New Income Tax Bill 2025: Key Changes, Tax Slabs, and Old vs. New Regime Differences

The Indian government is set to introduce the much-anticipated Income Tax Bill 2025 in the Lok Sabha on February 13, 2025. This new legislation aims to simplify tax compliance, replace outdated provisions, and introduce a more structured tax administration system. With 536 sections, 23 chapters, and 16 schedules, the new bill will replace the existing Income Tax Act of 1961, which has undergone numerous amendments over the years, making it complex and difficult to navigate.

Key Structural Changes in the New Tax Bill

One of the most notable changes in the Income Tax Bill 2025 is the introduction of the term “tax year,” replacing the previous concept of “assessment year.” Currently, income earned in one financial year is taxed in the subsequent assessment year. The new bill eliminates this dual-year structure, simplifying tax calculations for individuals and businesses.

Despite an increase in the number of sections from 298 in the old act to 536 in the new bill, the overall length of the legislation has been significantly reduced to 622 pages. This streamlined structure ensures that tax compliance becomes easier for taxpayers, with clearer guidelines and reduced ambiguity. The bill also consolidates judicial rulings from the past six decades, bringing more certainty to tax-related disputes.

Additionally, the Central Board of Direct Taxes (CBDT) will now have greater authority to introduce procedural changes and tax compliance measures without requiring parliamentary approval. This shift is expected to enhance the efficiency of tax governance and reduce bureaucratic delays.

Old vs. New Tax Regime: Major Differences

A major highlight of the new bill is the comparison between the old and new tax regimes. The government aims to make the new tax regime more attractive by increasing exemption limits and simplifying tax slabs. Under the new structure, individuals earning up to Rs 12 lakh annually will be completely exempt from paying income tax. When factoring in the standard deduction of Rs 75,000, individuals with an annual income of up to Rs 12.75 lakh will have zero tax liability.

Here’s a comparison of the revised tax slabs:

Tax Slabs for FY25-26 (Proposed in New Bill)

Up to Rs 4 lakh: Nil
Rs 4-8 lakh: 5%
Rs 8-12 lakh: 10%
Rs 12-16 lakh: 15%
Rs 16-20 lakh: 20%
Rs 20-24 lakh: 25%
Above Rs 24 lakh: 30%

Tax Slabs for FY24-25 (Current Structure)

Up to Rs 3 lakh: Nil
Rs 3-7 lakh: 5%
Rs 7-10 lakh: 10%
Rs 10-12 lakh: 15%
Rs 12-15 lakh: 20%
Above Rs 15 lakh: 30%

The new tax structure ensures that individuals earning between Rs 12 lakh and Rs 16 lakh pay a lower tax rate of 15%, compared to 20% under the existing system. Similarly, the tax rate for those earning Rs 16-20 lakh has been set at 20%, a significant relief for middle and upper-middle-income groups.

Additional Changes in the New Tax Bill

The proposed bill introduces specific provisions to simplify the tax treatment of Employee Stock Ownership Plans (ESOPs), aiming to reduce disputes related to stock options. It also enhances digital tax compliance mechanisms, empowering the CBDT to implement new regulations without requiring constant legislative amendments. Clause 533 of the bill grants the CBDT independent authority to introduce tax administration rules, compliance measures, and digital tax monitoring systems, thereby ensuring a more efficient tax system.

The introduction of the new tax bill follows a comprehensive review process initiated in July 2024. The government invited public feedback in four key areas—simplifying language, reducing litigation, easing compliance, and removing redundant provisions. Over 6,500 suggestions were received from taxpayers, industry stakeholders, and legal experts. The CBDT also formed 22 specialized sub-committees to evaluate different aspects of the Income Tax Act, ensuring that the new law addresses existing challenges effectively.

Impact on Taxpayers and Businesses

The new tax bill is expected to benefit middle-class taxpayers by increasing exemption limits and simplifying tax compliance. By eliminating unnecessary provisions and reducing litigation risks, the government aims to create a more taxpayer-friendly environment. Businesses will also benefit from modernized compliance mechanisms and streamlined digital governance, reducing administrative burdens.

Conclusion

The Income Tax Bill 2025 represents a significant overhaul of India’s taxation system. By introducing higher exemption limits, reducing tax rates for middle-income groups, and enhancing digital tax compliance, the new bill aims to make tax administration more efficient and transparent. As the bill moves through the parliamentary approval process, taxpayers and businesses will be closely watching how these proposed changes impact their financial planning and compliance requirements.