India’s tax system stands at a major turning point. The Income Tax Act, 1961 has shaped Indian taxation for over six decades. But over time, it has grown bulky, confusing, and difficult to follow. With more than 4000 amendments, the Act had turned into a complex web. Taxpayers, professionals, and even officials often found it hard to interpret.
To overcome these challenges, the government has introduced the Income Tax Bill 2025. This is not just a new law, it is a step towards making tax compliance simple, clear, and modern. Let us look at the highlights of the Bill, why it was needed, and how it impacts taxpayers.
Why a New Law Was Needed
The 1961 Act served the country well. It supported reforms, boosted revenue collection, and evolved with India’s economy. But it carried too much baggage.
- It was packed with provisos, explanations, and cross-references.
- Repetitive and outdated provisions made it unnecessarily long.
- Taxpayers had to deal with three separate terms—previous year, assessment year, and financial year.
- Provisions were scattered, often overlapping, and sometimes contradictory.
Earlier simplification efforts in 2009 and 2019 made limited progress. What India needed was a complete rewrite. The 2025 bill delivers that.
The Vision: A User-Friendly Tax Law
In the 2024 Budget, the Finance Minister stressed the need for a law that is concise, clear, and easy to understand. The new Bill follows that direction with five key principles:
- Redundancies removed. Outdated sections are deleted.
- Plain language. Legal jargon is reduced.
- Use of tables and schedules. They make reading simple.
- Fewer cross-references. Provisions on the same issue appear together.
- Introduction of the “tax year.” This replaces the confusing dual system of “previous year” and “assessment year.”
Income Tax Bill 2025: Key Highlights
1. A Shorter and Cleaner Law
- Old Act: 819 effective sections.
- New Bill: 536 sections.
- Word count cut from 5.12 lakh to 2.6 lakh words.
The law is nearly half its earlier size, but it retains all essential provisions.
2. The “Tax Year”, Simple and Easy
Earlier, taxpayers had to track three terms—previous year, assessment year, and financial year. This created confusion.
The new Bill introduces one term: “tax year.”
- It becomes the standard unit of taxation.
- It aligns with the financial year.
- Compliance timelines follow it.
This is a big step towards simplicity in Indian taxation.
3. Salary Provisions Consolidated
Salaried individuals form a large share of India’s tax base. But earlier, salary provisions were scattered across multiple chapters.
Now, everything is under one roof. The Bill provides:
- Tables for easier reference.
- Redundant clauses removed.
- Valuation rules shifted to Rules since they don’t apply to everyone.
This makes return filing easier for employees. For instance, employees can now check allowances and income tax slab–related details as simply as viewing a mobile bill on one page.
4. Exemptions Moved to Schedules
Section 10 of the old Act was overloaded with 140 clauses, 90 explanations, and 134 provisos.
The new Bill changes this:
- Exemptions are shifted into Schedules II to VII.
- They are presented in tabular form.
- Examples include exemptions for regimental funds, non-residents, IFSC units, and business trusts.
Taxpayers can now view exemptions at a glance.
5. TDS and TCS Made Simple
TDS and TCS provisions are often confusing. The new Bill simplifies them with structured tables.
Example:
- TDS on rent: 2% if monthly rent exceeds ₹50,000.
- Different tables for residents, non-residents, and no-TDS cases.
This makes compliance straightforward for both payers and recipients.
6. Non-Profit Organisations (NPOs)
NPO provisions were earlier scattered across sections like 11, 12, 80G, and 115BBC. This caused disputes.
Now, they are consolidated into Part XVII-B with seven clear sub-parts:
- Registration
- Income
- Commercial activities
- Compliances
- Violations
- Donations
- Interpretations
The Bill also introduces a single term – “registered non-profit organisation”. The earlier confusing mix of terms like “trust” or “institution” is gone.
Dual systems for income accumulation are replaced with one rationalised rule.
7. Removal of Provisos and Explanations
Income Tax Act 1961 had over 2000 provisos and explanations. Many were added after court rulings, creating clutter.
The new Bill removes them. Their essence is merged into simpler sub-sections. Sentences are shorter. Cross-references are minimal.
This reduces ambiguity and chances of litigation.
8. Learning from Global Practices
The drafting team studied tax reforms in countries like the UK and Australia. The lesson was clear: simplification is not only about words, but also about structure.
The Bill reflects this balance. It offers clarity without losing completeness.
