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The Income Tax Bill 2025, which was introduced by the Honorable Finance Minister on Thursday the 13th of February 2025 will be taken up for discussion during the monsoon session of the parliament between July and August this year. The Bill brings with it, much needed reforms and replaces the age old Income Tax Act, 1961. The Bill aims to provide for a more structured tax administration, usage of modern compliance mechanism, digital mechanism and streamlined provisions for business and individuals.

Keep reading this article to know more!

Disclaimer: The provisions of the Income Tax Bill 2025 will be applicable only after it is passed in both the houses of the parliament and is assented by the President. For now it is only a proposal and not a law.

What is the Income Tax Bill 2025?

The Income Tax Bill 2025 is the set of rules and regulations which deals with the provisions related to levy, administration, collection and recovery of direct taxes in India. It spans over 600 pages containing 536 sections, 23 chapters and 16 schedules which contain all the aspects of taxation in India. 

The Bill was tabled in the parliament on 13th February 2025. If passed, it shall be applicable from 1st April 2026.

Chapters of the Income Tax Bill 2025

The Income Tax Act has 23 chapters in total, some of which have subparts. Find them mentioned in the table below:

Main Objectives of Income Tax Bill 2025

The main objectives of the Income Tax Bill 2025 are as follows:

• Simplified tax provisions with clearer language

The Income Tax Bill 2025 aims to provide a more simpler tax code which is less complex, easily understandable  and much easier to interpret.

• Reduced Tax rates and increased Rebate

This Act reduces the income tax rates in order to promote higher demand for goods and services. This, in turn, leads to increased money in the hands of the taxpayer which leads to more savings. 

• Reduced legal disputes by removing ambiguities

With a streamlined tax administration and use of modern mechanisms for tax compliance, the Bill aims to reduce legal disputes and provide for a more easier redressal system.  

• Much easier compliance 

With a reduction in the content, the Bills aim to make compliance more easier and efficient. This in turn will encourage more tax filings and reduced tax evasion. 

• Recognition of Virtual Digital Asset

The definition of Virtual Digital Asset has been broadened to include cryptocurrencies and other digital assets. This has been done with a focus to simplify the taxation process of such assets.

Scope of Income Tax Bill 2025

The scope or extent of tax implications under the Income Tax Bill 2025 depends upon the assessee’s residential status:

Features of Income Tax Bill 2025

Some of the salient features of the Income Tax Bill 2025 are as follows:

• Income tax is a form of direct tax that needs to be borne by the taxpayer. It cannot be transferred to another individual. 
• The Central Government of India controls this form of taxation. 
• Broader scope of Virtual Digital Asset.
• Dispute resolution and Digital Compliance reforms.
• Relaxed Tax Slab Rates for individual taxpayers, especially for middle-income groups
• The government levies a progressive income tax rate so that rich and economically powerful individuals have to pay taxes at higher rates. 
• Deductions apply to a maximum limit per financial year in certain cases. 
• The goal of the new framework is to make capital gains taxation simpler, especially when it comes to securities or properties.

Provisions of The Income Tax Bill 2025

There are several provisions under the Income Tax Bill 2025, the important ones are:

• The introduction of the concept of Tax Year
• Use of modern mechanisms for compliance and a more structured tax recovery structure under Chapter XIX-D of the Bill
• Provisions related to Tax on Updated Returns are covered under section 267 of the Income Tax Bill 2025
• Procedure for Assessment
• Broader definition of Virtual Digital Asset under section 2(111)
• Consolidation of TDS provisions under one single section
• To encourage entrepreneurship, small enterprises and startups are eligible for tax holidays and exemptions.
• The rules cover the taxes of Indian taxpayers' on worldwide income, including their international earnings or investments.
• The bill provides for simplified taxation of capital gains, including provisions for both short-term and long-term capital gains.

Treatment of Capital Gains

The Income Tax Bill 2025 retains the structure and essence of Capital Gains but the language has been made simpler. The provisions related to Capital Gains are now covered under Clause 67, 196, 197 and 198 of the Income Tax Bill 2025. 

Section 47 of the Income Tax Act, 1961 has been redefined and now it has been proposed to remove the clauses given for the transfer of land of an industrially sick company and removal of stock exchange demutualisation.  

Further, the bill has removed ambiguity by classifying cryptocurrencies and other virtual digital assets as taxable income. Cryptocurrency has now been formally included as a taxable capital asset.

Income Tax Bill 2025 Highlights

• Simplified Structure: Reduced from over 700 sections to 536, with improved layout for better clarity.
• Tax Year: The concept of "Previous Year" and "Assessment Year" is replaced by the unified "Tax Year" (April 1 to March 31).
• Consolidation of TDS provisions: TDS provisions (previously spread across Sections 192 to 194T) are consolidated into Section 393 for easier reference.
• Definition of VDAs: The definition of Virtual Digital Asset is expanded to include any asset with a digital representation of value that relies on a cryptographically secured ledger or similar technology.
• Simplified Language: Redundant provisions are removed, making the bill more taxpayer-friendly.
• Effective Date: The bill will be effective from April 1, 2026, once passed in the Parliament.

Slab Rate in Income Tax Bill 2025

The rates at which the taxpayer's income will be subject to taxation are known as the slab rates. India has a progressive tax rate system, meaning that as income rises, so does the tax slab rate.. This ensures that the individuals earning higher income pay higher taxes.

There are two tax regimes in India; 

• The New Tax Regime (Default Tax Scheme)
• The Old Tax Regime (Optional Tax Scheme)

The New Tax Regime (Default Tax Regime)

The Slab Rates for The New Tax Regime is provided under section 202 of the Income Tax Bill 2025 as follows:

The Old Tax Regime (Optional Tax Regime)

The Slab Rates under The Old Tax Regime is provided in the Income Tax Bill 2025 as follow:

Rebate Limit in The Income Tax Bill 2025

The Rebate Limit in the Income Tax Bill are as follows:

• New Tax Regime: A person filing a tax return under the New Tax Regime can claim a rebate if his income is not more than Rs. 12,00,000 i.e., you can get a tax rebate of upto Rs. 60,000.
• Old Tax Regime: A person filing a tax return under the Old Tax Regime can claim a rebate if his income is not more than Rs. 5,00,000 i.e., you can get a tax rebate of upto Rs. 12,500.

The Income Tax Act 1961 v/s The Income Tax Bill 2025

The Income Tax Act of 1961 will be replaced by the Income Tax Bill 2025. But not much has changed. When compared to the Income Tax Act of 1961, the Income Tax Bill 2025 is thought to be shorter and simpler, yet it has a lot more sections. The introduction of the term "Tax Year" in the Income Tax Bill 2025, which appears to replace the terms "Financial Year" and "Assessment Year" in the Income Tax Act 1961, may be one of the most notable changes.

Final Word

Now that you have a clear idea of the Income Tax Bill 2025, you can understand how the Income Tax Department works. Furthermore, you can take a look at the different sections in order to learn the various available deductions. This will help you make smarter investments and gain tax savings.

Know the key difference between Income Tax Act 1961 and The Income Tax Bill 2025!

Keep following our page to get more updates regarding the Income Tax Bill 2025!

Related Article:
Section 202 - New Income Tax Regime