10 Game-Changing Updates in the Income Tax Bill for 2025—Here’s What You Need to Know

The new Income Tax Bill is likely to be tabled in Parliament today.

The Income Tax Act of 2025 is set to supersede the existing Income Tax Act of 1961. With the impending changes to income tax regulations, numerous taxpayers are concerned about the potential effects of the new legislation on their financial situations.

Since its inception, the Income Tax Act of 1961 has undergone modifications through 66 Budgets, including two interim budgets.

Despite these intentions, many taxpayers may harbor concerns regarding the actual simplification of the laws proposed by the new bill. According to government sources, there are 10 key points from the 2025 income tax bill that will significantly affect taxpayers.

1. Introduction of the tax year concept: The forthcoming Income Tax Bill is expected to establish the tax year concept. This initiative aims to address the challenges taxpayers encounter with the existing definitions of the assessment year and the previous year. Many individuals mistakenly interchange the assessment year with the financial year (previous year) when making tax payments and submitting returns. By consolidating these into a single tax year concept, taxpayers will have a clearer understanding of the ITRs they are filing and the taxes they are paying.

2. Financial year remains unchanged: It is important for taxpayers to note that the definition of the financial year remains intact. The financial year will continue to commence on April 1 and conclude on March 31. The new income tax bill will not adopt the calendar year as its tax year.

3. Revisions to Sections: The forthcoming income tax legislation is expected to modify the sections outlined in the existing framework. For example, the current Income Tax Act addresses income tax return submissions under Section 139, while the new tax framework is detailed in Section 115 BAC. It is anticipated that the new income tax bill will alter these section numbers. This adjustment is part of an effort to simplify the language of direct tax laws, which may lead to further changes in the sections of the Income Tax Act, 2025.

4. No modifications to residency regulations: Sources indicate that the recently proposed income tax legislation does not alter the existing residency regulations. It is anticipated that these provisions will continue unchanged in the new act. The current income tax framework categorizes residency into three distinct groups, Ordinary resident individuals, Non-ordinarily resident individuals, and Non-resident individuals.

Tax professionals suggest that revisions to the residency laws are necessary. The existing regulations mandate that taxpayers review their residential status over the past decade to ascertain their status for the current financial year.

5. The New Income Tax Bill: To streamline the existing income tax regulations, the newly proposed income tax bill introduces several modifications. According to a financial expert, “The bill is structured into 23 chapters, encompassing 536 sections and 16 schedules, spanning over 600 pages. A brief examination of the new legislation reveals its extensive nature in contrast to the current Income Tax Act, which consists of 298 sections and 14 schedules.”

6. Simplified interpretation for taxpayers: The expert notes that the new version has eliminated the concepts of explanations and provisos to enhance clarity and comprehension. It introduces new terminology, such as “tax year,” replacing the previous terms “previous year” and “assessment year.”

Deductions from salaries, including standard deduction, gratuity, and leave encashment, are now consolidated in a single location rather than being dispersed across various sections and regulations. The revised income tax bill has also streamlined the calculation of depreciation for businesses by providing a clear formula.

7. Simplified TDS compliance but potential complications ahead: He further explains that all TDS-related provisions have been consolidated into a single clause with straightforward tables for better understanding. However, this consolidation will necessitate significant changes to forms and reporting utilities after the bill is implemented.

8. The Budget 2025 has confirmed that there will be no alterations to the deadlines for filing income tax returns, the income tax slabs, or the regulations surrounding capital gains. This decision aims to provide taxpayers with greater tax certainty.

9. The proposed Income Tax Bill 2025 does not introduce any modifications to the existing categories of income as outlined in the current Income Tax Act. Nevertheless, tax experts indicate that the bill seeks to eliminate 300 outdated provisions from the existing legislation, as these have become unnecessary over time.

10. Enactment of the new legislation: Tax professionals and government representatives indicate that the new income tax legislation is expected to take effect on April 1, 2026, corresponding to the fiscal year 2026-27. The new law is anticipated to be applicable starting April 1, 2026, meaning that the calculation and reporting of taxable income for the financial years concluding in March 2025 and March 2026 will still need to adhere to the current Income Tax Act.