Tax Code Overhaul: Key Changes In The New Income Tax Bill 2025 Explained

Finance Minister Nirmala Sitharaman introduced the Income Tax (No.2) Amendment Bill, 2025 in the Lok Sabha, incorporating significant corrections in drafting errors and ambiguities identified by the Select Committee in the earlier version. The revised bill impacts individual taxpayers, property owners, those under the new regime, and rebate-eligible taxpayers. Once passed, it will replace the Income-tax Act, 1961, effective April 1, 2026.

The Select Committee’s review led to several changes to ensure clarity and legal precision. These adjustments address stakeholder feedback and aim to eliminate misinterpretations in tax provisions, making the law more transparent and taxpayer-friendly.

Old Regime: Rebate of 100 percent of income tax payable or Rs 12,500 (whichever is lower) for incomes up to Rs 5 lakh.

New Regime (Section 202(I)): Full rebate of tax payable or Rs 60,000 for incomes up to Rs 12 lakh.

Above Rs 12 lakh: Marginal tax relief provisions apply, reducing the impact of higher tax slabs.

The bill introduces a simplified slab system for individuals, HUFs, and others:

Up to Rs 4 lakh – No tax

Rs 4,00,001–Rs 8,00,000 – 5 percent

Rs 8,00,001–Rs 12,00,000 – 10 percent

Rs 12,00,001–Rs 16,00,000 – 15 percent

Rs 16,00,001–Rs 20,00,000 – 20 percent

Rs 20,00,001–Rs 24,00,000 – 25 percent

Above RS 24,00,000 – 30 percent

Income from buildings or land is taxed as “House Property” income.

If the property is used for business or professional purposes, it is taxed under “Business Income” instead.

Annual value = Higher of notional rent or actual rent.

Local authority taxes can be deducted.

Unrealised rent is excluded.

Nil value for two years for unsold stock-in-trade properties after completion certificate.

Up to two self-occupied houses can have nil value unless let out or personally used.

A “Tax Year” is the financial year starting April 1. For new businesses or income sources, it begins on the start date and ends on March 31 of that year. This ensures proper alignment of tax assessment periods.