On February 13, 2025, Finance Minister Nirmala Sitharaman introduced a new Income Tax Bill in the Indian Parliament, aiming to replace the existing Income Tax Act of 1961. This initiative seeks to simplify the tax code, making it more accessible and reducing legal disputes.

Key Highlights of the New Income Tax Bill:

1. Simplification and Reduction in Length: One of the major highlights of the Income Tax Bill 2025 is its move to simplify the taxation framework. The bill condenses the existing 800-page Income Tax Act into just around 622 pages. By eliminating outdated sections and streamlining the text, the new bill makes it easier to understand and implement.
2. Introduction of the ‘Tax Year’ Concept– A notable change is the introduction of the ‘Tax Year’ concept. Under the existing system, taxpayers follow an Assessment Year, which creates a disconnect between the financial year and the tax period.

With the new bill, the assessment will be aligned with the financial year, making the tax process more straightforward and efficient. This change is expected to streamline tax assessments and reduce paperwork.

• Retention of Tax Slabs with Increased Exemptions- The new bill largely retains the current tax slabs, but with some important adjustments. In particular, the new tax regime sees an increase in the exemption limit from ₹2,50,000 to ₹4,00,000 for individuals.

Under the old tax regime, the exemption limit remains at ₹2,50,000.

The new tax regime offers greater flexibility, making it attractive for individuals opting for the tax-free structure.

This change is expected to provide relief to middle-income earners and encourage taxpayers to shift to the new regime.

• Capital Gains Tax Remains Mostly Unchanged- Another key element of the new bill is that capital gains taxation remains largely unchanged.
• Clear Definitions: ‘Specified Person’ and ‘Rent’- The bill also clarifies the definitions of several terms, including ‘Specified Person’ and ‘Rent’:
• Specified Person: This term is used to define any entity other than an individual or Hindu Undivided Family (HUF). The bill aims to ensure that all entities are clearly categorized for taxation purposes.
• Rent: The definition of rent has been expanded to include payments for lease, sub-lease, tenancy, and similar agreements for the use of property. This clarification ensures that rental income is correctly taxed, and there is no ambiguity around property-related income.

Implementation Timeline:

The new Income Tax Bill is expected to come into effect on April 1, 2026, following its passage through Parliament and subsequent approval.