The new income tax bill is scheduled to replace the long-standing Income Tax Act of 1961, which would streamline tax regulations and make them more accessible to taxpayers by reducing the number of sections by 25-30%. 
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The new income tax bill is scheduled to replace the long-standing Income Tax Act of 1961, which would streamline tax regulations and make them more accessible to taxpayers by reducing the number of sections by 25-30%. The new draft Income-Tax (I-T) Bill, announced by Finance Minister Nirmala Sitharaman during her Budget speech on February 1, will be tabled in the Lok Sabha this week. The Bill has 536 sections and 16 (XVI) schedules and is set to name the upcoming act as Income Tax Act, 2025.
Approved by the Union Cabinet on February 7, the bill was first introduced during the July 2024 Budget. FM Sitharaman unveiled plans for a thorough examination of the Income-Tax Act, 1961.
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The government has proposed to implement the new Income Tax Bill 2025 by April 2026. That means the tax year shall commence on April 1, 2026, marking the beginning of the twelve-month financial period.
As per the draft bill,
> This Act may be called the Income-tax Act, 2025.
> It will be extended to the whole of India.
> It shall come into force on the 1st April, 2026.
New Tax Regime
"Irrespective of anything contained in this Act but subject to the provisions of Parts A, B and this Part the income-tax payable by a person, being—
(a) an individual; or
(b) a Hindu undivided family; or
(c) an association of persons (other than a co-operative society); or
(d) a body of individuals, whether incorporated or not; or
(e) an artificial juridical person referred to in section 2(77)(g), in respect of the total income for a tax year, shall, unless the person exercises the option in the manner provided under sub-section (4), be computed at the rate of tax given below:
Up to Rs 4,00,000: No tax will be levied.
From Rs 4,00,001 to Rs 8,00,000: The tax rate is 5%.
From Rs 8,00,001 to Rs 12,00,000: The tax rate is 10%.
From Rs 12,00,001 to Rs 16,00,000: The tax rate is 15%.
From Rs 16,00,001 to Rs 20,00,000: The tax rate is 20%.
From Rs 20,00,001 to Rs 24,00,000: The tax rate is 25%.
Above Rs 24,00,000: The tax rate is 30%.
For computing total income, there will be no exemptions or deductions under certain sections or schedules, including income from house property and capital gains.
Income Tax Deductions on Salaries
Section 19: Deductions from Salaries
The income chargeable under the head "Salaries" will be computed after making deductions of the nature mentioned below, to the extent specified.
Tax on Employment: The sum paid by the assessee as a tax on employment, as per Article 276(2) of the Constitution, will be deducted in full.
Standard Deduction: A standard deduction is available to employees, amounting to RS 50,000 or the salary, whichever is less.
Gratuity Received under the Payment of Gratuity Act: Gratuity received on retirement, incapacity, or death, as per the Payment of Gratuity Act, 1972, is fully deductible.
Retiring Gratuity for Defense Service Members: Retiring gratuity received under the Pension Code or Regulations for members of defense services is fully deductible.
Death-cum-Retirement Gratuity: Gratuity received on death or retirement is fully deductible.
Other Gratuity Received upon Retirement or Termination: Gratuity received upon retirement, incapacity, or termination of employment is deductible. The deduction is the lesser of ₹75,000 or the salary, whichever is less.
Loss and Depreciation: Any loss or depreciation mentioned in subsection (2)(b) is considered to have been fully accounted for, and no further deductions will be allowed in subsequent years.
Option for Taxpayer: A taxpayer may opt for this deduction before the due date for filing income returns for the tax year. Once this option is exercised, it will apply to subsequent years, and withdrawal is allowed only once. After withdrawal, the person will not be able to exercise the option again, except if they cease to have income from business or profession.
Pension and Compensation Deductions
Pension Commutation: Commutation of pension received under the Civil Pensions (Commutation) Rules of the Central Government or similar schemes for civil services, defense, and other government services will be fully deductible.
Compensation on Retrenchment: Compensation received under the Industrial Disputes Act, 1947, or any similar Act will be deductible. The minimum deduction is ₹50,000 or as per Section 25F(b) of the Act.
Voluntary Retirement Scheme Payments: Payments received under a voluntary retirement scheme will be deductible, with a minimum amount of Rs 5,00,000 or as specified by the Central Government.
Capital Gains Tax
> Any profits or gains arising from the transfer of a capital asset effected in a tax year shall, save as otherwise provided in sections 82, 83, 84, 86, 87, 88 and 89, be chargeable to income-tax under the head “Capital gains” and shall be deemed to be the income of the tax year in which the transfer took place.
> Significantly, there have been no changes to the short-term capital gains (STCG) tax duration and rate. The STCG tenure remains at 12 months with a rate of 20 per cent, as per sources.
Main objective
The primary objectives included minimising disputes and litigations while offering taxpayers a higher level of tax predictability. In order to achieve these goals, 22 specialised sub-committees have been formed to scrutinise different sections of the I-T Act.
Following its approval by the Lok Sabha, the bill will be forwarded to the Parliament's Standing Committee on Finance for additional deliberations.
Earlier, an internal committee within the CBDT supervised the review process to streamline the Act, ensuring its clarity and ease of comprehension.
Experts note
Experts have raised concerns about the complexity and burdensome nature of the existing Income Tax Act, which has resulted in numerous legal disputes.
The government has recognized the necessity for a more efficient direct tax law to reduce uncertainties and promote clarity.
"The objective of the new tax bill is to do away with redundant provisions and to simplify the language of the Tax Law with a view to make the Income Tax Act more succinct and easier to comprehend. Keeping this objective and the directionality in mind, it is unlikely that the new tax bill will introduce new tax provisions or amend existing tax rates. Hence, I do not expect any additional tax burden being cast upon taxpayer through the new tax bill," said Munjal Almoula, Head of Tax, consulting firm BDO India.
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