The Indian economy has undergone a remarkable transformation in recent decades, necessitating continuous updates to its tax structure. In response to these changes, the government introduced the New Income Tax Bill in the Lok Sabha on 13th February 2025, with the primary aim of simplifying the intricate and evolving Income Tax Act of 1961. Over the years, the Act has witnessed numerous amendments, primarily through annual Union Budgets, which have brought significant changes to tax rates, exemptions, and provisions.

The New Income Tax Bill 2025, which is set to come into force on 1st April 2026, represents a comprehensive overhaul, comprising 23 chapters, 536 sections, and 16 schedules—substantially more extensive than the existing Act, which contains 23 chapters, around 298 sections, and 14 schedules. This expansion reflects the government’s effort to establish a more structured, transparent, and streamlined tax regime by eliminating ambiguities, reducing litigation, enhancing ease of compliance, and leveraging technology for efficient tax administration—ensuring the law is better aligned with the complexities of a modern, dynamic economy.

For over six decades, the Income Tax Act of 1961 has stood as the backbone of India’s tax structure. Yet, over the years, it has been subject to numerous amendments, with successive governments seeking to address emerging challenges. These frequent revisions, while well-intentioned, have often created an overly complicated and, at times, contradictory system. The New Income Tax Bill 2025, introduced in the Lok Sabha on 13th February 2025, is designed to simplify this labyrinthine framework, providing businesses, individuals, and tax professionals with a clearer, more predictable, and easily navigable set of guidelines.

As we delve into the intricacies of the bill, it becomes apparent that it is not merely an exercise in legislative reform. Rather, it represents a comprehensive recalibration of India’s tax policy—one that aligns more closely with the needs of a modern, digital, and rapidly growing economy.

 

The Need for Reform: Understanding the Rationale Behind the New Bill

In order to understand the magnitude of the New Income Tax Bill, it is imperative to first grasp the challenges posed by the current system. Over the decades, the Income Tax Act of 1961 has been amended innumerable times, often in a piecemeal fashion. This ad-hoc approach has led to a patchwork of provisions that sometimes contradict one another, leaving both taxpayers and tax authorities struggling to navigate the complexities of compliance.

• Complexity of the Existing Framework: The multiplicity of amendments over the years has made the Income Tax Act increasingly difficult to understand for the common taxpayer. The very complexity that was once intended to address a growing economy has now become a barrier to smooth tax administration. The new Bill streamlines the existing Act by reducing its length from over 800 pages to 622 pages and eliminating redundant sections.
• Increased Disputes and Litigation: The convoluted provisions have led to an escalation in legal disputes between taxpayers and revenue authorities, further clogging an already overburdened judicial system. As of March 2024, tax disputes amounted to approximately ₹13.4 trillion, highlighting the extent of contention arising from the existing tax framework.
• Stagnation of Innovation: In an age where global markets and digital economies are evolving rapidly, India’s tax system—laden with outdated provisions—has often failed to keep pace with technological advancements and new business models.

The New Income Tax Bill 2025 seeks to address these issues by simplifying the tax code and eliminating unnecessary provisions while also introducing a more transparent and efficient system. The Bill aims not only to modernise the tax framework but to instill greater fiscal discipline, ensuring a more robust economic future for India.

 

A Closer Look at the New Income Tax Bill

The New Income Tax Bill is, at its core, a comprehensive reform designed to streamline the existing provisions while providing clarity to taxpayers and administrators alike. Its provisions can be broken down into several key areas that promise to revolutionise India’s tax system.

Here’s an overview of the key amendments:

1. Revised Income Tax Slabs:

The tax slabs under the new tax regime have been restructured to provide relief to taxpayers. With the updated tax structure, individuals with earnings up to Rs. 12,00,000 will have no tax obligation, thanks to an increased rebate of Rs. 60,000. For salaried individuals, the tax liability will be nullified for incomes up to Rs. 12,75,000, owing to a standard deduction of Rs. 75,000.

2. Increased Rebate Under Section 87A:

The rebate under Section 87A has been increased, resulting in zero tax liability for individuals with taxable income up to ₹12,00,000. For salaried individuals, considering the standard deduction, this limit extends to ₹12,75,000. This enhancement is designed to boost disposable income and encourage spending. ​

The standard deduction for salaried individuals has been raised to ₹75,000 under the new tax regime, up from the previous ₹50,000. This change provides additional relief to salaried taxpayers.

