New Income Tax Bill To Come Into Effect From April 1, 2025; Here Are The Key Highlights That You Must Know

The government has released the much-anticipated Income-Tax Bill, 2025, which is set to be tabled in Parliament on February 13. The proposed bill aims to simplify tax laws, modernize compliance structures, and introduce new provisions to align with the evolving financial landscape. The bill is structured into 23 chapters, 16 schedules, and 536 clauses, covering a broad range of tax-related aspects.

Key Reforms in the Income-Tax Bill, 2025

1. Simplification of Tax Terminology

One of the most notable changes in the bill is the simplification of terminology. The traditional terms used in tax calculations have been redefined for better clarity:

• ‘Tax Year’ will now replace ‘Assessment Year’.
• ‘Financial Year’ will now replace ‘Previous Year’.

This change ensures better alignment with the existing financial reporting framework, making it easier for individuals and businesses to understand tax obligations.

2. Focus on Digital Transactions and Crypto Assets

The new Income-Tax Bill recognizes the changing nature of financial transactions, particularly with the rise of digital payments and cryptocurrency investments. The definitions of digital assets have been expanded to include crypto transactions, ensuring that such earnings and investments are properly accounted for under tax laws.

Additionally, the bill introduces specific references to ‘Finance Companies’ and ‘Finance Units’ in the context of dividend taxation. This could have significant implications for financial institutions and investors who rely on dividend income.

3. Introduction of a Taxpayer’s Charter

A major compliance reform in the new bill is the Taxpayer’s Charter, aimed at improving transparency and safeguarding taxpayer rights. This initiative is expected to enhance trust between taxpayers and authorities by outlining clear guidelines on rights, obligations, and grievance redressal mechanisms.

4. Changes in Tax Residency Rules for Foreign Companies

A crucial new provision in the bill suggests that foreign companies operating in India could be deemed as residents, potentially altering their tax liabilities. This could impact multinational corporations with significant operations in India, requiring them to reassess their tax strategies.

Revised Tax Slabs Under Section 202

The new Income-Tax Bill proposes updated tax slabs, making taxation more progressive and structured. Below are the revised rates:

• Up to Rs 4,00,000 – No tax
• Rs 4,00,001 to Rs 8,00,000 – 5%
• Rs 8,00,001 to Rs 12,00,000 – 10%
• Rs 12,00,001 to Rs 16,00,000 – 15%
• Rs 16,00,001 to Rs 20,00,000 – 20%
• Rs 20,00,001 to Rs 24,00,000 – 25%
• Above Rs 24,00,000 – 30%

This new structure simplifies tax calculations while ensuring that higher income groups contribute progressively to the national revenue.

Changes in Salary Deductions

Under the revised framework:

• Employees can claim a standard deduction of Rs 50,000 or their salary amount, whichever is lower.
• Tax paid on employment, as per Article 276(2) of the Constitution, will be fully deductible.

These deductions aim to reduce the overall tax burden for salaried individuals and provide greater financial relief.

Pension Commutation: New Exemptions

The bill introduces full tax exemptions for pension commutation under:

• Civil Pensions (Commutation) Rules of the Central Government
• Similar pension schemes applicable to other government services, civil services, and defense personnel

This move ensures that retirees receive their pension benefits without excessive taxation, improving financial security for retired individuals.

A Step Towards a Modern Tax System

The Income-Tax Bill, 2025 introduces several key changes aimed at making tax laws more transparent, efficient, and modern. From revising tax slabs to improving compliance structures, the bill seeks to create a streamlined tax system that benefits individuals and businesses alike.

As the bill is presented in Parliament, further discussions and potential amendments may shape its final implementation. However, the proposed changes indicate a strong push toward a simplified and taxpayer-friendly tax regime in India.