New Income Tax Bill: What Is It and How Will It Help Taxpayers?

New Income Tax Bill: What Is It and How Will It Help Taxpayers?

Finance Minister Nirmala Sitharaman said she is likely to introduce the new income tax bill, which will replace the six-decade-old Income Tax (IT) Act, in the Lok Sabha very soon.  Chaired by Prime Minister Narendra Modi, the Union Cabinet approved the bill on February 7, 2025. Now, let’s understand what is this New Income Tax Bill and how will it affect the taxpayers.

What is the New Income Tax Bill?

The new Income Tax Bill will replace the old tax law that has been in existence since 1961. Its goal is to make tax rules simpler and easier to understand. The government wants to cut the bill’s length in half and use simple language so taxpayers can clearly know their responsibilities. The primary objectives are to simplify tax laws, reduce compliance burdens, and make the tax system more transparent and taxpayer-friendly. 

Tax Reforms Announced in Union Budget 2025-26

Before moving to how it will impact taxpayers, here’s what was announced at the Union Budget 2025-26. A slew of direct tax reforms were proposed to achieve good governance for the people and economy. The objectives of the direct tax proposals are as follows:

Personal income tax reforms with a special focus on the middle class: No income tax payable up to total income of ₹12 lakh (i.e. average income of ₹1 lakh per month other than special income such as capital gains) under the new regime. This limit will be ₹12.75 lakh for salaried taxpayers, due to a standard deduction of ₹75,000.

The Budget proposed a revised tax rate structure under the new tax regime as follows:

Rationalization of TDS/TCS for easing difficulties: The limit for tax deduction on interest for senior citizens is proposed to be doubled from the present ₹50,000 to ₹1 lakh. Similarly, the proposals include an annual limit of ₹2.40 lakh for TDS on rent to be increased to ₹6 lakh. This will reduce the number of transactions liable to TDS, thus benefitting small taxpayers receiving small payments. The provisions of the higher TDS deduction will now apply only in non-PAN cases. Further, the threshold to collect tax at source (TCS) on remittances under RBI’s Liberalized Remittance Scheme (LRS) is proposed to be increased from ₹7 lakh to ₹10 lakh. Also, the delay for payment of TCS up to the due date of filing the statement is proposed to be decriminalized. 

Encouraging voluntary compliance: Proposal to extend the time limit to file updated income tax returns for any assessment year, from the current limit of two years, to four years. 

Reducing compliance burden: Proposal to reduce the compliance burden for small charitable trusts/institutions by increasing their period of registration from 5 years to 10 years. Further, a proposal to allow the benefit of claiming the annual value of two self-occupied properties as Nil, without any condition. The Budget also proposed that no tax will be collected at source on the sale of specified goods of value of more than fifty lakhs.

How Taxpayers Will Benefit From New Income Tax Bill

The introduction of the new Income Tax Bill is expected to bring several benefits that could make tax filing easier and more transparent for you. Here’s how it impacts you as a taxpayer:

• Simplification of Tax Laws: The new bill seeks to streamline the complex tax structure by reducing the number of sections by 50%. This simplification is expected to reduce ambiguities for the taxpayer.
• Simple Language: The bill proposes the use of simple language. This aims to make the tax laws easier to understand for laymen eliminating complex tax jargon.
• Revenue Neutral: According to Union Finance Secretary Tuhin Kanta Pandey, the new bill is designed to be revenue-neutral, meaning it will not introduce new taxes or alter existing tax rates and slabs. The focus is on simplifying the tax code without impacting the government’s revenue collection.
• Reduced Compliance Burden: Simplifying the tax code is expected to make it easier for taxpayers to understand their obligations, thereby reducing the time and effort required for tax compliance. This could lead to fewer errors in tax filings and a decrease in litigation cases.

What’s Next On New Income Tax Bill

After its introduction in the Lok Sabha, the New Income Tax Bill will be referred to the Parliament’s Standing Committee on Finance for scrutiny. The committee will review the bill, suggest recommendations, and send it back to the government through the cabinet. Following this, the cabinet will decide on incorporating the suggested amendments before presenting it again to Parliament for final approval. Once passed, the new Income Tax Bill will come into effect from the financial year 2025-26.