New Income Tax Bill 2025 – Key Changes & Impact on Indian Taxpayers Explained
The Income-tax Act, 1961 has governed Indian taxation for over six decades. Stuffed with 298 sections, 23 chapters and countless amendments, it had become a labyrinth of cross-references. The Income Tax Bill, 2025, introduced in Parliament in February 2025 and set to replace the 1961 Act, aims to simplify the structure — fewer sections, plain language, and a single "Tax Year" concept replacing the confusing duo of Financial Year and Assessment Year. Here's a complete breakdown of what changes and what stays the same for salaried, business and NRI taxpayers.
Why a New Income Tax Bill?
The Income-tax Act, 1961 had grown unwieldy after six decades of amendments, multiple finance acts, judicial interpretations and SOPs. Many sections cross-referenced each other in confusing ways. The drafting style was archaic. Litigation around interpretation cost the country thousands of crores in disputes pending in tribunals and courts. The new Bill aims to:
- Use shorter, plain-English language with fewer provisos
- Reduce 298 sections to ~536 sections (renumbered) but cover them in fewer pages
- Eliminate the "Assessment Year" concept — replaced by a single "Tax Year"
- Make compliance digital-first (faceless assessments, time-bound notices)
- Minimise tax disputes through clearer thresholds and definitions
Top Structural Changes
- Single "Tax Year": Replaces the confusing FY (year of earning) + AY (year of filing). Now there is only Tax Year, and ITR is filed within that Tax Year cycle.
- Simplified language: Most "where ... and provided that ..." style provisos are rewritten as bullet points and tables.
- Standardised vocabulary: Old terms like "Indian company", "previous year" replaced with consistent modern wording.
- Single dispute resolution scheme: Vivad se Vishwas-like programmes will be baked into the Act itself for faster resolution.
What Stays the Same for FY 2026-27
While the new Act is going through legislative process, several core tax provisions for FY 2026-27 remain unchanged:
- Income tax slabs (new regime & old regime) — same as Budget 2026
- Standard deduction of ₹75,000 (new) / ₹50,000 (old)
- Section 87A rebate up to ₹7 lakh taxable income
- Section 80C, 80D, 80E, 80G deductions (old regime only) — preserved with same limits
- Capital gains structure (STCG 20%, LTCG 12.5% above ₹1.25 lakh)
- TDS/TCS rates and thresholds — minor rationalisations only
Changes for Salaried Taxpayers
- Perquisites: Threshold for "specified employee" raised; perquisites valuation simplified.
- Standard deduction: Continues at ₹75,000 (new regime), ₹50,000 (old).
- House rent allowance (HRA): Same formula, available in old regime only.
- NPS employer contribution: Deduction up to 14% of basic salary (under both regimes for govt employees; up to 14% for private under new regime).
- TDS on salary: Simpler chapter on Section 192 with clarifications on multi-employer cases.
Changes for Business & Professionals
- Presumptive scheme thresholds: 44AD limit raised to ₹3 crore (if cash receipts under 5%), 44ADA limit to ₹75 lakh for professionals — already enacted via Finance Acts 2023-24.
- Depreciation: Rationalisation of asset classes; computer/IT equipment retained at 40%.
- MSME payment rule: Section 43B(h) — payments to MSMEs beyond 45 days disallowed as expense in the year incurred.
- Faster refunds for businesses through risk-based scrutiny rather than blanket withholding.
- Loss carry-forward: Preserved at 8 years for business loss, with cleaner conditions.
Changes for NRIs & Foreign Income
- Residency rules: 120-day rule (Indian-source income above ₹15 lakh = deemed resident) continues; clarifications around "ordinarily resident" status.
- Tax treaty benefit: Section 90/90A consolidated under a clearer DTAA chapter; mandatory TRC + Form 10F filing online.
- Capital gains on Indian securities by NRIs taxed at same rate as residents (12.5% LTCG); indexation removed.
- Repatriation rules in old chapter VIII renumbered and made clearer.
- OCI holders continue to be treated as NRI for income tax purposes unless ordinarily resident.
Capital Gains & Crypto Taxation
- Listed equity: STCG 20%, LTCG 12.5% above ₹1.25 lakh annual exemption; holding period 12 months.
