Indian Income Tax Bill 2025: Key Changes, Slabs, and Impact on Taxpayers

The Indian Income Tax Bill 2025 marks a historic overhaul of India’s tax system, replacing the Income Tax Act of 1961 after more than six decades. Effective from the financial year 2025-26 (assessment year 2026-27), the bill simplifies tax laws, revises income slabs, and introduces taxpayer-friendly provisions to reduce litigation and compliance burdens.

Indian Income Tax Bill 2025

1. Major Highlights of the Income Tax Bill 2025

1. Simplified and Modernized Law

Replaces the complex 1961 Act with concise, modern language.

Fewer sections and clauses for easy understanding.

Merges “assessment year” and “previous year” into a single "tax year" concept.

2. New Income Tax Slabs (Default New Regime)

Annual Income	Tax Rate
Up to ₹4 lakh	0%
₹4–8 lakh	5%
₹8–12 lakh	10%
₹12–16 lakh	15%
₹16–20 lakh	20%
₹20–24 lakh	25%
Above ₹24 lakh	30%

 New 25% slab introduced
 Higher exemption limit for better inflation adjustment.

3. Increased Tax Rebate (Section 87A)

Rebate raised to ₹60,000.

Individuals with taxable income up to ₹12 lakh will pay zero tax.

Earlier rebate: ₹25,000 (for income up to ₹7 lakh).

4. Higher Basic Exemption Limit

Increased from ₹3 lakh to ₹4 lakh in the new regime.

5. Standard Deduction & Benefits

Standard deduction for salaried taxpayers: ₹75,000.

Employer contribution to NPS Tier-I up to 14% allowed as deduction.

6. Old Regime Option

New regime is the default.

Taxpayers can opt for old regime to claim deductions under 80C, 80D, etc.

7. Additional Reforms

Late filing refund claims accepted in genuine hardship cases.

Property valuation rules clarified to avoid disputes.

Surcharge rates unchanged for FY 2025-26.

Simplified compliance to ease taxpayer stress.

Impact on Different Taxpayer Segments

Middle-Class Salaried Individuals: Benefit from higher rebates and deductions.

Self-Employed Professionals: Lower tax rates under the new slab system.

High-Income Earners: 25% slab offers savings for those earning ₹20–24 lakh.

Senior Citizens: Higher exemption limit improves post-retirement income safety.

FAQ's

Q1: When will the new Income Tax Bill 2025 be effective?
It applies from the financial year 2025-26 (assessment year 2026-27).

Q2: What is the new basic exemption limit?
The exemption limit is now ₹4 lakh, up from ₹3 lakh.

Q3: How much tax rebate can I claim under Section 87A?
The rebate is ₹60,000, meaning income up to ₹12 lakh is tax-free.

Q4: Can I still choose the old tax regime?
Yes, you can opt for the old regime if you wish to claim deductions under 80C, 80D, etc.

Q5: What happens to the concept of ‘Assessment Year’?
It is replaced with a single “tax year” to simplify the process.