3. Reduction in Highest Surcharge Rate:

The highest surcharge rate has been reduced from 37% to 25% for individuals earning more than ₹5 crore. This adjustment lowers the effective tax rate for high-income earners from 42.74% to 39%.

4. Leave Travel Allowance (LTA) Exemption Limit Increase:

The LTA exemption limit has been increased from ₹3 lakh to ₹25 lakh, allowing employees to claim a higher tax-free amount on leave encashment.

5. Changes in Tax Residency Rules for Non-Resident Indians (NRIs):

Significant amendments to tax residency rules have been proposed, set to take effect from April 1, 2026. These changes will impact NRIs, Persons of Indian Origin (PIOs), and frequent visitors to India, making it essential for them to understand the new regulations for effective tax planning and compliance.

6. Updates to Tax Audit Standards (Form 3CD):

Effective April 1, 2025, amendments to Form 3CD, the tax audit form, have been introduced. These changes require businesses and tax professionals to align their tax audit procedures with the updated requirements. ​

7. Removal of Equalisation Levy on Digital Advertisements:

The 6% equalisation levy on digital advertisements has been removed, benefiting tech companies and aligning India’s tax policies with global standards. ​

These amendments reflect the government’s commitment to simplifying the tax system, providing relief to taxpayers, and fostering economic growth.

 

A New Era of Simpler Taxation

Key features of New Income Tax Bill 2025 introduce cohesive structure, enhanced digitisation, streamlined compliance processes, recalibrated exemptions, stricter penalties for tax evasion, and improved transparency. It emphasises enhanced digitisation, leveraging technology to automate processes such as return filing, assessments, and record-keeping through secure, integrated digital platforms.

Here’s a clear tabular comparison between the Income Tax Act of 1961 and the New Income Tax Bill 2025, showing key features across major areas of reform:

Aspect	Income Tax Act, 1961	New Income Tax Bill, 2025
Structural Simplification	298 sections across 23 chapters; over 800 pages; redundancies and complex provisions.	536 sections across 23 chapters and 16 schedules; reduced to 622 pages; redundant clauses removed, simplified structure.
Digital Integration	Limited digital provisions; mostly manual record-keeping and filings.	Emphasis on robust online filing systems, digital record-keeping, and linkage with UID for seamless compliance.
Compliance Processes	Multiple forms and procedures, time-consuming especially for SMEs.	Unified tax return filing system; simplified processes; lower compliance costs for businesses and individuals.
Exemption Framework	Several outdated exemptions, some not aligned with current socio-economic needs.	Removal of obsolete exemptions; targeted relief for low-income groups, senior citizens, and other vulnerable sections.
Enforcement & Penalties	Narrow scope for digital evidence; limited reach into tax evasion through digital means.	Expanded authority to access digital platforms (emails, social media, etc.); stricter penalties for evasion.
Transparency Measures	Tax guidelines not easily accessible; limited real-time communication with taxpayers.	Public access to tax rules online; real-time updates and assessments to build trust and reduce ambiguity.

 

 

Key Advantages in the New Income Tax Bill 2025

The New Income Tax Bill 2025 introduces significant reforms to India’s taxation system, focusing on simplifying processes, increasing transparency, and boosting economic growth. The Bill aligns India’s tax framework with global standards, improving cross-border taxation and making India more attractive for foreign investments. These changes are designed to simplify tax filing and stimulate economic growth, providing a more efficient and accessible tax system.

• Unified ‘Tax Year’ Concept: Aligns the tax year with the financial year (April 1 to March 31), simplifying tax planning and compliance.
• Simplification of Tax Code: Reduces complexity by condensing the tax code into 23 chapters and 536 sections, eliminating outdated and redundant provisions.
• Revised Income Tax Slabs: Proposes tax-free income up to ₹4 lakh and more favorable tax rates for middle-income taxpayers, boosting disposable income.
• Enhanced Powers for Tax Authorities: Grants the Central Board of Direct Taxes (CBDT) more autonomy to introduce tax schemes and reforms swiftly.
• Removal of Redundant Exemptions: Eliminates outdated exemptions and deductions to streamline the tax process and reduce complexity.
• Clarification on ESOP Taxation: Provides clear guidelines on the taxation of Employee Stock Ownership Plans (ESOPs), reducing confusion for employees.
• Alignment with International Tax Standards: Aligns India’s tax laws with global best practices, improving international tax compliance and cross-border taxation.

