Summary: The Indian government has introduced the Income Tax Bill 2025, a significant update to replace the Income Tax Act of 1961, effective April 1, 2026. Aiming to simplify tax administration, the bill reduces chapters from 52 to 23 and aligns “Tax Year” with the financial year. Key changes include revised tax slabs, with the basic exemption limit raised to ₹4 lakh and rebates under Section 87A extended to incomes up to ₹12 lakh. Presumptive taxation thresholds are increased to ₹3 crore for businesses and ₹75 lakh for professionals. The bill simplifies compliance for small enterprises and introduces specific provisions for non-residents engaged in technology services. Corporate tax revisions include the abolition of angel tax for startups, block assessments for transfer pricing, and extended tax benefits for startups till 2030. NRI taxation rules remain largely unchanged but with enhanced recovery mechanisms. Procedural updates include revised tax return forms, changes to reassessment, and dispute resolution processes. The bill emphasizes digitization, allowing tax authorities greater access to electronic records. Currently under review by a Parliamentary Select Committee, the final version will incorporate further recommendations before implementation. This comprehensive reform seeks to modernize India’s tax system, reduce litigation, and align it with contemporary economic needs. Here’s a detailed look at the key aspects of the bill:
Structural Simplification
The bill reduces the number of chapters from 52 to 23 and pages from 823 to 622, eliminating redundant and obsolete provisions. This structural simplification makes the tax code more accessible and easier to understand for both taxpayers and administrators.
Introduction of “Tax Year” Concept
A major change is the replacement of “Previous Year” and “Assessment Year” with a single “Tax Year” concept. The Tax Year aligns directly with the financial year (April 1 to March 31), simplifying the tax timeline and reducing confusion for taxpayers.
Revised Tax Slabs and Rebates
The bill proposes new tax slab rates under the New Tax Regime, which will be the default regime from FY 2025-26. Key changes include:
- Basic exemption limit increased to Rs 4 lakh
- Tax rebate under Section 87A applicable for taxable incomes up to Rs 12 lakh
- Revised tax slabs with rates ranging from 5% to 30% for different income brackets
Changes to Presumptive Taxation
The bill increases turnover thresholds for presumptive taxation:
- For businesses: from Rs 2 crore to Rs 3 crore
- For professionals: from Rs 50 lakh to Rs 75 lakh
Additionally, a new presumptive taxation regime is introduced for non-residents providing technology or services to Indian electronics manufacturing companies.
Focus on Digital Transactions and Oversight
The bill grants tax authorities broader access to taxpayers’ electronic records during investigations, including emails, social media accounts, and online banking information. It also explicitly includes virtual digital assets (VDAs) like cryptocurrencies in provisions related to undisclosed income.
Simplified Compliance for Small Businesses
The bill aims to reduce the compliance burden for small and medium enterprises by increasing various thresholds and simplifying reporting requirements.
Changes to Corporate Taxation
Notable changes include:
- Abolition of “angel tax” for closely held companies to promote investments in startups
- Introduction of block assessments for transfer pricing cases, covering three financial years
- Extension of tax benefits for eligible startups incorporated up to March 31, 2030
NRI Taxation
The bill retains existing NRI tax residency rules but introduces streamlined tax compliance measures and enhanced tax recovery provisions. Specific tax rates for NRIs on income earned in India remain unchanged.
Procedural Changes
The bill introduces several procedural modifications:
- More comprehensive tax return forms
- Changes to reassessment procedures
- Modifications to dispute resolution processes
Implementation Timeline
The Income Tax Bill, 2025 is proposed to be effective from April 1, 2026. It is currently under review by a Parliamentary Select Committee, with the final version expected to be passed after incorporating committee recommendations.
These changes collectively aim to simplify India’s tax system, reduce litigation, promote digitization, and align the tax framework with emerging economic realities. The bill represents a significant overhaul of the country’s income tax laws, potentially impacting both individual and corporate taxpayers in various ways.
Disclaimer: This article provides a general overview of the proposed Income Tax Bill 2025 based on available information as of March 26, 2025. The bill is subject to review and potential modifications by the Parliamentary Select Committee and subsequent parliamentary approval. Readers are advised to consult with qualified tax professionals for specific advice related to their individual circumstances. The information presented here should not be construed as legal, tax, or financial advice.
Author Bio
