5 lakh––

        3. Standard Deduction & Family Pension Benefits

        • Standard Deduction: ₹75,000 (previously ₹50,000)

        • Family Pension Deduction: ₹25,000 (up from ₹15,000)

        4. Reduced Surcharge for High Earners

        • Surcharge on Income Above ₹5 Crore: Lowered from 37% to 25%

        • Effective Tax Rate Reduction: From 42.74% to 39%

        5. Tax-Free Retirement Benefits

        • Gratuity and Leave Encashment: Remain tax-exempt

        6. Employer Contributions to Retirement Funds

        • NPS & Provident Fund (PF): Employer contributions remain tax-free

        7. Tax Exemption for Agnipath Scheme Beneficiaries (Section 80CCH)

        • Financial assistance provided under the Agnipath Scheme remains exempt

        8. Select Allowances Remain Tax-Free

        • Transfer-Related Allowance: Exempt for work-related transfers

        • Conveyance Allowance: Tax-free for work-related travel

        • Disabled Employee Allowance: Transport allowance remains exempt

        Exemptions & Deductions NOT Available Under the New Regime

        The following benefits have been removed under the new structure:

        • House Rent Allowance (HRA) [Section 10(13A)]

        • Leave Travel Allowance (LTA) [Section 10(5)]

        • Entertainment Allowance & Professional Tax

        • Chapter VI-A Deductions (80C, 80D, 80E, etc.)

        Choosing Between the Old and New Tax Regimes

        Who Benefits from the New Tax Regime?

        • Individuals with high incomes and minimal deductions.

        • Salaried employees who do not have home loans, EPF, or tax-saving investments.

        • Self-employed professionals & freelancers with lower deductible expenses.

        Example: Priya, an IT employee earning ₹14 lakh annually without deductions, benefits from the new regime due to lower tax rates.

        Who Should Opt for the Old Tax Regime?

        • Individuals with substantial deductions (e.g., PPF, LIC, ELSS, HRA, home loan interest).

        • Business owners who can claim expenses like rent and depreciation.

        • Freelancers with deductible expenses such as office rent and professional costs.

        Example: Akash, a retail shop owner earning ₹18 lakh with ₹5 lakh in deductible expenses, benefits from the old regime.

        Senior Citizens: Tax Benefits Under the New Regime

        • Basic Exemption Limit: ₹4 lakh for senior citizens (₹5 lakh for super senior citizens)

        • Higher Deduction on Interest Income: Limit increased to ₹1 lakh

        • Tax Exemption on National Savings Scheme Withdrawals

        Avoiding Common Tax Planning Mistakes

        • Selecting a tax regime without assessing deductions and financial goals.

        • Not leveraging employer contributions to NPS & PF.

        • Neglecting tax-efficient investment options.

        • Overlooking regulations for switching between tax regimes:

          • Salaried employees can switch yearly.

          • Self-employed and business owners can switch only once.

        New Regime

        Final Thoughts

        The new tax regime simplifies tax calculations and provides lower rates, but eliminates key deductions. While it benefits those without tax-saving investments, individuals with substantial deductions must evaluate their options carefully.

        Read More: New TDS Correction Rules: Limited Time for Amendments

        Key Takeaways

        • Assess income, deductions, and financial goals before selecting a tax regime.

        • Maximize employer contributions to NPS & EPF for tax benefits.

        • Utilize the ₹75,000 standard deduction effectively.

        • Business owners and freelancers should analyze deductible expenses before opting into the new regime.

        Ultimately, selecting the right tax regime should align with long-term financial planning rather than just seeking immediate tax savings.

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              Budget 2025: No Tax on Income Up to ₹12 Lakhs – Key Updates & Calculation

              Budget 2025

              Budget 2025: No Tax on Income Up to ₹12 Lakhs – Key Updates & Calculation

              Budget 2025

              In the Union Budget 2025, the Finance Minister introduced a groundbreaking change in the tax structure, allowing individuals with an annual income of up to Rs. 12 lakh to pay no income tax. This is not due to an increase in the basic exemption limit but is achieved through an extended rebate under Section 87A of the Income Tax Act. Under this provision, taxpayers with incomes up to Rs. 12 lakh will receive a rebate equal to their tax liability, making their tax outflow nil. However, special rate incomes such as short-term capital gains are not eligible for this rebate. The budget also introduces marginal relief for those exceeding Rs. 12 lakh slightly, preventing a disproportionate tax burden.