 

Economic Implications of the New Income Tax Bill 2025

The New Income Tax Bill 2025 is more than just a technical revision of existing tax laws—it is a deliberate and strategic initiative that is poised to redefine India’s economic landscape. At its core, this is an acknowledgment of India’s evolving economic environment and the necessity for a tax system that is agile, transparent, and aligned with the demands of a modern, competitive global economy. By addressing the complexities and inefficiencies of the current framework, it is set to strengthen India’s position as a leading player on the world stage.

The impact of this reform goes far beyond the simplification of tax compliance—it will lay the groundwork for substantial economic growth, bolster fiscal responsibility, and create a tax ecosystem that promotes both investment and innovation. Let’s take a closer look at how the New Income Tax Bill 2025 will influence key economic pillars:

Income Tax Reforms to Encourage Entrepreneurship in India (2025)

Objective:

To propose amendments to the Income Tax Bill, 2025 aimed at boosting entrepreneurship, especially among startups, MSMEs, and innovation-driven businesses in India.

1. Strengthening Tax Reliefs for Startups

Existing Framework:
Under Section 80-IAC, eligible startups are entitled to a 100% income tax exemption for any three consecutive years within their first ten years of incorporation, provided their annual turnover does not exceed ₹100 crore.

Recommended Reforms:

• Extend the exemption duration from 3 to 7 years to better reflect real-world startup lifecycles.
• Increase the turnover threshold from ₹100 crore to ₹150 crore to accommodate rapidly scaling startups.
• Streamline DPIIT recognition norms to ensure timely access to benefits and eliminate procedural hurdles.

2. Reviving and Expanding Investment-Linked Tax Breaks

Existing Framework:
Section 54GB, which once allowed capital gains exemption on residential property sales if reinvested in eligible startups, has expired.

Recommended Reforms:

• Reinstate Section 54GB as a permanent provision.
• Broaden its scope to cover capital gains from commercial properties.
• Allow investments from HUFs and LLPs to qualify.
• Introduce a “Startup Investment Deduction”:
  • Permit angel investors to deduct up to 50% of their investment (within an annual cap) in DPIIT-certified startups from their taxable income—akin to Section 80C, but designed for high-risk capital.

3. Stimulating R&D and Innovation

Existing Framework:
Since 2020, deductions for R&D under Section 35 have been restricted to 100% of eligible expenditure.

Recommended Reforms:

• Restore 200% weighted deduction for R&D investments by startups, especially in transformative sectors like AI, biotechnology, and clean energy.
• Implement a “Patent Box Regime”, taxing income derived from Indian-developed patents at a preferential 10% rate, aligning India with global best practices and incentivising IP development.

4. Simplified Tax Compliance for Entrepreneurs

Existing Framework:
Presumptive taxation under Sections 44AD and 44ADA offers simplified compliance for small businesses and professionals.

Recommended Reforms:

• Extend presumptive taxation to eligible startups with turnover up to ₹5 crore.
• Waive tax audit requirements for the first five years, unless turnover crosses ₹10 crore.
• Launch a centralised startup portal that consolidates IT filings, DPIIT recognition, MCA compliance, and tracks eligibility for tax benefits in real-time.

5. 5. Reforming ESOP Taxation to Attract and Retain Talent

Existing Framework:
ESOPs are taxed under Section 17(2) at the point of exercise, often before any actual cash flow for employees. AMT may also apply.

Recommended Reforms:

• Defer taxation of ESOPs to the point of share sale (liquidity event).
• Offer capital gains exemption on ESOPs held for over 3 years in unlisted startups.
• Exempt employees earning under ₹50 lakh annually from AMT on ESOP income.

6. Promoting Regional and Social Entrepreneurship

Existing Framework:
There are no location- or sector-specific tax advantages for startups.

Recommended Reforms:

• Provide an additional 10% tax rebate for startups operating in Tier-2, Tier-3 cities or rural areas.
• Allow weighted deductions for social enterprises addressing public goods such as education, healthcare, and sanitation—modeled after CSR incentives.
• Grant full tax exemption on income of incubators and accelerators registered under government programs like the Atal Innovation Mission or relevant state initiatives.

