The government of India has presented the Income Tax Bill 2025, which has significantly changed India’s taxation system. The amendment seeks to simplify tax laws, minimise confusion and promote economic growth. Under new regulations and amendments, taxpayers must be aware of these amendments to comply well with the new system.
Among the bill’s most innovative aspects is streamlining taxation law by removing obsolete provisions and restructuring sections to facilitate better comprehensibility. It also introduces one “Tax year” in place of the current financial year and assessment year arrangement, with the advantage of compliance ease for companies as well as taxpayers.
The bill extends the renovated tax slabs of the Union Budget 2025-26 and provides more enhanced income tax exemptions and reliefs to salaried taxpayers. Certain other significant modifications include the modifications in HRA tax relief, enhanced TCS limits and relief on education loans.
With such modifications, taxpayers need to be alert while making wise financial choices. As a worker, a freelancer, or an entrepreneur, if you are aware of the 2025 income tax regime, you will be able to plan and optimize tax savings.
Simplification of tax laws
Another of the major objectives of the Income Tax Bill 2025 is simplification of tax laws and making them less complex to adhere to. The bill abolishes obsolete provisions and repeals comparable sections, thereby making the tax code simpler. Unlike the archaic Income Tax Act of 1961, which was a colossal 52 chapters and 823 pages long, the new law is relatively short, with only 23 chapters and 16 schedules on 622 pages. The new structuring aims at dispelling misunderstandings and alleviating the stress on individuals and businesses to lodge their taxes.
Standard tax year enforced
The important change includes enacting a uniform “Tax Year,” which shall replace the former financial and assessment year configuration. The new 12-month block makes it easy for business enterprises and individuals to keep accounts and taxes. In the case of new entrepreneurs or professionals, the tax year would begin from when they set out or commence earnings, and thereby tax filing would become easy.
Updated tax slabs and rates
The new bill keeps the tax slabs and rates that were introduced in the Union Budget 2025-26, providing some stability for taxpayers. Now, individuals earning up to INR 12,00,000 won’t have to pay any income tax. Plus, salaried taxpayers will get a standard deduction of INR 75,000, raising the non-taxable income limit to INR 12,75,000. Taxpayers can pick between the old and new tax systems based on what works best for them.
Eyes on the new tax regime: FY 2024-25 vs. FY 2025-26
When we put side by side the income tax you will pay under the new tax regime in FY 2024-25 and FY 2025-26, it’s quite clear that the latter holds the guarantee of paying less tax. For the ones with incomes up to INR 12 lakh, there will be no tax to pay in FY 2025-26, that is, more savings in your pocket. However, even if your income is more than that, you’ll gain the tax savings ranging between INR 36,400 and INR 1,43,000.
Optimising tax with HRA: A strategy for couples
With the new tax slabs, the taxpayer has to analyse which regime provides the most savings. Married couples can employ tactical tax planning to avail themselves of the maximum benefits. A couple can select the old tax regime for claiming HRA and deductions by one spouse and the new regime by the other.
For instance, Disha and Rohan, a couple working in Mumbai, pay INR 60,000 as rent and earlier divided the amount equally to avail HRA deductions. By moving Rohan to the new regime and allowing Disha to claim the entire HRA deduction under the old regime, they can save INR 1.13 lakh in taxes. Such planning optimizes the use of exemptions and deductions.
Increase in TCS limits & education loan benefits
In an attempt to make compliance with tax smoother, the government has enhanced TCS ceilings as well as presented relief to loan repayments against education.
Prime TCS revisions:
l Higher TCS level for foreign remittances: The LRS-driven threshold of TCS has increased from INR 7 lakh to INR 10 lakh, reducing tax consequences in the event of regular overseas transactions.
l Relief on education loan: Return of education loans availed from recognized financial institutions is exempt from TCS, thereby encouraging overseas education.
Impact on personal finances
Salaries and disposable income
The new tax system is meant to raise take-home pay for a wide range of taxpayers. Through the increase in non-taxable income levels and the scaling down of tax rates, individuals will feel lower tax burdens, which might boost spending and economic growth as a whole.
Housing and real estate benefits
l Relief from tax on multiple houses: Two self-occupied houses can now be claimed by homeowners as tax-free. The tax was earlier levied on the notional rent of the second house.
l Higher TDS Limit on Rent: The TDS limit on rental income has been raised from INR 2,40,000 to INR 6,00,000 per year. Tenants should deduct TDS only when rent is higher than this amount, lessening the compliance burden for both landlords and tenants.
Investment and capital gains revision
The Income Tax Bill 2025 continues with the current capital gains tax structure but makes certain revisions:
l Taxing High-Premium ULIPs: ULIPs with premium payments of over INR 2,50,000 in a year will now be subject to capital gains taxation. Long-term gains (over one year) are taxed at 12.5% after an exemption of INR 1,25,000, while short-term gains are taxed at 20%. This aligns the taxation of high-premium ULIPs with that of equity mutual funds.
l Debt Mutual Funds: Investors in debt mutual funds purchased after April 2023 can claim a tax rebate of up to INR 60,000 under the new regime, reducing tax burdens on fixed-income investments.
Cryptocurrency regulations
The Union Budget 2025-26 did not extend tax relief to crypto investors. The 30% tax on virtual digital asset (VDA) profits and the 1% TDS on transactions remain in place. However the Income Tax Bill 2025 makes reporting of cryptocurrency transactions obligatory on designated reporting entities for greater market transparency and compliance.
Other Tax Updates
l NPS Vatsalya: A taxpayer can now claim exemption of tax on NPS Vatsalya, along with a further INR 50,000 deduction under Section 80CCD(1B) in the previous tax regime. Withdrawals continue to be 60% tax-free, with 40% compulsorily utilised for annuities.
l NSS Withdrawals: From August 29, 2024, withdrawals from the National Savings Scheme (NSS) will be tax-free, including principal and interest, even if previous deductions were claimed.
l Extended ITR Filing Deadline: Taxpayers now have four years instead of two to file updated Income Tax Returns (ITRs).
(The author, Ajay Kumar Yadav, is the CEO and CIO of Wise Finserv.)
