New Income Tax Bill 2025: Old Vs New Regime Differences, Exemption Limits, and Key Highlights

The much-anticipated Income Tax Bill 2025 is set to be introduced in the Lok Sabha on Thursday, February 13, 2025. The proposed legislation aims to overhaul India's taxation system by replacing the Income Tax Act, 1961, which has undergone numerous amendments over the past six decades. With 536 sections and 23 chapters, the bill is structured to simplify tax administration and compliance.

Key Changes in the New Income Tax Bill

One of the most significant changes introduced in the Income Tax Bill 2025 is the replacement of the terms "previous year" and "assessment year" with a single "tax year" concept. Under the existing system, tax for income earned in a given year (e.g., 2023-24) is assessed and paid in the following year (e.g., 2024-25). The new framework streamlines this process by eliminating the assessment year altogether.

Additionally, the number of sections in the new law has increased from 298 to 536, while the schedules have risen from 14 to 16. However, despite the increased number of sections, the overall length of the document has been reduced to 622 pages, nearly half the size of the current legislation, making it more concise and comprehensible.

Modernizing Tax Administration

The bill introduces several measures to modernize and digitize tax administration. According to Rajat Mohan, Senior Partner at AMRG & Associates, "The increase in sections reflects a more structured approach to tax governance, integrating modern compliance mechanisms, digital monitoring, and streamlined provisions for businesses and individuals."

A significant shift from the existing framework is the delegation of administrative powers to the Central Board of Direct Taxes (CBDT). Under the current system, tax authorities must seek parliamentary approval for procedural updates and compliance measures. The new bill grants CBDT the autonomy to formulate tax rules, introduce new compliance frameworks, and implement digital monitoring systems without requiring frequent legislative amendments.

Stock Options and Dispute Resolution

The 2025 tax bill also provides greater clarity on the tax treatment of Employee Stock Ownership Plans (ESOPs). By incorporating legal precedents and judicial pronouncements from the past six decades, the bill aims to reduce litigation and enhance tax certainty for businesses and employees.

Revised Income Tax Slabs for FY 2025-26

One of the most anticipated aspects of the Income Tax Bill 2025 is the revision of income tax slabs under the new regime. The bill proposes significant relief for taxpayers by increasing the tax-free income limit to Rs 12 lakh, up from the current Rs 7 lakh threshold.

Proposed Tax Slabs for FY 2025-26

• Up to Rs 4 lakh: No Tax

• Rs 4-8 lakh: 5%

• Rs 8-12 lakh: 10%

• Rs 12-16 lakh: 15%

• Rs 16-20 lakh: 20%

• Rs 20-24 lakh: 25%

• Above Rs 24 lakh: 30%

Current Tax Slabs for FY 2024-25

• Up to Rs 3 lakh: No Tax

• Rs 3-7 lakh: 5%

• Rs 7-10 lakh: 10%

• Rs 10-12 lakh: 15%

• Rs 12-15 lakh: 20%

• Above Rs 15 lakh: 30%

With the revised slabs, individuals earning up to Rs 12 lakh per annum will not have to pay any income tax. Additionally, a standard deduction of Rs 75,000 ensures that those with an annual income of up to Rs 12.75 lakh remain exempt from taxation.

Path Ahead for the New Tax Bill

The Finance Minister, Nirmala Sitharaman, had announced in the 2025-26 Budget that the new tax bill would be introduced during the ongoing session of Parliament. The proposal follows a comprehensive review of the Income Tax Act, 1961, which was first initiated in July 2024.

To facilitate the review, the CBDT formed an internal committee, along with 22 specialized sub-committees, to examine various aspects of tax law. The government also sought public feedback in four key areas:

1. Simplifying tax language

2. Reducing litigation

3. Easing compliance procedures

4. Eliminating redundant provisions

The Income Tax Department received 6,500 suggestions from stakeholders, many of which have been incorporated into the final bill.

Conclusion

The Income Tax Bill 2025 marks a transformational shift in India's taxation system, promising greater transparency, simplified compliance, and modernized tax governance. By reducing litigation, streamlining processes, and updating tax slabs, the new regime is expected to provide significant relief to taxpayers while enhancing tax administration efficiency.

As the bill moves through the legislative process, its impact on individuals and businesses will be closely monitored, shaping the future of India's taxation landscape.