The Income Tax Bill 2025 is poised to bring significant changes to India’s taxation framework. This comprehensive overhaul aims to simplify the taxation process for individuals, businesses, start-ups, and MSMEs while improving transparency and efficiency. With key changes in tax slabs, exemptions, deductions, and compliance requirements, taxpayers need to understand how these reforms will impact them.
1. Impact on Individuals: New Tax Slabs, Exemptions, and Deductions
The Income Tax Bill 2025 proposes several changes that impact individual taxpayers, including new tax slabs, exemptions, and deductions.
Tax Slabs and Exemptions
Changes in Tax Slabs and rates under new tax regime [Clause 202 of the Income Tax Bill/ Section 115BAC of the Income Tax Act and Clause 156 of the Income Tax Bill / Section 87A of the Income Tax Act:
In the ITB, the tax rates and slabs under the new tax regime contained in Clause 202 have been proposed to be revised. The new tax structure under the new regime would be as follows:
| Total Income (Rs.) | Tax Rate |
|---|---|
| Up to Rs. 4,00.000 | Nil |
| From Rs. 4,00,001 to Rs. 8.00.000 | 5% |
| From Rs 8,00,001 10 Rs 12.00.000 | 10% |
| From Rs. 12,00.001 to Rs 16,00,000. | 15% |
| From Rs. 16,00,001 10 Rs. 20,00,000 | 20% |
| Front Rs 20.00,001 to Rx. 24,00.000 | 25% |
| Above Ra. 24,00,000 | 30% |
Further, the income threshold for claiming a tax rebate of Clause 156 for resident individuals under the new regime of Clause 202 has been proposed to be increased from Rs. 7 lakhs to Rs. 12 lakhs, and the maximum rebate amount has been proposed to be raised from Rs. 25,000 to Rs. 60,000. If the total income exceeds Rs 12.00,000, the tax rebate would still be allowed with marginal relief.
However, it is to be noted that if resident individuals opt for the new tax regime of Clause 202 no rebate under Clause 156 shall be allowed from incomes chargeable to tax at special rates (for example, long-term capital gains, etc.).
One of the most notable changes in the proposed Bill is the restructuring of exemptions, which were previously governed by Section 10 of the Income Tax Act, 1961. Under the existing structure, exemptions were spread across 140 clauses, making the process complicated and cumbersome for taxpayers. Section 10 underwent frequent changes, adding or removing exemptions for different classes of persons or income.
In the proposed structure, exemptions are now categorized into six distinct schedules for easier understanding:
- — Schedule II: Exemptions related to agricultural income.
- — Schedule III: Exemptions for specific categories of individuals such as HUFs and partners.
- — Schedule IV: Exemptions for non-residents.
- — Schedule V: Exemptions for business trusts, sovereign wealth funds, etc.
- — Schedule VI: Exemptions for IFSC units.
- — Schedule VII: Persons exempt from tax.
This reorganization provides a clearer breakdown of eligible exemptions, income, and conditions for different taxpayers, helping individuals and businesses navigate the system more easily.
Exemptions Protected for Past Investments
While many exemptions have been streamlined or removed, the Income Tax Bill 2025 includes a saving clause for those who have already made investments under the old provisions. This ensures that exemptions related to past investments remain intact, safeguarding long-term financial planning for individuals.
2. Impact on Businesses, Start-ups, and MSMEs
Tax Incentives for Start-ups and MSMEs
For businesses, especially start-ups and MSMEs, the Bill introduces several provisions that continue to encourage growth and innovation. Under Chapter VIA of the Income Tax Act, tax incentives were previously unavailable under the new tax regime. However, the 2025 Bill continues to allow deductions under sections like 80C, 80CCD, 80D, 80U, and more, ensuring that businesses can benefit from these tax breaks.
Start-ups benefit from provisions like Section 80JJAA, which provides deductions for new businesses and IFSC (International Financial Services Centres) units, helping to reduce their tax burden. These provisions are critical for fostering entrepreneurship and job creation, which are essential for the country’s economic growth.
Deductions for Businesses
The Bill also simplifies various business-related deductions. For example, provisions under Section 80C for deductions related to savings instruments have been streamlined into Schedule XV, providing a clearer breakdown of eligible deductions. Moreover, Section 80-IA and similar sections offering deductions to specific enterprises or undertakings have been retained, ensuring that businesses in various sectors still benefit from these provisions.
3. Compliance Changes: Simplifying Tax Filing and Assessment
The Income Tax Bill 2025 introduces significant changes aimed at simplifying compliance, particularly regarding tax filing and assessment.
Introduction of “Tax Year”
A key compliance change is the replacement of the terms “previous year” and “assessment year” with the term “tax year”. The use of two separate terms often caused confusion among taxpayers, especially since they referred to different financial years. By consolidating them into the term “tax year,” the Bill aims to make the process clearer and easier to understand. This change also aligns with global tax practices, where the term “tax year” is commonly used.
Streamlined Filing of Income Tax Returns
The proposed Bill makes the process of filing income tax returns more user-friendly by consolidating provisions related to return filing under Chapter XV. In particular, the new Bill clarifies who needs to file returns and eliminates redundancies found in the previous Income Tax Act. The due dates for filing returns remain the same as under the existing Act, but they are now presented in a tabular format, making them easier to follow.
Changes for Exempt Entities
Exempt entities, which were previously not required to file returns if their income fell below a certain threshold, will now be obligated to file returns if their total income exceeds the maximum amount not chargeable to tax. This ensures that even entities with exempt status are held accountable for their income levels and potential tax liabilities.
4. Key Changes in Deductions and Exemptions
Simplification of Deductions
The Income Tax Bill 2025 also simplifies various deductions available to taxpayers:
- 1. Section 80C: Deductions under this section for eligible savings instruments are now consolidated into Schedule XV, making it easier for taxpayers to understand and apply.
- 2. Section 80G: This section, which pertains to deductions for donations, has been revised to clearly separate 100% and 50% eligible deductions, helping taxpayers correctly identify which deductions they can claim.
- 3. Section 80TTA and 80TTB: These two sections have been merged into a single, clear provision, reducing complexity for senior citizens who often claim these deductions.
Continued Tax Incentives for Start-ups
The Section 80JJAA provision for start-ups continues to encourage the growth of new businesses by offering tax incentives. This provision allows for deductions on employee costs, helping start-ups keep operational costs lower and improving their chances of success in a competitive market.
5. How the Bill Will Help Taxpayers: Benefits and Simplification
The Income Tax Bill 2025 aims to reduce complexity, increase transparency, and improve taxpayer convenience. Some key benefits include:
- 1. Easier compliance: The simplification of return filing procedures and the consolidation of tax-related terms makes compliance easier.
- 2. Improved clarity: The new Bill categorizes deductions, exemptions, and eligible taxpayers in a straightforward manner, making it more user-friendly for both individuals and businesses.
- 3. Faster processing: The streamlined deductions and exemptions process allows taxpayers to better understand their eligibility, ensuring that claims can be processed more efficiently.
- 4. Long-term planning: The protection of certain exemptions for past investments gives taxpayers peace of mind and allows them to plan their finances without the risk of losing benefits due to the new law.
Conclusion
The Income Tax Bill 2025 promises to bring about significant improvements in the way taxpayers engage with the taxation system. By introducing simplified tax slabs, well-structured exemptions, streamlined deductions, and easier compliance procedures, the Bill aims to make tax filing and payment more transparent and efficient for individuals, businesses, and MSMEs. These reforms will not only benefit existing taxpayers but also foster an environment conducive to the growth of start-ups and new businesses, helping to drive economic development and innovation.
