Explained: Key changes in New Income Tax Bill

New Delhi, Aug 12: Parliament on Tuesday approved the landmark Income Tax Bill, 2025, replacing the six-decade-old Income Tax Act, 1961, in a sweeping overhaul of India’s direct tax regime that promises simpler language, higher exemptions for the middle class, and a shift towards fully digital compliance.

The Rajya Sabha cleared the bill by a voice vote and returned it to the Lok Sabha, which had passed it earlier. The legislation will become law once it receives Presidential assent and is notified in the Gazette.

Finance Minister Nirmala Sitharaman, who also tabled the Taxation Laws (Amendment) Bill, 2025, said the rewrite was necessary because some parts of the 1961 Act had become “outdated” and too complex for even professionals to interpret easily. “The new law aims to make the language simple and does not introduce any new rate,” she told the House, adding that more than 75,000 person-hours had gone into its drafting.

She expressed “shock” at the Opposition’s walkout from the debate despite an earlier agreement in the Business Advisory Committee for 16 hours of discussion in both Houses. “I am shocked that the Opposition doesn’t want to participate,” she said, while thanking the Select Committee of Parliament for scrutinising the bill.

The legislation is not a set of amendments but a fresh statute, cutting the number of sections from 819 to 536 and reducing chapters from 47 to 23. It consolidates overlapping provisions, removes outdated clauses, and rewrites the text in plain, direct language. One of the most notable changes is the scrapping of the “assessment year” concept, which is replaced by a “tax year” directly linked to the year in which income is earned, eliminating a long-standing source of confusion among taxpayers.

The bill retains the Rs 12 lakh basic exemption in the new regime, with a standard deduction of Rs 75,000 that effectively raises the zero-tax threshold to Rs 12.75 lakh. It introduces a progressive slab system, starting with nil tax for income up to Rs 4 lakh and rising to 30 per cent for income above Rs 24 lakh. According to financial planner Taresh Bhatia, this will translate into tangible savings for many middle-income taxpayers, particularly those earning between Rs 8 lakh and Rs 15 lakh annually.

Bhatia, a Certified Financial Planner described the new legislation as “a generational rewrite of India’s tax code” and said it could make compliance easier for ordinary citizens. He pointed out that faceless assessments and e-proceedings will now be the default, cutting out unnecessary visits to tax offices, reducing opportunities for harassment, and speeding up processes such as refunds. “This is a win for time management — both for taxpayers and for the system,” he said.

However, he cautioned that the bill also grants the tax department broader investigative powers in the digital space. During authorised search-and-seizure operations, officials may access a taxpayer’s email accounts, cloud storage, social media profiles, digital wallets, and cryptocurrency holdings — but only in cases where the taxpayer refuses to cooperate. “Privacy safeguards will be key,” Bhatia noted. “In the digital era, compliance is as much about the hygiene of your data as it is about paying your taxes on time.”

Bhatia advised taxpayers to familiarise themselves with their new tax slab, stay active on the Income Tax e-filing portal, clean up their digital and financial records, review their tax strategy in light of the new regime, and keep a close watch for official clarifications from the CBDT. He also warned that the first year of implementation could bring transitional confusion, making it essential for taxpayers to remain updated.

While supporters hail the legislation as a long-overdue simplification and modernisation of the tax system, some privacy advocates have expressed concern over the expanded enforcement powers. With Presidential assent pending, the bill’s phased rollout is expected to begin from the next financial year, ushering in what the government calls a “clearer, simpler, and fairer” era of tax administration.