Big changes are on the horizon for India's taxpayers. In a landmark move, the Indian Parliament has passed the Income Tax (No. 2) Bill, 2025, a comprehensive piece of legislation designed to replace the long-standing Income Tax Act of 1961. This new bill marks a significant shift towards a simpler, more modern, and taxpayer-friendly tax environment.
After an initial version of the bill was withdrawn for revisions based on committee recommendations, this updated version was passed by the Lok Sabha on August 11, 2025. Set to become effective from April 1, 2026, following its passage through the Rajya Sabha and receiving Presidential assent, this bill promises to redefine how Indians engage with direct taxes.
Let's break down what this means for you.
Why the Change? The Core Objectives
The government's primary goal with the new bill is to overhaul a system that has become notoriously complex over the decades. The key objectives are:
- Simplicity and Clarity: The bill aims to cut through the clutter of the old act, nearly halving the word count and reducing the number of sections. The language is clearer and more direct, making it easier for the average taxpayer to understand their obligations.
- Modernization: Recognizing the digital shift in the economy, the bill introduces provisions for the taxation of digital assets and leverages technology for better compliance and more efficient dispute resolution.
- Fairness and Reduced Litigation: By removing ambiguities that have historically led to legal disputes, the new bill aims to create a more stable and predictable tax framework, saving taxpayers time and money.
What's New for You? Key Changes and Provisions
The Income Tax (No. 2) Bill, 2025, introduces several practical changes that will affect individuals and businesses. Here are the most important highlights:
- A Unified "Tax Year": Say goodbye to the confusing dual concepts of "Previous Year" and "Assessment Year." The new law introduces a single, unified "Tax Year", running from April 1 to March 31, during which income is earned and taxed.
- Simplified TDS and TCS Rules:
- Provisions for Tax Deducted at Source (TDS) have been consolidated into a single section for easy reference.
- For students, there will be "nil" Tax Collected at Source (TCS) on foreign remittances for education made under the Liberalised Remittance Scheme (LRS) when financed by a loan from a financial institution.
- Taxing Virtual Digital Assets (VDAs): The bill broadens the definition of VDAs to explicitly include cryptocurrencies, Non-Fungible Tokens (NFTs), and other digital assets, providing a clearer framework for their taxation.
- More Money in Your Pocket: The rebate limit under the new tax regime has been increased, which could lead to a lower tax liability for many middle-income earners.
- Clearer Rules for Property Owners: The bill provides much-needed clarity on deductions for house property income, including guidelines on standard deductions and the treatment of interest paid during the pre-construction phase.
- Pension Parity: The tax deduction for commuted pensions (receiving a lump-sum amount) has been extended to non-employees, bringing them on par with salaried employees.
- Flexibility for Late Refunds: In a compassionate move, the bill allows individuals to claim tax refunds even if they miss the filing deadline, provided there is a valid reason, such as a medical emergency or technical glitches.
The New Tax Slabs at a Glance
For those opting into the new tax regime, the bill outlines the following income tax slabs and rates:
| Income Range (₹) | Tax Rate |
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
The Road Ahead
The Income Tax (No. 2) Bill, 2025, is more than just an amendment; it's a complete reboot of India's direct tax system. By prioritizing simplicity, embracing technology, and aiming for fairness, it represents a forward-looking vision for the nation's fiscal future. As it moves through the final stages of the legislative process, taxpayers can prepare for a new era of taxation that promises to be more intuitive and aligned with the needs of a 21st-century economy.
