New Income Tax Bill 2025: Old Vs New Regime Differences, Exemption Limits, and More
Introduction
The Income Tax Bill 2025 is set to revolutionize the Indian taxation system, replacing the decades-old Income Tax Act of 1961. This comprehensive tax reform introduces a new structure, revised tax slabs, and major procedural simplifications. The new tax regime aims to enhance compliance, reduce disputes, and introduce digital governance. In this article, we break down the key changes, differences between the old and new regimes, updated tax slabs, and exemptions to help taxpayers understand the impact.
Key Highlights of the Income Tax Bill 2025
- The bill consists of 536 sections and 23 chapters.
- The old “previous year” term has been replaced with “tax year”.
- Assessment year concept has been eliminated.
- Number of schedules increased from 14 to 16.
- Greater powers delegated to CBDT (Central Board of Direct Taxes).
- Emphasis on digital tax governance and streamlined compliance.
- Clarity on stock options (ESOPs) taxation to reduce disputes.
Old vs New Tax Regime: What’s Changed?
One of the most significant shifts is the elimination of the assessment year concept. Previously, tax for income earned in FY 2023-24 was paid in the assessment year 2024-25. The new system simplifies taxation by aligning tax calculations with a single tax year.
The number of sections has increased from 298 to 536, ensuring a more structured and modern approach to tax administration. Despite the increase, the overall length of the law has been reduced from 880 pages (Income Tax Act, 1961) to 622 pages.
Another critical change is the empowerment of the CBDT, which can now make procedural changes, introduce compliance frameworks, and implement digital monitoring systems without parliamentary approval. This will reduce bureaucratic delays and increase tax compliance efficiency.
Revised Income Tax Slabs for FY 2025-26
The new tax regime introduces updated slabs, offering relief to lower and middle-income taxpayers.
New Tax Slabs for FY 2025-26
- Up to Rs 4 Lakh – No Tax
- Rs 4-8 Lakh – 5%
- Rs 8-12 Lakh – 10%
- Rs 12-16 Lakh – 15%
- Rs 16-20 Lakh – 20%
- Rs 20-24 Lakh – 25%
- Above Rs 24 Lakh – 30%
Old Tax Slabs (FY 2024-25)
- Up to Rs 3 Lakh – No Tax
- Rs 3-7 Lakh – 5%
- Rs 7-10 Lakh – 10%
- Rs 10-12 Lakh – 15%
- Rs 12-15 Lakh – 20%
- Above Rs 15 Lakh – 30%
Exemptions & Deductions: Major Changes
The Income Tax Bill 2025 introduces a higher tax-free threshold. Those earning up to Rs 12 lakh annually will now pay zero tax under the new regime. Additionally, with a standard deduction of Rs 75,000, individuals earning up to Rs 12.75 lakh will also have no tax burden.
Key Exemptions & Deductions
- No tax on income up to Rs 12 lakh (excluding special income).
- Standard deduction increased to Rs 75,000.
- HRA, 80C, and other deductions remain available in the old regime.
- Simplified capital gains tax treatment.
Benefits of the New Income Tax Bill 2025
1. Simplified Tax Structure
- Elimination of assessment year confusion.
- Uniform tax year implementation.
2. Lower Tax Burden
- No tax up to Rs 12 lakh.
- Higher disposable income for taxpayers.
3. Digital Governance & Compliance
- AI-driven tax monitoring.
- Faster processing of refunds and assessments.
4. Empowered CBDT
- Faster introduction of tax schemes and compliance measures.
Challenges & Concerns
While the new tax regime simplifies compliance, some concerns remain:
- Increased sections (536) may still be complex for taxpayers.
- Elimination of assessment year requires businesses to adapt.
- Transition for taxpayers used to the old regime.
Public Feedback & Industry Reactions
The Income Tax Department received 6,500 public suggestions during the review process. Key areas of focus included:
- Simplified language.
- Reducing litigation and disputes.
- Eliminating redundant provisions.
- Easing compliance for businesses and salaried individuals.
Experts believe that the bill’s focus on modern compliance mechanisms and legal certainty will be beneficial in the long run.
Conclusion
The Income Tax Bill 2025 brings significant changes aimed at simplifying tax compliance, reducing litigation, and enhancing digital governance. The new tax slabs ensure higher savings for individuals, and the elimination of the assessment year streamlines the process further. While challenges remain, the new bill is a progressive step towards a transparent and efficient tax regime.
FAQs
1. What is the biggest change in the Income Tax Bill 2025?
The biggest change is the elimination of the assessment year and the introduction of a single tax year system.
2. What are the new tax slabs for 2025-26?
The revised slabs ensure no tax up to Rs 12 lakh, with rates ranging from 5% to 30% for higher income brackets.
3. How does the new bill impact salaried individuals?
Salaried individuals benefit from higher exemption limits, increased standard deductions, and simplified compliance.
4. Will there still be an option to choose between the old and new tax regimes?
Yes, taxpayers can still opt for the old regime if they prefer deductions and exemptions.
5. When will the new tax bill be implemented?
The bill is expected to be introduced in Lok Sabha on February 13, 2025, and will likely be implemented from FY 2025-26.
