How is the new Income Tax Bill different from the old Income Tax Act?
The Income Tax Act, 1961, has been the cornerstone of India’s taxation system for decades. However, the government has recently introduced a new Income Tax Bill, 2025, which promises to bring about significant changes to the existing tax regime. With 622 pages, 2.6 lakh words, 23 chapters, 536 sections, 57 tables, and zero provisos and explanations, the new bill is a substantial departure from its predecessor. In this blog post, we will delve into the key differences between the new Income Tax Bill and the existing Income Tax Act, 1961.
Tax Year vs Assessment Year
One of the most significant changes introduced by the new bill is the replacement of the concept of ‘assessment year’ with ‘tax year’. This change is aimed at simplifying the tax filing process and reducing the burden on taxpayers. Under the existing Act, the assessment year is the financial year immediately preceding the year in which the income is being assessed. For example, the assessment year 2022-23 corresponds to the financial year 2021-22. In contrast, the tax year under the new bill will be the same as the financial year. This means that the tax year 2022-23 will coincide with the financial year 2022-23.
Simplified Tax Slabs
The new Income Tax Bill proposes a simplified tax slab structure, which is expected to reduce the tax burden on individuals. The bill introduces a new tax slab of 10% for taxable income between Rs. 5 lakh and Rs. 20 lakh, and a tax slab of 20% for taxable income above Rs. 20 lakh. The existing Act has a more complex tax slab structure, with different tax rates applicable to different income brackets.
Increased Standard Deduction
The new bill increases the standard deduction for salaried individuals from Rs. 50,000 to Rs. 1 lakh. This means that individuals will be entitled to a higher deduction from their taxable income. The existing Act has a standard deduction of Rs. 50,000, which is relatively lower.
Reduced Tax Rates
The new bill proposes reduced tax rates for certain categories of taxpayers, including senior citizens and super senior citizens. The bill reduces the tax rate for senior citizens (aged 60-79) from 10% to 5%, and for super senior citizens (aged 80 and above) from 10% to 0%. The existing Act does not have a similar provision.
Increased Exemptions
The new bill increases the exemptions available to taxpayers, including the exemption limit for income from housing property. The bill increases the exemption limit from Rs. 2 lakh to Rs. 3 lakh. The existing Act has a lower exemption limit of Rs. 2 lakh.
Simplified Returns
The new bill proposes simplified returns for taxpayers, including a single-page return form for individual taxpayers. The bill also removes the requirement for taxpayers to file a separate return for each asset, such as a house or a fixed deposit.
Increased Penalties
The new bill proposes increased penalties for taxpayers who fail to comply with tax laws. The bill increases the penalty for late filing of returns from Rs. 5,000 to Rs. 10,000, and for non-payment of taxes from 10% to 20% of the unpaid tax amount.
Changes in Tax Audits
The new bill proposes changes in tax audits, including the introduction of a new category of tax audits called ‘limited scope audit’. The bill also increases the threshold for tax audits from Rs. 10 lakh to Rs. 20 lakh.
Conclusion
The new Income Tax Bill, 2025, is a significant departure from the existing Income Tax Act, 1961. The bill introduces several changes aimed at simplifying the tax filing process, reducing the tax burden on individuals, and increasing the exemptions available to taxpayers. The bill also proposes increased penalties for taxpayers who fail to comply with tax laws. Overall, the new bill is expected to bring about significant changes to the taxation regime in India.
Source:
