Introduction
The New Income Tax Bill 2025 has been tabled in the Lok Sabha on July 21, marking a pivotal reform in India’s tax framework. This Bill proposes revised tax slabs, a significant hike in Section 87A rebate, and a simplified tax regime aimed at middle-income taxpayers.
Let’s decode what’s in the Bill, what changes to expect, and how it could impact your income tax planning for FY 2025–26.
Key Highlights of the New Income Tax Bill 2025
The Bill is part of a broader overhaul proposed by the Ministry of Finance and aligns with Budget 2025 announcements. Based on the latest updates and data from the Finance Ministry and Bajaj Finserv’s tax savings projection, here’s a simplified breakdown:
✅ Revised Income Tax Slabs (Proposed)
| Annual Income | Tax Rate (Proposed) |
|---|---|
| Up to ₹3 lakh | Nil |
| ₹3 lakh – ₹6 lakh | 5% |
| ₹6 lakh – ₹9 lakh | 10% |
| ₹9 lakh – ₹12 lakh | 15% |
| ₹12 lakh – ₹15 lakh | 20% |
| Above ₹15 lakh | 30% |
This replaces the previous 5-slab system under the new regime, and increases progressivity.
Section 87A Rebate Raised to ₹60,000
The proposed law significantly increases the rebate under Section 87A from ₹25,000 to ₹60,000.
What it means:
- If your taxable income is up to ₹12 lakh, your entire tax liability becomes zero.
- This is a major tax relief, especially for the salaried middle class.
Expert View:
According to leading economists at NIPFP, increasing the rebate rather than tinkering with exemptions simplifies compliance and reduces disputes. It also aligns with India’s goal to shift towards a more transparent and exemption-free tax system.
What Happens to Old Regime Deductions?
The 2025 Bill leans heavily toward the simplified new regime by default. Based on the report expected from the Select Committee, these could be the changes:
- 80C, 80D, HRA, LTA: Likely to remain optional but not part of the default regime.
- Taxpayers will need to opt-in for the old regime every year if they want to claim these exemptions.
This mirrors the change introduced via Finance Act 2020, where the new regime became the default.
Economic Rationale Behind the Reform
Here’s what’s driving the overhaul:
- Inflation Pressure: Rising cost of living needed a real increase in exemption limits.
- Taxpayer Base Expansion: Simpler slabs and fewer deductions make it easier for new earners to comply.
- Administrative Ease: Reduces scrutiny over claims like HRA, LTA, and investment proofs.
As per the Finance Ministry, the new system could save taxpayers up to ₹1.14 lakh annually, especially those earning ₹9–12 lakh per year.
Historical Context: Reforms and Resistance
Tax policy reforms in India have often been met with scepticism.
- In 2020, the new regime sparked debate due to no deductions.
- Committees like the Task Force on Direct Tax Code and institutions like NIPFP have long pushed for a flatter, simplified structure.
This Bill seems to finally act on those recommendations.
Likely Timeline for Implementation
| Milestone | Expected Date |
|---|---|
| Select Committee Report in Lok Sabha | 21 July 2025 |
| Parliamentary Debate | August 2025 |
| Final Passage | September 2025 |
| Applicability | FY 2025–26 (AY 2026–27) |
How Should You Prepare?
If the Bill passes without major changes:
- Salaried individuals earning under ₹12 lakh should benefit automatically.
- Business owners and professionals should review tax planning strategies, especially if they rely on deductions.
- File ITR under the right regime (opt-in or default) based on your actual benefit.
Practical Tips from Efiletax
- Use Efiletax’s Tax Regime Comparison Tool before choosing your ITR option.
- Keep investment proofs ready in case the old regime gives you better tax savings.
- Consult a CA if your income involves multiple heads (e.g., salary + business) to avoid misreporting.
FAQ on New Income Tax Bill 2025
Q1. Will old regime be completely removed?
No. As of now, it will remain optional — but not the default.
Q2. Is the ₹12 lakh limit applicable to all?
Yes, if the final Bill retains the enhanced rebate under Section 87A.
Q3. Can I still claim 80C if I opt for the new regime?
No. The new regime does not allow most deductions.
Q4. When will this come into effect?
From 1 April 2025, applicable for returns filed in AY 2026–27.
Summary
The New Income Tax Bill 2025, tabled in Lok Sabha on July 21, proposes revised slabs, a ₹60,000 rebate under Section 87A, and simplified compliance. Tax-free income may now extend up to ₹12 lakh.
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