New Income Tax Bill 2025: FM To Simplify 'Tax Year'; Here Are List Of 10 Key Changes Proposed In Draft

New Income Tax Bill 2025: Finance Minister Nirmala Sitharaman has proposed to simplify the definition of 'tax year' and 'financial year'. Amidst the parliamentary Budget session for FY26, the draft of the much-awaited new income tax bill has been released where amendments and exemptions are proposed in both new and old income tax regimes along with allowances and income from other sources. Both corporates and the common man are expected to benefit from this new bill as the government focuses on the 'Sabka Vikas' campaign for India.

The draft of the new income tax bill has 23 chapters, 16 schedules and 536 clauses. The draft is 622 pages long. The bill is expected to be presented in Lok Sabha on February 13.

Here are some of the key highlights from the draft:

1. Tax Year:

The new income tax bill plans to replace the term financial year and assessment year with 'tax year'. It said, "For this Act, "tax year" means the twelve months of the financial year commencing on the 1st of April."

Further, the draft said, that in the case of a business or profession newly set up, or a source of income newly coming into existence in any 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 source of income newly comes into existence, and ending with the said financial year.

2. Standard Deduction For Old Tax Regime:

Under the new bill, the draft proposes a standard deduction of Rs 75,000 or the salary, whichever is less, where income is computed under the new regime. It also proposes a Rs 50,000 standard deduction or the salary, whichever is less in any other cases, which includes the old tax regime.

3. New Tax Regime:

The draft proposed new tax regime rates for individuals, Hindu undivided families and others.

It said, "Irrespective of anything contained in this Act but subject to the provisions of Parts A, B and this Part the income-tax payable by a person, being- (a) an individual; or (b) a Hindu undivided family; or (c) an association of persons (other than a co-operative society); or (d) a body of individuals, whether incorporated or not; or (e) an artificial juridical person referred to in section 2(77)(g)...

in respect of the total income for a tax year, shall, unless the person exercises the option in the manner provided under sub-section (4), be computed at the rate of tax as below:

- Upto ₹4,00,000: NIL

- From ₹4,00,001 to ₹8,00,000: 5%

- From ₹8,00,001 to ₹12,00,000: 10%

- From ₹12,00,001 to ₹16,00,000: 15%

- From ₹16,00,001 to ₹20,00,000: 20%

- From ₹20,00,001 to ₹24,00,000: 25%

- Above ₹24,00,000: 30%.

4. Capital Gains:

Short-Term Capital Gains:

As per the draft, where the total income of an assessee includes any income chargeable under the head "Capital gains", arising from the transfer of short-term capital Assets are --- equity shares, units of an equity-oriented fund, units of business trust, and transaction of sale of such equity share or unit is chargeable.

The draft proposed the income calculated on such short-term capital gains at the rate of 20%; or income-tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee.

In the case of an individual or a Hindu undivided family, being a resident, where the total income, as reduced by short-term capital gains computed under sub-section (1), is below the maximum amount which is not chargeable to Incometax, then:

Such short-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income tax; and

the tax on the balance of such short-term capital gains shall be computed at the rate as applicable in sub-section (1)(i).

Long Term Capital Gains:

The draft said, that where the total income of an assessee includes any income arising from the transfer of a long-term capital asset which is chargeable under the head "Capital gains", the tax payable by the assessee on the total income, subject to sub-sections (2) and (3), shall be the aggregate of-

- income-tax payable on the total income as reduced by such long-term capital gains, had the total income, as so reduced, been his total income; and

- income tax calculated on such long-term capital gains at the rate of 12.5%.

In case of an individual or a Hindu undivided family, being a resident, where the total income as reduced by long-term capital gains computed under sub-section (1), then the chargeable rate is

- such long-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income tax; and

- the tax on the balance of such long-term capital gains shall be computed at the rate as referred to in sub-section (1).

5. Pension Benefits:

The entire amount is exempted on payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence services.

Also, the entire amount is exempted from tax on payment in commutation of pension received- under the Civil Pensions (Commutation) Rules of the Central Government; or civil services members of union or holders of posts connected to defence or civil under the union. Also, members of all-India services, defence services, civil services of a State, or the holders of civil posts under a State; or the employees of a local authority or corporation established by Central Act or State Act or Provincial Act will benefit from the exemption.

Additionally, tax deduction is announced on payment in commutation of pension is received under any scheme from any other employer. These are:

- if the employee has received gratuity, the commuted value of one-third of the pension, which he is normally entitled to receive;

- in any other case, the commuted value of one-half of such pension.

6. Voluntary Retirement:

The bill has proposed minimum of compensation received or Rs 5 lakh deduction on amount received or receivable on voluntary retirement or termination of service under a scheme or schemes of voluntary retirement, by an employee as referred to in sub-section.

7. Income From House Property:

The annual value of property consisting of any buildings or lands appurtenant thereto, owned by the assessee shall be chargeable to income-tax under the head "Income from house property", as per the draft.

The income under the head "Income from house property" shall be computed after allowing the following deductions:

- 30% of the annual value
- where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital.

Also, in respect of a property or its part held as stock-in-trade and not let wholly or partly at any time during the tax year, the annual value shall be nil for two years from the end of the financial year in which completion certificate is obtained from the competent authority.

Further, the annual value of the property consisting of a house or any part thereof shall be taken as nil, if the owner occupies it for his own residence or cannot actually occupy it due to any reason.

In this case, the deduction will be Rs 2 lakh on conditions such as the property has been acquired or constructed with borrowed capital and such acquisition or construction is completed within five years from the end of tax year in which capital was borrowed,

The Rs 2 lakh deduction is also applicable if the capital is borrowed during any period prior to the tax year in which the property has been acquired or constructed, any interest payable for the said prior period shall be allowed as a deduction in five equal instalments for the said tax year and for each of the four immediately succeeding tax years.

In any other cases, the deduction will be Rs 30,000.

8. Provident Funds:

The draft continues on the deductions for life insurance premiums, deferred annuity, contribution to provident fund to not exceed Rs 1.50 lakh while computing the total income for that year.

For employers contribution to provident fund, , the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by such employer as does not exceed-

(a) 14%, where such contribution is made by the employer being the Central Government or the State Government; and

b) 10%, where such contribution is made by an employer other than an employer referred to in clause (a), of his salary in the tax year.

9. Crypto, Virtual Assets:

FM has proposed the appointment of "Valuation Officer" by the government who shall exercise powers as specified as "virtual digital asset" including crypto assets. The draft also announces stringent measures making it obligatory for person, or entity to furnish information on transaction of crypto-asset.

10. Income From Other Sources:

The draft said, in particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income-tax under the head "Income from other sources":--

- any dividend

- any winning from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature;

- any sum received by the assessee from employees as contributions to any provident fund, superannuation fund, any fund set up under the Employees' State Insurance Act, 1948.

- any sum received under a Keyman insurance policy.