              Understanding NIL Tax on Rs. 12 Lakh Income

              How is Tax Exempted Despite the Basic Exemption Limit Being Rs. 4 Lakh?

              The tax exemption up to Rs. 12 lakh does not indicate an increase in the basic exemption limit. Instead, it is achieved through Section 87A, which provides a rebate to taxpayers whose income does not exceed Rs. 12 lakh.

              Who is Eligible for the Rebate Under Section 87A?

              The rebate under Section 87A applies to resident individuals whose taxable income is up to Rs. 12 lakh. However, Hindu Undivided Families (HUFs), non-resident taxpayers, and firms are not eligible for this rebate.

              Tax Computation Illustrations

              Example 1: NIL Tax on Rs. 12 Lakh Income

              Scenario: Ms.Latha, a retired banker, has the following income sources:

              • Pension: Rs. 7,75,000

              • Interest Income: Rs. 3,50,000

              • Dividend Income: Rs. 1,50,000

              Tax Calculation:

              ParticularsAmount (Rs.)Tax RateTax (Rs.)
              Net Pension Income (after standard deduction)7,00,000––
              Interest & Dividend Income5,00,000––
              Total Taxable Income12,00,000––
              Tax Slab: Up to Rs. 4,00,000NILNIL
              Rs. 4,00,000 – 8,00,0005%20,000
              Rs. 8,00,000 – 12,00,00010%40,000
              Total Tax Payable–60,000
              Rebate under Section 87A–(60,000)
              Net Tax Payable–NIL

              Example 2: Tax Liability on Special Rate Income

              Scenario: Mr. Rahul earns a salary of Rs. 9,00,000 and has short-term capital gains (STCG) of Rs. 3,00,000.

              Tax Calculation:

              ParticularsAmount (Rs.)Tax RateTax (Rs.)
              Gross Salary Income9,00,000––
              Standard Deduction(75,000)––
              Taxable Salary8,25,000––
              Tax on Salary––22,500
              Rebate under Section 87A––(22,500)
              Tax on Salary after Rebate––NIL
              Tax on STCG (20% on Rs. 3,00,000)––60,000
              Total Tax Payable––60,000

              Since capital gains are taxed at a special rate, they do not qualify for the rebate under Section 87A.

              Marginal Relief for Incomes Slightly Above Rs. 12 Lakh

              If an individual’s income slightly exceeds Rs. 12 lakh, marginal relief ensures that the tax increase is not excessive.

              Example 3: Tax Calculation With Marginal Relief

              Scenario: Mr. Ajay earns Rs. 14,00,000 and his employer contributes Rs. 1,00,000 to NPS (Section 80CCD(2)).

              Tax Calculation

              ParticularsAmount (Rs.)Tax RateTax (Rs.)
              Gross Salary14,00,000––
              Standard Deduction(75,000)––
              Employer NPS Contribution(1,00,000)––
              Taxable Salary12,25,000––
              Tax up to Rs. 12,25,000––63,750
              Marginal Relief––(38,750)
              Final Tax Payable––25,000

              Understanding Marginal Relief

              • Since Mr. Ajay’s income exceeds Rs. 12 lakh by Rs. 25,000, he is entitled to marginal relief.

              • His total tax after relief is limited to Rs. 25,000 instead of the full tax liability.

              • Marginal relief applies only up to Rs. 12,70,587; beyond this, normal tax rates apply.

              Budget 2025

              Key Highlights of the New Tax Regime

              1. Higher basic exemption limit: Rs. 4 lakh.

              2. Standard deduction: Rs. 75,000 for salaried employees and pensioners.

              3. Rebate under Section 87A extended: Up to Rs. 12 lakh.

              4. Special rate income (capital gains) excluded from rebate eligibility.

              5. Marginal relief available for incomes slightly exceeding Rs. 12 lakh.

              6. Limited deductions allowed:

                • Standard deduction (Rs. 75,000).

                • Employer’s NPS contribution under Section 80CCD(2).

                • Certain allowances for disabled employees and transport expenses.

              Read More: Taxation of Cross-Border Transactions in India Under the Income Tax Act, 1961

              The NIL tax on income up to Rs. 12 lakh is implemented through an enhanced rebate under Section 87A, not by increasing the basic exemption limit. However, taxpayers with special rate incomes (capital gains, etc.) will still have to pay tax on such earnings. Additionally, marginal relief ensures that those earning slightly above Rs. 12 lakh do not face an excessive tax burden. Taxpayers should carefully evaluate their income sources and deductions to maximize their tax savings under the new tax regime.

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