How Taxpayers Will Benefit
Salaried Individuals
- All salary rules in one place.
- Allowances and perquisites neatly structured.
- Filing becomes faster, with clear income tax slab references.
Businesses
- Clearer provisions.
- Repetitive sections removed.
- TDS/TCS compliance made easy.
Why This Matters for Business Leaders
For executives, the Income Tax Bill 2025 provides much more than compliance ease. A cleaner law reduces disputes, cuts litigation, and ensures predictability in financial planning, giving CXOs greater confidence in making long-term business decisions.
Non-Profit Organisations
- Unified framework.
- Easier registration.
- Transparent rules on donations and income.
Non-Residents
- Exemptions placed in schedules.
- Less confusion on applicability.
No Policy Change in Tax Rates
A key point is tax rates remain unchanged. Income slabs, corporate tax, and other rates continue as before.
The Bill focuses on structure, not rates. All policy updates till the Finance Bill, 2025 are built into it. For a deeper dive into these changes, read our analysis of the 2025 Union Budget.
Transition and Continuity
What about pending cases under the Income Tax Act 1961? The Bill provides clarity:
- Rights and liabilities stay protected.
- Ongoing cases will continue under the old law.
- Section-wise mapping of old and new provisions will be released by the Income Tax Department.
This ensures a smooth transition.
A Digital-Ready Law
The Bill is built for the digital age and aligns with digital India goals. It includes provisions for:
- Faceless assessments.
- Electronic records.
- Online communication.
This reduces physical interaction and modernizes Indian taxation.
Challenges Ahead
The Bill is a strong step forward, but challenges exist.
- Simplification does not always mean brevity. Some may still find the law long.
- Rules and notifications will shape real compliance. If they get complex, simplification may lose its effect.
- Training officers and professionals is crucial. Without it, interpretation issues could continue.
The government must back the new law with awareness drives and updated IT systems.
Conclusion
The Income Tax Bill 2025 is not just a law, it is a reform statement. It shows India’s intent to make taxation simple, modern, and citizen-friendly.
By reducing size, consolidating provisions, introducing the “tax year,” and shifting exemptions into schedules, the Bill clears long-standing hurdles. It brings clarity for individuals, businesses, NPOs, and non-residents alike.
The true test will be in execution. If executed well, it could well be remembered as India’s GST moment for direct taxes - a landmark reform shaping compliance for decades to come.
And as the government simplifies tax laws, your business can simplify its HR and payroll processes. To see how greytHR can seamlessly handle these complexities, book a demo today.
FAQs
Q1. When does the new law take effect?
The Income Tax Bill 2025 is set to take effect from 1 April 2026, per the Bill and media summaries.This timeline gives taxpayers, businesses, and professionals sufficient time to transition from the Income Tax Act 1961 to the new framework.
Q2. Does this Bill change tax rates or regimes?
No. The Income Tax Bill 2025 mainly simplifies the structure and language of Indian taxation. Tax rates, slabs, and regimes remain unchanged (carried over from Finance Act 2025).
Q3. What is the “tax year”?
A defined term in the Bill that replaces the dual “previous year/assessment year” concept to streamline filing and compliance.
Q4. Where did exemptions go?
Earlier, Section 10 of the Income Tax Act 1961 was overloaded with clauses and provisos. Under the new system, “incomes not included in total income” are presented in Tables across Schedules II–VI; other schedules cover specified entities/contexts.
Q5. Is TDS on rent really 2%? From when? Who deducts?
Yes, for individuals and HUFs, the TDS rate on rent under section 194-IB has been updated. The revised TDS rate is 2% on monthly rent payments that exceed ₹50,000. This change was made effective from 1 October 2024, as part of amendments in the Finance Act, 2025.
The TDS is to be deducted by the tenant (an individual or HUF who is not liable for a tax audit) and deposited with the government.
Q6. How will I map old sections to new clauses?
The Tax Department is expected to provide an official section-mapping utility to crosswalk old provisions of the Income Tax Act 1961 to the corresponding clauses in the new Bill.
Q7. Are digital/“faceless” processes part of the Bill?
Yes. The Bill explicitly enables faceless and electronic provisions (e.g., Clause 260). This is in line with the Digital India vision and the push to modernize Indian taxation.
Q8. What’s new for NPOs/charities?
A unified registered non-profit organisation chapter now sets rules for registration, application of income, permissible commercial activity, compliance, and violations, replacing the scattered approach under the old Income Tax Act 1961.
