New Income Tax Bill 2005 soon: Here are top points on taxpayers, tax deadlines, pension, investors, cryptos

The Income Tax Bill of 2025, scheduled to be tabled in Parliament on Thursday, is expected to be a significant milestone in India's tax framework as it is poised to replace the existing bill from 1961. Upon approval, the bill is expected to take effect on April 1, 2026.

The objective of the new income tax bill is to streamline the existing Income Tax Act of 1961 to enhance comprehension of income tax laws among the general public and minimise legal disputes.

The New Tax Bill, spanning over 622 pages, contrasts with the current I-T Act's 1647 pages. Additionally, the new bill comprises only 23 chapters, compared to the existing 52 chapters, suggesting the removal of unnecessary chapters.

This tax reform represents substantial progress in modernising India's tax system and enhancing its clarity and efficiency.

Here are the top highlights as mentioned in the draft bill:

1. Tax year

The upcoming income tax bill is set to incorporate the concept of 'Tax Year' for taxpayers. This will supplant the existing concept of the financial year (or previous year) and assessment year as outlined in the Income Tax Act, 1961. The inception of the tax year is aimed at streamlining the terminology associated with specific time periods in the realm of income tax filing. This adjustment is anticipated to simplify the understanding of timelines for tax payments, income tax return submissions, and other regulatory obligations outlined in the Income Tax Bill of 2025.

The tax year shall be defined as the twelve-month period of the financial year starting on April 1st. Additionally, according to the new tax legislation, in the event of a newly established business or profession, or a newly acquired source of income during a financial year, the tax year shall be the period beginning with —

(a) the date of setting up of such business or profession; or
(b) the date on which such a source of income newly comes into existence, and,
ending with the said financial year.

2. Residency laws

The residency laws are expected not to be changed in the new income tax bill and are expected to remain unchanged in the upcoming act. The current income tax legislation classifies residency provisions into three categories:

> Ordinarily resident individuals
> Non-ordinarily resident individuals
> Non-resident individuals

As per the current regulations, taxpayers must look back over the past 10 years to ascertain their residential status in the current fiscal year.

"With respect to the residential status determination, there is no substantive change in the provision as per the New Income-Tax Bill 2025," Mumbai-based expert CA Dr Suresh Surana said. 

In the new Bill, the determination of residential status is also contained in Section 6 and has been rephrased without any change in the meaning
Sub clauses have been renumbered: For instance, deemed residency u/s 6(1A) of Income-tax Act 1961 is now contained in section 6(7) of the Income Tax Bill 2025
Further, there is no substantive change in the determination of residential status in case of other assessees such as Companies, HUFs, etc which are contained in section 6 of the ITB
Only change seems to be “previous year” is replaced with “Tax Year”.

3. New tax regime
 
The proposed Bill outlines a new tax framework for individuals, Hindu undivided families, and specific associations. As per the Bill, taxpayers will be liable to the following tax rates. Additionally, the Budget for 2025-2026 introduced a tax rebate for individuals earning up to Rs 12 lakh annually.
 
Up to Rs 4,00,000: No tax
Rs 4,00,001 to Rs 8,00,000: 5%
Rs 8,00,001 to Rs 12,00,000: 10%
Rs 12,00,001 to Rs 16,00,000: 15%
Rs 16,00,001 to Rs 20,00,000: 20%
Rs 20,00,001 to Rs 24,00,000: 25%
Above Rs 24,00,000: 30%
 
In addition, the Bill eliminates exemptions and deductions pertaining to income from house property and capital gains. Consequently, taxpayers will now need to calculate their tax liability based on their gross income.

4. Deductions on Income Tax for Salaried Individuals

In relation to salaries, the bill specifies various deductions under Section 19 as follows:

Tax on Employment: This is fully deductible according to Article 276(2) of the Constitution.
Standard Deduction: Individuals can claim a deduction of Rs 50,000 or the salary amount, whichever is less.
Gratuity Deductions:
Gratuity received under the Payment of Gratuity Act, 1972, upon retirement, incapacity, or death is fully deductible.
Retiring gratuity for defence service members is fully deductible.
Death-cum-retirement gratuity is fully deductible.
Other gratuity received upon retirement or termination can be deducted up to Rs 75,000 or the salary amount, whichever is lower.

5. No change in the heads of Income:

Currently, under the Income-Tax Act, the income chargeable to tax is classified under 5 different heads of Income. It was expected that there could be certain change in the heads of Income. However, on perusal of the ITB, it is notable that no change has been made with respect to the heads of Income and it has been retained as under:

Salaries
Income from house property
Profits and gains of business or profession
Capital Gains
Income from Other sources

6. Deductions for Pension and Compensation

Pension commutation: Fully deductible for pensioners from civil, defence, and other government services.
Compensation on retrenchment: Deductible up to Rs 50,000 or as per Section 25F(b) of the Industrial Disputes Act, 1947.
Voluntary retirement scheme payments: Deductible up to Rs 5,00,000 or as specified by the center.

The introduction of this bill is anticipated to simplify tax compliance and streamline the structure for individuals and businesses, pending approval from the parliament.

7. ITR filing deadlines

As announced in Budget 2025, no changes have been made to the income tax return filing deadlines, income tax slabs, and capital gains taxations to promote tax certainty for taxpayers.

8. Special Tax Provisions 

The new legislation enforces a uniform 30% tax rate on earnings from virtual digital assets such as cryptocurrencies and NFTs. Only the acquisition cost can be deducted; no other exemptions will be permitted. Additionally, a 1% Tax Deducted at Source (TDS) on cryptocurrency transactions is being considered to monitor digital transactions effectively.

9. Influencers and Digital Content Creators

The Income-Tax Bill of 2025 will have new provisions aimed at ensuring tax compliance among social media influencers, YouTubers, freelancers, and digital content creators. Specifically, the bill now classifies digital creators, YouTubers, and social media influencers as taxable entities under business income. Additionally, there are stricter rules regarding Tax Deducted at Source (TDS) for brand partnerships. Brands providing free products or bartered deals (such as cars, phones, or luxury items) must deduct TDS based on the fair market value, requiring influencers to pay taxes on these gifts. Furthermore, revenue earned from paid promotions, sponsored content, advertisements, and fan subscriptions is now subject to taxation under business income.