Parliament has passed the Income Tax (No. 2) Bill, 2025, marking one of the biggest reforms in India’s tax system in decades. This new law replaces the Income Tax Act of 1961, which has been in place for nearly 60 years.
The income tax bill 2025 aims to simplify rules, reduce legal complexity, and make tax compliance easier for individuals and businesses. It focuses on transparency, digital processes, and clearer definitions to help taxpayers avoid confusion.
All You Must Know About New Income Tax Bill 2025
A Simpler Tax Structure: The old Act had over 800 sections and dozens of chapters. The new bill cuts it down to 536 sections and 23 chapters. Legal jargon is reduced, making the rules easier to read and follow.
New “Tax Year” Term: Out go the terms “assessment year” and “previous year.” The bill introduces a single, simpler term, Tax Year, which matches India’s financial year. This change helps taxpayers clearly understand the time frame for filing and paying taxes.
Exemption and Rebate Benefits: The annual exemption limit remains at ₹12 lakh under the new regime. Middle-income earners will continue to get easy tax rebates, keeping the system beneficial for salaried individuals and small businesses.
More Flexible Tax Filing: The income tax bill 2025 allows taxpayers to claim TDS refunds even if they file returns after the deadline. It also requires tax officers to send a notice before taking any direct action, adding an extra layer of fairness.
Clearer Rules for Homeowners: Two changes stand out for property owners:A standard 30% deduction on the annual value of rental property. Pre-construction interest deduction now applies to rented homes as well, not just self-occupied properties
Push for Digital Assessments: The bill formally adopts digital, faceless assessment systems. This aims to cut human error, speed up processes, and reduce the risk of corruption in tax handling.
No Change in Penal Interest Rate: An early drafting mistake suggested penal interest on advance tax might rise to 3%. Officials have confirmed it will remain at 1% per month, as before.
Better Definitions to Avoid Disputes: Key tax terms like “capital asset” and “beneficial owner” now have clearer definitions. This will help reduce legal disputes and make tax rules easier to apply.
To sum it up, the income tax bill 2025 replaces outdated, complex laws with a modern, transparent, and taxpayer-friendly system. It simplifies filing, supports digital processes, and keeps benefits for middle-income earners intact.