Industry-Wise Impact of the New Income Tax Bill 2025

Sectors	Key Objectives	Major Impacts
Foreign Investment & Corporate	Enhance global investor confidence	– Transparent & predictable framework – Alignment with BEPS norms – Streamlined compliance for key sectors
MSMEs	Reduce compliance burden and promote entrepreneurship	– Simplified tax filing – Lower cost of compliance – Clear rules on deductions
Digital Economy & Startups	Boost India’s digital transformation	– Mandatory e-filing for all – Real-time tax assessments – Support for fintech, SaaS, and e-commerce
Infrastructure & Manufacturing	Channel revenue into national infrastructure	– More tax revenue to fund roads, ports, power – Tax incentives for new manufacturing units
Green Economy & Sustainability	Encourage green investments	– Tax benefits for renewable energy – Support for ESG-aligned firms – Provisions supporting net-zero targets
Public Sector & Social Infra	Increase investment in human development	– More funding for education & healthcare – Expansion of welfare schemes like PM-JAY, PM Poshan – Skill-building through PMKVY
Legal & Financial Services	Improve tax jurisprudence & reduce litigation	– Clearer definitions reduce disputes – Digital arbitration tools – Faster assessments and resolutions

 

Advanced Proposals for Transforming India’s Tax Framework

1. Dynamic Taxation Using AI and Big Data

Introduce an adaptive taxation model that leverages real‑time macroeconomic data, AI analytics, and predictive modeling to modify tax rates and incentives on a continuous basis. This system would move away from static tax slabs and instead adjust based on factors such as inflation trends, GDP growth, and sector-specific performance.

2. Blockchain-Enabled Digital Compliance and Transparency

Adopt blockchain technology to support the digital infrastructure for tax filings, audits, and record-keeping. This measure would create immutable, tamper-proof ledgers for all tax-related transactions, integrating seamlessly with existing digital portals.

3. Sector-Specific and Innovation-Driven Incentives

Develop a suite of targeted fiscal incentives, including differentiated tax credits and super deductions, specifically tailored for high-growth sectors such as renewable energy, biotechnology, advanced manufacturing, and the digital economy. This approach would involve special provisions like accelerated depreciation or preferential rates under a “Patent Box Regime.”

4. Enhanced Dispute Resolution and Legal Frameworks

Establish a dedicated digital arbitration platform for resolving tax disputes, complemented by the creation of an independent taxpayer ombudsman office. The platform would incorporate AI-powered analytics to analyse historical dispute data and offer predictive insights for standardising the resolution process.

5. Expanding Green and Social Impact Tax Incentives

Extend and broaden tax relief measures specifically tied to environmental sustainability and social impact. This includes offering extended tax holidays or additional credits for investments in renewable energy, sustainable infrastructure, and projects that yield measurable social benefits, such as affordable housing, improved healthcare, or enhanced educational access.

The Future of India’s Tax System: A Concluding Analysis of the New Income Tax Bill 2025

In conclusion, the introduction of the New Income Tax Bill 2025 heralds a momentous chapter in India’s fiscal odyssey. This comprehensive reform, far from being a mere legislative amendment, represents a profound recalibration of a tax system long ensnared by the intricacies and inefficiencies of its predecessor, the Income Tax Act of 1961. With the Bill’s introduction, India takes a decisive step toward a more streamlined, transparent, and globally attuned tax framework, one that meets the demands of a digital economy while simultaneously reducing the administrative burdens on its citizens and businesses alike.

By expunging redundant provisions, integrating digital tools for greater efficiency, and reducing compliance costs, the Bill promises to unveil a simpler, more accessible tax structure. Its emphasis on fiscal transparency, coupled with a stern stance on tax evasion, underscores the government’s commitment to not only modernise the system but to cultivate an atmosphere of trust, accountability, and equitable governance.

This reform has the potential to ignite a wave of investment in key sectors—technology, manufacturing, and innovation—while providing much-needed support to India’s MSMEs, which form the very lifeblood of its economy. As the country strides forward in an increasingly competitive global environment, the New Income Tax Bill 2025 stands as a beacon of hope for a more prosperous, inclusive, and future-ready India, ready to meet the challenges of tomorrow with the resolve of today.

Reference:

For Official Numbers:

https://www.indiabudget.gov.in/doc/Finance_Bill.pdf

For Information & Detailed Reading Purposes:

https://incometaxindia.gov.in/

https://www.indiacode.nic.in/

Written and Compiled by Mr Sunil Kumar Gupta