Finance Minister Nirmala Sitharaman announced a new income tax bill in his speech on budget for 2025 on February 1, 2025, aimed at simplifying tax compliance, reducing disputes and increasing taxation processes Clarity. On February 7, 2025, the union cabinet chaired by Prime Minister Narendra Modi approved the new income tax bill, which is now expected to be submitted in Lok Sabha and sent to the Standing Committee of Finance. The New Income Tax Act of 2025 (2025) resolves India’s outdated tax system problem and replaces the Old Income Tax Act of 1961. “First, trust later, review carefully” approach, the new Income Tax Act 2025 will focus on building taxpayer confidence while ensuring compliance with tax laws.
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In this article, we will explore what the new Income Tax Act of 2025 is, its objectives, key characteristics, significance and its impact on stakeholders. We also shared a table that includes comparisons between ancient and new income tax bills.
You are watching: What Is The New Income Tax Bill 2025? Explained
New income tax bills will be introduced
🔶The new bill will be close to half of this law
🔶 will be easy to understand, resulting in tax certainty and reduced litigation#VIKSITBHARATBUDGET2025 #Budget 2025 #UnionBudget2025 pic.twitter.com/dw78x6bmjp
– Ministry of Finance (@finminindia) February 1, 2025
What is the new income tax bill?
The new Income Tax Act of 2025 is a legislation aimed at simplifying and modernizing India’s income tax system. The bill focuses on several key reforms aimed at improving tax compliance, reducing litigation and providing clearer tax laws.
New Income Tax Act 2025: Main Objectives
The main goal of the proposed tax bill is to simplify and optimize the taxation process for taxpayers and authorities. By focusing on clarity, reducing legal complexity and increasing accessibility, it seeks to create a more effective tax regime. Here are the key goals of this reform, designed to make tax compliance easier and easier to understand.
Key Objectives:
- Simplification of the Language of Law: The bill aims to make tax laws easier to understand using straightforward and clear language. This will reduce the need for professional legal knowledge, thus giving taxpayers more confidence to browse the system. By removing unnecessary jargon, the bill aims to promote better compliance and reduce the chances of misunderstandings or mistakes in tax returns.
- Reduced length: New legislation is expected to be about half the current tax code. This shorter format will help eliminate redundant parts, allowing tax officials and taxpayers to process information faster and more efficiently. By condensing provisions, the new bill will also reduce the number of legal disputes and enhance the overall function of the tax system.
- No new tax introduction: The bill does not impose additional taxes, but focuses on making existing tax laws simpler. This will make it easier to comply with taxpayers by reducing complexity and eliminating unnecessary bureaucratic barriers. The aim is to ensure that individuals and businesses maintain stable, predictable and reduced burdens on the tax system.
- Including Budget Announcement: The bill will integrate important tax changes announced in the national budget, including amendments to the income tax rate and TDS (Source Deductions) provisions. This approach will create a unified framework that ensures taxpayers can easily follow updates and adhere to new rules. It will also help simplify fiscal policy implementation and prevent confusion over tax rate changes.
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Key Features of the New Income Tax Act in 2025
Some key features of the new new income tax bill in 2025 include simplifying tax laws, aligning with global laws, building trust-based systems, and more.
Check the table below for detailed key features.
|
feature |
describe |
|
Simplified tax laws |
Reducing word counts by almost 50% makes tax laws clearer and easier to obtain. |
|
Align with global tax norms |
By meeting international tax standards, it can enhance the convenience of conducting business in India. |
|
Trust-based system |
Minimize manual review and improve the reliability of self-assessment. |
|
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Expand the tax network by merging informal sectors while increasing exemptions to low-income groups. |
|
Effective litigation management |
Introduce clearer regulations to minimize disputes and ensure statutory certainty. |
|
Reasonable TDS/TCS |
Taxes deducted in the Source (TDS) and taxes imposed in the Source (TCS) provisions are simplified to reduce the compliance burden. |
|
Higher exemption limit |
Increase the income tax exemption limit from Rs 7 lakh to Rs 1.2 lakh, benefiting low-income taxpayers. |
Why are new income tax bills needed?
To simplify the Income Tax Act of 1961, a new Income Tax Act of 2025 is needed, which currently has more than 298 parts. The new tax bill will help eliminate outdated parts. Here are the reasons for the summary
- Overcomplexity: More than 298 sections and 23 chapters make it difficult to navigate.
- Frequent litigation: Ambiguous provisions often lead to disputes between taxpayers and authorities.
- Limited tax base: The informal sector is largely untapped, thus reducing income efficiency.
- Outdated regulations: Many parts introduced before 2012-13 have lost relevance in today’s economic landscape.
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Major announcement by Finance Minister Nirmala Sitharaman
In the 2025 trade union budget, the Finance Minister stressed:
- No face-to-face assessments, faster refunds and reduced reviews to improve taxpayer experience.
- Committed to the principle of “trust first, check later”.
- New tax bills are introduced to make the law simpler, clearer and more structured.
The impact of the new income tax bill on different stakeholders
The new income tax bill will have a profound impact on different stakeholders including businesses and corporations, individual taxpayers and the Indian economy
1. For enterprises and companies
- Higher tax certainty to provide better financial planning.
- Clearer structured tax laws lower compliance burden.
- Strengthens investor confidence, leading to higher foreign and domestic investment.
2. Individual taxpayer
- Faster tax refunds due to improved assessment process.
- Use a simplified and logical framework to make tax filing easier.
- Disputes are reduced due to well-defined tax regulations.
3. For the Indian economy
- A stronger statutory framework ensures tax equity.
- Higher tax compliance due to increased clarity and ease of filing.
- Encourage investment, leading to higher economic growth.
Implementation timetable
The union cabinet cleared the bill on February 7, 2025 and is expected to be introduced in parliament soon. After approval, it can be forwarded to the Standing Committee of Finance for further review before becoming law.
Comparison between old income tax bills and new income tax bills
|
aspect |
Old income tax bills |
New income tax bill |
|
Tax Board |
Complex structure with multiple tablets and higher tax rates |
Simplified structure, fewer tax boards, lower fees |
|
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Many exemptions (HRA, 80C, etc.) and available deductions |
Reduce exemptions and deductions; fewer options for saving taxes |
|
Rebate income |
Limited discounts based on specific conditions (e.g., 87a) |
Income up to Rs 7 lakh under Article 87A, wider rebates, making low-income individuals tax-free |
|
Tax application process |
Complex archive process requires multiple forms |
There are fewer simplified filing forms, and the streamlined process is more simplified |
|
Company tax rate |
Higher corporate tax rates |
Lower corporate tax rates, making India more competitive globally |
|
Focus on technology |
Relatively less reliance on digital infrastructure |
Pay great attention to digital archiving, processing and technology integration |
|
Taxpayer’s Welfare |
Larger scope of reducing taxable income through exemptions |
Lower tax rates, but fewer options for reducing taxable income, simplifying the system for general taxpayers |
in conclusion
The new Income Tax Act of 2025 represents a historic reform of India’s tax system. By replacing the Income Tax Act of 1961, it aims to create a simpler, more equitable and more effective tax system. With interests for individuals, businesses and the economy, the bill is expected to increase compliance, reduce disputes and increase investment, ultimately driving economic growth.
As the bill develops in the legislative process, please stay updated for further development.
Source: https://dinhtienhoang.edu.vn
Category: Optical Illusion