What Changes Can We Expect from the New Income Tax Bill 2025 Introduced by Nirmala Sitharaman?

Introduction of the Revised Income Tax Bill

New Delhi: On Monday, Union Finance Minister Nirmala Sitharaman is poised to present the revised Income Tax Bill 2025 in the Lok Sabha.

This updated legislation incorporates 285 recommendations from the Parliamentary Select Committee, aiming to streamline tax processes and rectify previous issues, which could significantly alter the income tax framework in India.

The government formally withdrew the earlier version of the Income Tax Bill, introduced on February 13, which was intended to replace the existing Income Tax Act of 1961.

A new iteration of the Income Tax Bill, reflecting the majority of the Select Committee's suggestions led by BJP MP Baijayant Jay Panda, will now be submitted for parliamentary consideration.

To eliminate confusion stemming from multiple drafts of the Bill, the new version will present a clear and updated framework with all amendments included.

Panda, who led the Parliamentary Select Committee that reviewed the legislation, stated that the new law, once enacted, will simplify India's long-standing tax structure, reduce legal ambiguities, and assist individual taxpayers and MSMEs in avoiding unnecessary legal disputes.

He noted, "The existing Income Tax Act of 1961 has seen over 4,000 amendments and comprises more than 500,000 words, making it overly complicated. The new bill simplifies this by nearly 50%, making it much more accessible for average taxpayers to comprehend."

Panda emphasized that small business owners and MSMEs, who often lack the legal and financial knowledge to navigate complex tax systems, will be the primary beneficiaries of this simplification.

The proposed changes are expected to foster a fair and just direct taxation system, ensuring that the working and middle-class citizens do not face additional tax burdens.

Revisions to tax slabs and rates aim to benefit all taxpayers, significantly lowering the tax liabilities for the middle class and allowing them to retain more income, which could enhance household spending, savings, and investments.

The Finance Act, 2025, has raised the income threshold for tax rebates under section 87A of the Income Tax Act, 1961, for resident individuals taxable under the new tax regime from Rs 7 lakh to Rs 12 lakh, with the maximum rebate increasing from Rs 25,000 to Rs 60,000.

Additionally, marginal relief will still apply for incomes slightly exceeding Rs 12,00,000, as stated by the Finance Ministry. The new income tax bill is designed to simplify tax filing for everyday citizens and small enterprises.