In March 2025, the Indian government introduced a New Income Tax Bill, bringing substantial changes aimed at simplifying the tax structure, reducing compliance burdens, and broadening the tax base. This new bill marks a significant shift from the traditional income tax regime, directly impacting taxpayers across income categories.
Fact:
The Income Tax Bill 2025 was introduced in Parliament today. According to sources, the new bill is expected to contain 23 chapters, 16 schedules, and approximately 536 clauses, marking a significant overhaul compared to the previous act, which had 823 pages, 23 chapters, 14 schedules, and 298 sections.Below is an in-depth analysis of how the New Income Tax Bill (2025) differs from the Old Income Tax Bill, exploring 15 major aspects:
1. Minimum Taxable Income
- Old Bill: An Income up to ₹3 lakh was exempt from tax.
- New Bill: The exemption limit has been increased to ₹4 lakh, giving immediate relief to low-income taxpayers.
2. Income Tax SlabsOld Slabs:
- ₹3 lakh to ₹7 lakh – 5%
- ₹7 lakh to ₹10 lakh – 10%
- ₹10 lakh to ₹12 lakh – 15%
- ₹12 lakh to ₹15 lakh – 20%
- Above ₹15 lakh – 30%
New Slabs:
- ₹4 lakh to ₹8 lakh – 5%
- ₹8 lakh to ₹12 lakh – 10%
- ₹12 lakh to ₹16 lakh – 15%
- ₹16 lakh to ₹20 lakh – 20%
- ₹20 lakh to ₹24 lakh - 25%
- Above ₹24 lakh – 30%
Impact: The new slabs widen the income brackets, providing gradual increases in tax rates and reducing the burden on middle-income groups.
3. Standard Deduction
- Old Bill: ₹50,000
- New Bill: ₹75,000
This higher standard deduction directly lowers taxable income, benefiting salaried individuals and pensioners.
4. Tax-Free Income ThresholdWith the increased exemption and standard deduction:
- Old Regime: Tax-free income up to ₹3.5 lakh.
- New Regime: Tax-free income up to ₹12.75 lakh, offering massive relief to a broader section of taxpayers.
5. Surcharge on High Income
- Old Bill: Progressive surcharges on incomes above ₹50 lakh, going up to 37%.
- New Bill: Rationalized surcharges, now capped at 25% for incomes above ₹2 crore, reducing the tax burden on high-net-worth individuals.
6. Rebate Under Section 87A
- Old Bill: Rebate of ₹12,500 for incomes up to ₹5 lakh.
- New Bill: Rebate increased to ₹25,000 for incomes up to ₹7 lakh.
7. Deductions Under Section 80C
- Old Bill: ₹1.5 lakh deduction for specified investments (PPF, NSC, Life Insurance).
- New Bill: No deductions under Section 80C to streamline the tax system.
8. Deductions Under Section 80D
- Old Bill: ₹25,000 for health insurance premiums (₹50,000 for senior citizens).
- New Bill: No health insurance deduction.
9. House Rent Allowance (HRA)
- Old Bill: Exemptions were available for HRA based on salary and rent paid.
- New Bill: No HRA exemption.
10. Leave Travel Allowance (LTA)
- Old Bill: Tax exemptions on travel within India.
- New Bill: No LTA exemption.
11. Interest on Housing Loan
- Old Bill: ₹2 lakh deduction on home loan interest.
- New Bill: No housing loan interest deduction.
12. Dividend Income Taxation
- Old Bill: Dividend income above ₹10 lakh is taxed at 10%.
- New Bill: Dividend income taxed as per the applicable tax slab, with no exemption threshold.
13. Tax Deducted at Source (TDS)
- Old Bill: Varied rates with higher rates for non-filers.
- New Bill: Uniform and streamlined TDS rates, reducing complexity.
14. Compliance Requirements
- Old Bill: Heavy documentation is required to claim deductions and exemptions.
- New Bill: Minimal paperwork due to the removal of most exemptions and deductions.
15. Default Tax Regime
- Old Bill: The Old regime was the default, with an optional new regime introduced in 2020.
- New Bill: The New regime is now the default, but taxpayers can opt for the old regime if they benefit from deductions.
Key Benefits of the New Income Tax Bill (2025):✅ Simplified tax structure with fewer complications.✅ Higher exemption limits benefiting low and middle-income earners.✅ Easier compliance with reduced documentation.✅ Flexibility to choose between the new or old regime.✅ Rationalized surcharge for high-income individuals.
Who Should Choose the New Regime?
- Individuals who do not have significant deductions or exemptions.
- Salaried employees seeking simplified compliance.
- High-income earners benefit from the reduced surcharge.
- Middle-income taxpayers enjoy the higher tax-free threshold.
Who May Prefer the Old Regime?
- Those with substantial investments in tax-saving instruments (PPF, LIC, ELSS).
- Individuals with large home loan interest payments.
- People who receive HRA and LTA benefits.
Final ThoughtsThe New Income Tax Bill (2025) reflects the government’s vision to create a transparent, efficient, and taxpayer-friendly system. It significantly reduces the complexity of filing returns by minimizing the number of deductions and exemptions, thereby encouraging voluntary compliance.However, taxpayers should carefully evaluate their financial situations to determine whether the new or old regime provides greater benefits.
