INCOME TAX BILL 2025

INTRODUCTION

In a bold move toward tax modernization, the Government of India has successfully enacted a historic reform. After being passed by the Lok Sabha on August 11, 2025, and subsequently cleared by the Rajya Sabha, the President of India gave his assent to the revised Income Tax Bill on August 21, 2025. The law has now been published in the Official Gazette and replaced the six-decade-old Income-tax Act, 1961, starting April 1, 2026.

This landmark legislation marks a major milestone in India’s direct tax reform journey. It introduces a simplified, technology-friendly, and structurally coherent tax regime designed to align with the evolving economic landscape. The reform is intended to ease compliance, remove redundancies, and modernize the tax administration framework.

WHY THE ORIGINAL DRAFT WAS WITHDRAWN

The Income Tax Bill 2025 was first introduced in Parliament on 13th February 2025. While the bill aimed to simplify and restructure tax laws without altering fundamental policy or tax rates, it was referred to a Select Committee chaired by BJP MP Baijayant Panda. This committee played a pivotal role in shaping the final version, proposing 285 significant changes to improve the bill’s clarity, structure, and compliance requirements.

The government accepted nearly all of the committee’s recommendations, leading to the withdrawal of the initial draft and the introduction of the revised bill. The updated version reflects the committee’s suggestions and was swiftly passed in the Lok Sabha without opposition.

PURPOSE AND PRINCIPLES BEHIND THE NEW LEGISLATION

The government’s intention with this legislation is not merely cosmetic. It is a structural revamp designed around three core principles:

1. Textual and structural simplification for improved clarity and coherence.
2. No major tax policy changes to preserve continuity and reduce disruption.
3. No changes in tax rates, maintaining predictability for taxpayers and businesses.

The government adopted a three-pronged approach to simplify the law:

• Eliminate complex legal jargon to improve readability.
• Remove redundant or repetitive provisions.
• Reorganize the law for logical flow and ease of reference.

This reflects the government’s continued push for direct tax reforms in India, aimed at reducing the compliance burden and improving the overall taxpayer experience. Read The Press

Release here:https://incometaxindia.gov.in/Lists/Press%20Releases/Attachments/1219/Executive-Summary-on-the-Comprehensive-Simplification-of-the-Income-tax-Act-1961-PressRelease-13-2-25.pdf

QUANTITATIVE TRANSFORMATION OF THE LAW

The impact of these reforms can be seen not just in language and structure, but also in numbers. According to the Press Release from February 13, 2025, the simplification exercise led to a significant reduction in the size and complexity of the tax law:

To know which sections are omitted or Redundant, Visit: https://incometaxindia.gov.in/Documents/income-tax-bill-2025/new-bill-2025-navigator.pdf

This transformation is aimed at making the law more navigable and accessible for taxpayers, professionals, and enforcement agencies alike.

MAJOR REFORMS AND REVISED INCOME TAX RULES

The revised income tax rules under the new Act reflect a cleaner, simpler code with major updates in several key areas:

1. Beneficial Owner Flexibility

Taxpayers receiving shareholder-related benefits can now carry forward losses related to these benefits a move that provides relief in volatile market conditions and encourages investment.

2. Return of InterCorporate Dividend Deduction

One of the major updates is the reinstatement of deductions for dividends received by one domestic company from another. This significantly reduces the tax burden on corporate earnings, making the tax environment more business-friendly.

3. Increased Relief for Property Owners

The revised bill introduces a standard 30% deduction on property income after municipal taxes and extends the pre-construction interest deduction for rental properties, providing much-needed relief to property owners and investors.

4. Simplified Compliance for Small Taxpayers

A key feature of the bill is its focus on simplifying compliance for small taxpayers:

• Issuance of ‘Nil’ tax deduction certificates to avoid unnecessary TDS.
• Refunds permitted for late income tax return filings.
• Penalty waivers for unintentional errors promote a culture of trust.

Platforms like TMWala can help small taxpayers navigate these changes, automate deductions, and simplify TDS-related compliance through smart, intuitive tools.

5. Clearer NPA Definitions for Banks

The revised bill provides a concrete definition of Non-Performing Assets (NPAs), reducing ambiguity and potential litigation between banks and tax authorities.

6. Fairer Regulations for Non-profits and Religious Trusts

Anonymous donations will no longer affect the tax exemption status of charitable institutions and religious trusts. This change ensures operational clarity and protects legitimate non-profits from punitive action.

7. Removal of Outdated References

All references to the Income Tax Act, 1961, have been removed, fully phasing out the old law and signalling the adoption of a fully modernized tax code.

NO CHANGES IN INCOME TAX SLABS

While many expected the new bill to introduce changes in income tax slabs, the government maintained its position of not altering tax rates or broad policy frameworks. This decision is consistent with the government’s principle of maintaining tax certainty and continuity, especially during a period of structural legislative transition.

This omission, however, leaves room for future finance bills or budget sessions to address slab revisions based on economic conditions or fiscal priorities.

IMPACT ON FILING AND COMPLIANCE

The bill includes updated rules for filing a revised income tax return to facilitate smoother compliance. Taxpayers can now expect more flexible timelines and fewer penalties for genuine delays or errors. These changes are expected to significantly ease the compliance burden for millions of individuals and small businesses.

TMWala can assist in ensuring timely filings, generate alerts for due dates, and offer intelligent validation to prevent common return errorsespecially for startups, freelancers, and MSMEs.

CONCLUSION

With Presidential assent on August 21, 2025, and publication in the Official Gazette, the new Income Tax Act will come into force on April 1, 2026, officially replacing the six-decade-old Income-tax Act, 1961.

This legislative reform is a watershed moment in Indian tax history. Though it maintains existing tax rates, it simplifies the legal framework, improves transparency, and ensures that India’s tax system keeps pace with technological advances and global best practices.

This marks not just the end of an era, but the beginning of a more efficient, equitable, and accessible income tax regime in India.

The new code may not bring immediate changes in tax rates or income tax slabs, but it lays a robust and future-ready foundation. It also sends a strong message: the Indian tax system is evolving, becoming simpler, more transparent, and more aligned with the needs of a modern economy.

TMWala will play a critical role in helping users decode these changes, ensuring accurate compliance and reducing the chances of audit triggers.