New Income Tax Bill 2025 to propose no tweaking between old, new tax regimes every tax year; here's what it means for taxpayers

New Income Tax Bill 2025: Finance Minister Nirmala Sitharaman is expected to present a draft of the new income tax bill in Parliament on February 13, 2025. The purpose of the new bill is to simplify the current Income Tax Act, 1961 in order to enhance understanding of income tax laws among the general public and decrease disputes. Over the years, the Income Tax Act 1961 has undergone 66 revisions through various Budgets, including interim budgets.

Among many proposals, the New Tax Regime may prohibit taxpayers from switching between the old and new regime. Once a taxpayer chooses the new tax regime, they cannot revert back for the same or any subsequent tax year unless specific conditions are violated.

How much tax do I have to pay? Calculate now

The proposed bill outlines a revised tax structure that applies to individuals, Hindu Undivided Families (HUFs), and other entities. Upon choosing the new regime, taxpayers are unable to revert to the previous system in subsequent years unless specific criteria are breached. In this framework, taxpayers must forego some deductions and exemptions in return for a reduced tax rate.

New Tax Regime highlights

The new tax regime introduces revised tax slabs for individual taxpayers. Although the specific rates are not outlined in this overview, the legislation clearly states that the taxation rates for individuals have been altered in the new regime.

Total Income (Rs) Tax Rate

Up to Rs 4L – Nil

Rs 4L – Rs 8L 5%

Rs 8L – Rs 12L 10%’

Rs 12L – Rs 16L 15%

Rs 16L – Rs 20L 20%

Rs 20L – Rs 24L 25%

Above Rs 24L 30%

What's the current rule

The Income Tax Department offers individuals the flexibility to select their preferred income tax regime for each financial year, with the frequency of switches allowed determined by profession or specific criteria as outlined in tax regulations. 

At present, individuals can choose between the Old Tax Regime and the New Tax Regime, with the latter now being the default option following the Union Budget 2023. It is important for taxpayers to specify their chosen tax regime when submitting proofs and filing their tax return.

In the event that you have invested in tax-saving instruments but find that you are unable to claim deductions for them due to not informing your employer of your selection of the old tax regime, there is a resolution available.

Individuals have the flexibility to switch between the Old Regime and the New Regime for their annual tax filing, as long as specific conditions are met. The number of allowed switches is determined by occupation or criteria outlined in tax regulations. Salaried taxpayers can switch every financial year, while self-employed individuals can only switch once in their lifetime.

Switching between Old and New Tax Regime

According to Section 115BAC of the Income-tax Act, 1961, the New Tax Regime offers individuals the opportunity to choose their preferred tax regime on a yearly basis, as long as they do not generate business income. When individuals file their income tax return, they can opt for the tax regime under which they wish their income to be evaluated for that particular financial year.

Salaried individuals and business professionals have the flexibility to switch between the old and new tax regimes each year. Conversely, individuals outside of these categories are restricted to changing between the old and new regimes just once in their lifetime.

Salaried individuals can annually switch between the new and old tax regimes, enabling them to tailor their tax planning to their financial circumstances.

Form 10IE and Form 10IEA

Taxpayers preparing their income tax returns for the upcoming fiscal year 2024-2025 may find it confusing to differentiate between Form 10IE and Form 10IEA. The primary distinction between these forms lies in their purpose: Form 10IE is utilized to opt for the new tax regime, whereas Form 10IEA is utilized to select the old tax regime. Form 10IE is now obsolete, and taxpayers no longer need to submit this form if opting for the new tax regime. However, it is imperative to fill out Form 10IEA if choosing the old tax regime, as it has become mandatory for this fiscal year. Given that the new tax regime has become the default option, Form 10IE no longer needs to be filed to select it. Form 10IEA is crucial for taxpayers who must decide between the new and old tax regimes for the fiscal year 2024-2025. It is essential to complete this form before the deadline of July 31, 2025.

New Income Tax Bill 2025

The New Income Tax Bill 2025 is set to be enforced starting April 1, 2026. Its primary goal is to streamline tax systems, improve adherence to regulations, and reduce instances of tax avoidance.

Once introduced in Parliament, the new income tax bill will likely be referred to the Standing Committee of Finance for assessment. Following the submission of the Committee's final report, Parliament will proceed with the passage of the bill.

The government aims to implement the new Income Tax Act starting from the financial year 2026-27. A considerable amount of time will be given to taxpayers, tax professionals, and the public to familiarize themselves with the new legislation and adapt to the changes.