New Income Tax Bill 2025: Replacing the 1961 Law – What Taxpayers Should Know

The Income Tax Act 1961 came into effect in 1962. Eventually, the over-accumulation of changes in the Indian tax law, through more than 4000 amendments, made the Act bulky and difficult to read due to its complicated language and redundancies¹. Therefore, in a move towards tax simplification in India, the Government has introduced the New Income Tax Bill 2025.

The new Income Tax Bill is a legislative milestone². Passed on Tuesday, 12 August 2025, the new bill is gearing up to replace the six-decade-old Income Tax Act 1961. While the country prepares for the simplified tax laws in India, here is your detailed guide on everything you must know about the new income tax bill.

What Is the New Income Tax Bill, 2025?

Under this move towards Income Tax Reforms in India, the New Tax Bill India 2025 will replace the Income Tax Act 1961. The Government of India, through this bill, has not only aimed to reduce the redundancies and simplify tax compliance but has also focused on digitisation.

Therefore, let us first explore the key objectives of this change. It would help us solidify our understanding of why the Income Tax Act is being replaced.

Objectives Of The New Income Tax Bill 

The government aims to have a major impact of the new tax law on taxpayers. Discussed below are some key objectives that the government aims to secure through the new Income Tax Act.

1. Simplification of Tax Laws: The key objective of the April 2026 income tax changes is to reduce the complication of the Act itself. The law, due to the overpiling of amendments, has become very difficult to read and understand for the common man. This negatively hinders voluntary compliance in tax. The new bill aims to simplify not only through language but also by reducing the bulk,

For instance, the old Income Tax Act had 819 sections, but the new Income Tax Act has only 536 sections³. Moreover, the number of chapters is also brought down from 47 to 23.

2. Reduced Compliance Burden: The reduction in the number of sections and chapters not only simplifies but also reduces the burden of compliance. This move can improve the income tax compliance in India.

3. Improved Transparency: Right to transparency is among the basic taxpayer rights in India. Ex-CJI DY Chandrachud, in a hyperbolic statement to emphasise the lack of legal understanding among common citizens, stated that 99.99% citizens cannot comprehend legal English⁴. Similarly, the Income Tax Act 1961 required simplification to improve transparency, such that common people could understand their rights and duties.

Now, let us look at the key features of the new income tax bill. This will further aid in understanding the difference between the old and the new Income Tax Act.

Key Reforms And Structural Changes

As the Parliament passes a new tax bill in India, here are some of the key features of the same bill.

1. Simplified structure

As mentioned above, the new bill has reduced the number of sections to 536, aiding in tax litigation reduction. Moreover, in a move to use simpler and clearer language, the bill has made some further changes. Let’s look at them.

Tax Year to Replace Assessment Year and Previous Year Concept

Initially, the income earned in the Previous Year (say FY 2024-25) would be taxed in the following year, called the Assessment Year (2025-26).

This often created confusion⁵. Therefore, the new Income Tax Bill removed the concept of AY and replaced PY with Tax Year. Take a look at the table below.

This is done based on other tax regimes applicable in different countries. Simply put, income earned in the tax year will be filed after the tax year ends. While it doesn't change the taxing systems, it simplifies the vocabulary and aims to eliminate the confusion of two financial years. 

2. Digital First Approach

Through its provisions for faceless tax assessments, the Bill adopts a digital-first strategy that increases transparency and lessens taxpayer inconvenience. Discussed below are some key takeaways from this digital approach.

1. Faceless Tax Assessment was already provided under Section 144B of the Income Tax Act. However, through Clause 273 of the new Income Tax Bill, the government wants to refine this feature.
2. The authority is empowered to inspect electronic documents under this Act, in a move to support digital tax filing in India⁶. The authority can check virtual digital spaces, such as websites, social media, email, online investment and trading accounts, etc., in case the taxpayer has not provided sufficient documents.

3. Tax Relief Elements

Discussed below are some of the Tax Relief Elements brought by the New Income Tax Bill through Income Tax exemptions in India 2025 and other metrics.  

1. The bill maintains the tax regime put forward by the Union Budget 2025, which allows up to INR 12 lakh income tax exemption for all taxpayers⁷.
2. Moreover, to reduce the pressure on the income tax return process in India, the government has eliminated a clause that stopped refunds for delayed return filing. This change in the income tax refund process excused genuine delays like those caused by illness or mishaps.
3. New house property deduction rules also came up. Following municipal taxes, a standard deduction of 30% will be applied. Moreover, both self-occupied and rental homes are eligible for the pre-construction interest deduction.
4. Commuted Pensions tax deductions in India, such as the pension derived from the LIC pension Fund, are fully deductible for non-employees as well.

4. Enhanced Taxpayer Protections

Now, let us look at some more income tax assessment changes that provide greater protection to taxpayers and improved tax benefits.

1. Often, taxpayers living abroad have to pay taxes in India as well as the country they inhabit⁸. In order to give relief in circumstances of double taxation, the Act permits the central government to enter into agreements with foreign nations.
2. According to Clause 20, income generated from a building or land would be taxed under Income from House Property, unless used for business.
3. To prevent conflicts, the phrase, in normal course, has been removed, for taxes calculated upon the higher of real or deemed rent.

Now, let’s look at the new tax law implementation date and its legislative process timeline.

Implementation Timeline

The table below shows a detailed timeline of the new income tax bill.

While April 2026 is still a bit far in the future, let's explore the key benefits of the move to quench our anticipation.

Benefits of Income Tax Bill 2025: Why This Matters To You

Apart from bringing in any income tax amendment 2025, the government overhauled the Income Tax Act 1996. Discussed below are the merits of the move.

1. The filing process is simplified, and compliance is made easier.
2. The revamp of the Income Tax Act language has aided in better clarity regarding the deduction and refund protocols
3. The mechanism of tax filing seems to increase predictability. 
4. Moreover, modern tech-oriented mechanisms are to be implemented to reduce malpractice.
5. Moves like faceless tax assessment and other digital-enabled transparency mechanisms can also aid in faster processing.

Conclusion

The New Income Tax Bill 2025 marks a significant shift from the six-decade-old framework, aiming to make taxation simpler, clearer, and more technology-driven. By streamlining processes and reducing complexities, it has the potential to enhance compliance and empower taxpayers with greater clarity and convenience.

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References:

1. Income Tax India, accessed from: https://incometaxindia.gov.in/Documents/income-tax-bill-2025/faq_income-tax-bill-general.pdf

2. The Hindu, accessed from: https://www.thehindu.com/news/national/parliament-passes-new-income-tax-bill-to-replace-six-decade-old-law/article69926051.ece

3. The Hindu, accessed from:  https://www.thehindu.com/news/national/parliamentary-proceedings-lok-sabha-passes-two-tax-bills-introduced-by-nirmala-sitharaman/article69919442.ece

4. The Hindustan Times, accessed from: https://www.hindustantimes.com/cities/delhi-news/sc-judgments-to-be-now-available-in-4-languages-says-cji-101674588729524.html

5. Income Tax India, accessed from:  https://incometaxindia.gov.in/Documents/income-tax-bill-2025/faqs-income-tax-bill.pdf

6. PRS India, accessed from: https://prsindia.org/billtrack/the-income-tax-no2-bill-2025

7. Business Standard, accessed from: https://www.business-standard.com/finance/personal-finance/income-tax-bill-2025-key-changes-for-property-owners-taxpayers-investors-125081101154_1.html

8. PRS India, accessed from: https://prsindia.org/billtrack/the-income-tax-no2-bill-2025

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