New Income Tax Bill 2025: Key Changes You Must Know
The new Income Tax Bill 2025 may replace the 60-year-old Income-tax Act, 1961. Based on the Direct Taxes Code draft and expert feedback, a Lok Sabha panel has suggested 285 changes, making this a significant overhaul. The new law could come into force from April 1, 2026. Here are the key takeaways that matter for Indian taxpayers.
What is the Income Tax Bill 2025?
The Ministry of Finance introduced the draft Income Tax Bill, 2025 to simplify direct tax laws, align with modern digital practices, and enhance ease of compliance.
A Parliamentary Standing Committee has reviewed the draft and made 285 suggestions. These include taxpayer-friendly moves, relief for corporates, and clearer definitions.
Major Proposed Changes in the New Bill
Refunds for Late Return Filers
One of the biggest reliefs proposed is to allow income tax refunds even when returns are filed after the due date.
Currently, under Section 139(4), belated return filers can’t claim a refund beyond a certain time.
Proposed Impact:
- Beneficial for salaried taxpayers who missed the deadline
- Helps small businesses claim TDS refunds even if delayed
Expert View:
“This removes unnecessary hardship and promotes voluntary compliance,” says a Mumbai-based tax practitioner.
✅ Inter-Corporate Dividend Deduction Returns
The draft bill brings back inter-corporate dividend deductions, which were discontinued under the new regime after abolishing Dividend Distribution Tax (DDT) in 2020.
What it means:
- Holding companies may again deduct dividends received from subsidiaries
- Reduces double taxation on intra-group income
This is aligned with global tax practices and benefits corporate groups with multiple layers.
✅ Simplified Definitions & Less Litigation
The Committee recommends clearer definitions for terms like:
- Income
- Capital Asset
- Transfer
- Agricultural income
Why this matters:
- Fewer disputes
- Smoother assessment
- Consistency in interpretation
Expected Timeline for New Tax Law
| Event | Timeline |
|---|---|
| Final Bill to be tabled | Likely in Winter 2025 |
| Parliamentary approval | By March 2026 |
| Applicability starts from | April 1, 2026 (AY 2026–27) |
Implications for Taxpayers & Businesses
- Salaried individuals: Easier to claim refunds, even late
- Startups & SMEs: Relief from dividend taxation in group structures
- CAs & tax professionals: New training required to understand the framework
- Consulting firms: Demand for transition support will increase
Legal Angle: What Do CBDT & Lawmakers Say?
As per the Finance Ministry’s background note and Lok Sabha Committee discussions, the goal is to create a modern, citizen-centric tax law.
References:
- Parliamentary Report Summary – PRSIndia
- Income Tax Bill 2025 (Draft Summary – Ministry of Finance)
- Analysis aligned with recommendations of Kelkar Task Force and earlier Direct Taxes Code (DTC) proposals
One Practical Tip for Taxpayers
Start preparing early.
Even if the law kicks in from April 2026, it will impact how income is computed, returns are filed, and disputes are resolved. Talk to your CA or tax consultant about how this could affect you.
Summary
The new Income Tax Bill, 2025 may allow refunds even on late returns and restore inter-corporate dividend deductions. It could come into effect from April 1, 2026, replacing the 1961 law.
FAQs
Q1: Will the current tax slabs change?
Slab changes are not final yet. The new Bill focuses more on structure and definitions.
Q2: Is the new law beneficial for salaried individuals?
Yes, especially due to refund eligibility and simplified return filing.
Q3: Should businesses start preparing now?
Yes, transition planning, ERP readiness, and compliance strategy should start by mid-2025.