- Property and unlisted shares: LTCG 12.5% without indexation; with grandfather choice of 20% with indexation for property bought before 23 July 2024; holding period 24 months.
- Bonds & debt MFs: Taxed at slab rate (no LTCG benefit for debt MFs purchased after 1 April 2023).
- Virtual Digital Assets (Crypto): Flat 30% tax on gains + 1% TDS over ₹50,000 transaction (₹10,000 for some persons). No set-off of losses across crypto types or against other heads. Gift of VDA above ₹50,000 taxable in hands of recipient.
Compliance & Assessment Changes
- Faceless assessment made the default for all categories.
- Time limits for issuing notices and completing assessments tightened — Section 148 reopening limited to 5 years (10 years for serious tax evasion with concealed income above ₹50 lakh).
- Updated Return (ITR-U) period extended to 48 months from end of relevant Tax Year.
- Pre-filled ITR expanded — capital gains, mutual fund redemptions, foreign income via AEOI to be pre-filled.
- Dispute Resolution Committee for small taxpayers with income up to ₹50 lakh and disputed income up to ₹10 lakh.
What Taxpayers Should Do Now
- Don't panic. Most provisions for FY 2026-27 continue under the new Act, just renumbered.
- Use the income tax department's new Tax Calculator 2026-27 on incometax.gov.in.
- For ITR filing, the portal forms (ITR-1 to ITR-7) remain — UI may show some new section references.
- Take expert advice if your case involves NRI status, capital gains with grandfathering, or business restructuring.
- Watch the official CBDT notifications and PIB for transition provisions.
Frequently Asked Questions
When does the new Income Tax Act actually come into force?▼
The Income Tax Bill, 2025 was introduced in Parliament in February 2025 and has been referred to a Select Committee for detailed review. After committee report and passage in both Houses, the new Act is targeted to be effective from 1 April 2026 (i.e., applicable to Tax Year 2026-27). However, transition provisions and rules under the Act will be issued through notifications; some sections may have deferred applicability. For ITR filing in 2026 (for FY 2025-26 income), the old Act continues to apply.
Will tax rates change under the new Act?▼
No — the new Income Tax Bill is primarily a structural reform, not a rate-cutting exercise. Tax rates are still set every year by the Union Finance Act (Budget). For FY 2026-27, slabs remain as announced in Budget 2026 — new regime 0/3/7/10/12/15/30 lakh-bracket structure, old regime unchanged at 0/2.5/5/10 lakh. The new Bill simplifies the law; the Budget keeps deciding rates. So in tax-year-on-tax-year comparison, the salaried person's tax outgo will be approximately the same in the first year of new Act.
What is the "Tax Year" replacing the Assessment Year?▼
Under the 1961 Act, you earn income in a "Previous Year / Financial Year" (FY) and file ITR in the next year, called the "Assessment Year" (AY). For example, FY 2025-26 = AY 2026-27. The new Bill collapses this into a single "Tax Year" — the period 1 April to 31 March in which income is earned, and tax is computed and filed for the same year. This makes language simpler and aligns with international practice. The actual ITR filing deadline (31 July for individuals) doesn't change.
Will Section 80C and 80D be removed in the new Act?▼
No — Section 80C (investment-linked deduction up to ₹1.5 lakh), 80D (health insurance), 80E (education loan interest), 80G (donations) and most Chapter VI-A deductions are preserved in the new Act with the same ceilings. They continue to be available only under the old tax regime. The government has clarified that any phase-out of these deductions will be done gradually and announced through Budget — not silently through the Bill. So for FY 2026-27, you can still claim 80C/80D as today if you choose the old regime.
How will the new Act affect crypto/VDA taxation?▼
The crypto / Virtual Digital Asset (VDA) tax regime introduced via Section 115BBH and Section 194S (1% TDS) continues unchanged in the new Bill. So 30% flat tax on gains, no deduction for any expense other than cost of acquisition, no set-off of losses against any other head, and 1% TDS on transactions above ₹50,000 (₹10,000 for specified persons) remain in force. Foreign crypto exchanges are also expected to come under the same regulations from FY 2026-27. The government is treating crypto as a speculative asset class and intends to keep the regime stringent.