FY 2025-26: Will your April 2025 salary be taxed under the I-T 1961 Act or new Tax Bill?

At the start of each fiscal year, salaried employees are confronted with significant decisions from their employers. In addition to selecting between the new and old tax regimes, this year, salaried taxpayers must know whether their salaries would be taxed as per the Income-tax Act, 1961, or the newly proposed Income Tax Bill 2025, which was presented in Parliament on February 13.

Last week, during a discussion in the Lok Sabha on the Finance Bill, Finance Minister Nirmala Sitharaman announced that the new Income Tax Bill, currently being reviewed by a select committee, will be discussed in the upcoming monsoon session of Parliament. FM Sitharaman also mentioned that the select committee is expected to submit its report by the first day of the next session.

“I am also glad to say that through this Finance Bill, we have brought in the new Income Tax Bill. I have not presented it as part of the Finance Bill... It’s gone into a select committee review, after which we will take it up (in Parliament),” Sitharaman said.

“…Hopefully we will have it (new income tax bill) taken up for discussion in this House during the monsoon session,” she added.

A 31-member select committee, led by BJP member Baijayant Jay Panda, has been formed by the Lok Sabha to review the Income Tax Bill 2025. This bill aims to replace the longstanding Income Tax Act and aims to provide tax certainty by reducing the opportunities for legal disputes and new interpretations.

Income Tax Act 1961 vs Income Tax Bill 2025

Taxpayers should note that the Income Tax Bill 2025 contains the concept of the tax year. The tax year will span a period of 12 months from April 1 to March 31 of the subsequent year. This alignment allows for all income earned within this timeframe to be evaluated in one consistent period, streamlining tax planning and compliance for both individuals and businesses.

For newly formed businesses or professional practices, the tax year will commence on the establishment date and conclude at the end of the financial year, facilitating adherence to tax regulations for new entities right from the start.

Experts said the concept of the "Tax Year" may lead to confusion regarding the period from April 1, 2026, to March 31, 2027, overlapping between old and new acts. However, this should not be a concern as it will fall under Assessment Year 2026-27 of the Income-tax Act, 1961, relating to the income of a taxpayer for the previous year 2025-26 rather than the income of the financial year 2026-27. This will be considered the tax year 2026-27 under the new Act, pertaining to the income of a taxpayer for the financial year 2026-27.

Vivek Jalan, Partner, Tax Connect Advisory Services LLP, earlier told BT: "The assessment for income of the previous year (financial year) 2025-26 of a taxpayer shall be done as per the provisions of the Income-tax Act, 1961 for the assessment year 2026-27; The assessment for income of tax year (financial year) 2026-27 of a taxpayer shall be done as per the provisions of the Bill for tax year 2026-27."

New tax slabs from April 1

In the Budget 2025 announcement, Union Finance Minister Nirmala Sitharaman introduced new tax rates and slabs that has come into effect from April 1, 2025. The basic exemption limit is set to rise from Rs 3 lakh to Rs 4 lakh, while the highest 30% tax rate will be applicable to incomes exceeding Rs 24 lakh. It should be noted that there will be no alterations to the existing slabs and rates in the new regime.

Key highlights include no income tax being levied on annual income up to Rs 12 lakh and a standard deduction of Rs 75,000 for salaried individuals. This adjustment means that individuals with salaries up to Rs 12.75 lakh will now be exempt from paying taxes under the new tax regime.

FY 2025-26: New Tax Regime

Income Range (₹)	Tax Rate
0 - 4 lakh	Nil
4 - 8 lakh	5%
8 - 12 lakh	10%
12 - 16 lakh	15%
16 - 20 lakh	20%
20 - 24 lakh	25%
Above 24 lakh	30%

Rebate: Tax rebate proposed to be revised to ₹60,000 for total income up to ₹12 lakh.

FY 2025-26: Old Tax Regime

Total Income (₹)	Tax Rate
Up to 2,50,000	Nil
2,50,001 to 5,00,000	5%
5,00,001 to 10,00,000	20%
Above 10,00,000	30%

Rebate: Rs 12,500 available for resident individuals with total income up to Rs 5 lakh. This rebate continues under Budget 2025.