The Central government is preparing to present a streamlined Income Tax bill to replace the Income Tax Act of 1961 in the Lok Sabha on Thursday. Upon approval, the new legislation is anticipated to be implemented starting from April 1, 2026. The updated Bill consists of 23 chapters, containing 536 sections and 16 schedules, totaling 622 pages. This is in comparison to the current Act which comprises 298 sections and 14 schedules across 823 pages.
The proposed Income-Tax Bill 2025 aims to streamline the definition of taxable incomes categorized under the "Salaries" section. The bill is anticipated to be presented in Parliament in the near future, with the possibility of undergoing revisions before ultimately superseding the current Income-tax Act of 1961, which is projected to occur by the following year.
How much tax do I have to pay? Calculate now
The new bill includes five categories of income, such as salary, income from house property, profits and gains from business or profession, capital gains, and income from other sources.
According to the proposed bill, the following sources of income will be subject to taxation under the category of salaries:
Any salary owed to a taxpayer by an employer, including a former employer, in the current tax year, whether or not it has been paid. Any salary paid or granted to the taxpayer in the current tax year by an employer or on their behalf, even if it was not due or paid before it was due. Any past due salaries paid or granted to the taxpayer in the current tax year by an employer or on their behalf, if it was not previously taxed in any prior tax year.
Salary for taxation purposes
The new income-tax bill of 2025 will include incomes that are classified as salary for taxation purposes.
Wages Annuity or pension Gratuity Fees or commission Perquisites Profits in lieu of, or in addition to, any salary or wages Advance salary Leave encashment Contribution to provident fund beyond the tax-free limit Contribution by central government or any other employer to employee's pension scheme accounts Contribution by Central Government to the Agniveer corpus
The bill stipulates that if an individual's salary is paid in advance and included in their total income for a tax year, it will not be counted again when the salary is actually due. Additionally, any salary, bonus, commission, or remuneration received by a partner from a firm will not be considered for tax calculation under the category of "Salary".
It is important to note that the draft bill does not propose any changes to the existing tax slabs or rates. Therefore, your salary income for a financial year will continue to be taxed according to the current slabs and rates applicable for that year.
Tax Year vs AY (assessment year) and FY (financial year)
The new Bill introduces the concept of the tax year in Clause 3, aiming to simplify taxpayers' understanding by replacing the confusion between the assessment year and previous year. The bill might simplify terminology by swapping out 'Assessment Year' for 'Tax Year' and 'Previous Year' for 'Financial Year'. This change will result in the tax year being synchronized with the financial year (April 1 to March 31), enhancing efficiency in maintaining records and calculating taxes.
The tax year is defined in Section 3 of the Income Tax Bill as the twelve-month period of the financial year that begins on April 1st.
Moreover, if a business or profession is newly established or a source of income is newly generated during a financial year, the tax year will commence on:
the date the business or profession is set up; or the date the new source of income comes into existence.
In either scenario, the tax year will conclude at the end of the said financial year. This clarification aims to enhance understanding for both domestic and foreign taxpayers fulfilling their tax obligations in India.