When Union Finance Minister Nirmala Sitharaman introduced the “simplified” version of the six-decade-old Income Tax Act, 1961, in the Parliament in February this year, she used the acronym “SIMPLE” to describe the new version, which she said stands for: Streamlined structure and language; Integrated and Concise; Minimised Litigation; Practical and transparent; Learn and adapt; and Efficient tax reforms.
The Act, which had undergone over 4,000 amendments in all these decades, was considered too long (containing over five lakh words) and too complex.
Sitharaman said it needed simplification in not just words, but also interpretation. While introducing the Bill in the Lok Sabha on July 21, Sitharaman had said “substantial changes” made included a lower word count of 2.59 lakh as compared to the previous 5.12 lakh; a slash in the number of sections from 819 to 536; and a decrease in the number of chapters from 47 to 23.
The new Bill has 57 tables compared to 18 in the old Act.
Also Read: Select Committee report on new Income Tax Bill to be tabled in LS
Now that the Income Tax (No 2) Bill, 2025, has been passed by the Lok Sabha (on August 11, 2025), sans debate, incorporating almost all of the 285 recommendations by the Select Committee that was led by the ruling BJP’s Baijayant Panda, here’s a look at the changes and how they affect taxpayers:
The concept of ‘tax year’
The simultaneous use of ‘financial year’ (FY), ‘accounting year’ (AY) will now be replaced by ‘tax year’, which means income earned in a year will be taxed that same year. Redundant sections like ‘fringe benefit tax’ have also been done away with.
Inclusion of tables
There will now be tables for provisions relating to TDS, or tax deducted at source, 'presumptive taxation', salaries, and deductions for bad debt.
Income tax slabs remain the same; rebate threshold increases
While the existing rates of taxes remain the same under the new regime, there is now a 100 per cent rebate of income tax (up to ₹12,500) for incomes up to ₹5 lakh.
Additionally, there is relief offered of up to ₹60,000 for incomes of up to ₹12 lakh, with the benefit gradually decreasing for higher incomes.
Meanwhile, here are the unchanged income tax slabs:
• Up to ₹4,00,000 – Nil
• ₹4,00,001 to ₹8,00,000 – 5 pc
• ₹8,00,001 to ₹12,00,000 – 10 pc
• ₹12,00,001 to ₹16,00,000 – 15 pc
• ₹16,00,001 to ₹20,00,000 – 20 pc
• ₹20,00,001 to ₹24,00,000 – 25 pc
• Above ₹24,00,000 – 30 pc
Property tax clarifications
The tax on income from properties has been set at 30 per cent, as determined under Section 21. Additionally, any interest payable on borrowed money to buy, build, or repair a property will also be deducted.
In another significant change, the tax calculated in the case of rental property lying vacant for all or part of a year will be based on the higher of the two – ‘reasonable expected rent’ or ‘actual rent received/receivable (if property or any part of it is let for part of the year).
Earlier, the tax calculated would be based on either of the two as long as it was less than the ‘reasonable’ rent.
Refunds relief
Taxpayers can now claim refunds even in case of late filing of returns.
TDS filings
Not only will there be no financial penalties for late filing of TDS, taxpayers – both Indian and non-resident – who have no tax liabilities can claim ‘nil certificates’ in advance.
Explicit tax deduction for commuted pensions
Those who receive pensions from specific funds, such as the LIC pension fund, will face an ‘explicit’ tax deduction for commuted pension, lump sum pension, etc.
Inter-corporate dividends reinstated under Section 80M
The dividends received by a company from shares held by it in another company will be taxed under Section 80M.
In the previous draft tabled by the Finance Minister, this provision had been omitted, especially for companies opting for the 22 per cent corporate tax regime that let them be taxed lower if they opted to forego certain exemptions.
But, the omission led to worries of double taxation in multi-tiered company structures.
Effect on MSMEs
Definitions have been aligned with the official MSME Act for consistency. Last revised in July, 202, the Act classifies micro and small enterprises based on their investment in machinery and their annual turnover. So, a micro enterprise would be one with an investment of less than ₹1 crore and a turnover below ₹5 crore. A small enterprise would be one with an investment of ₹10 and turnover of ₹50 crore.
Also Read: Lok Sabha passes revised Income Tax Bill without debate
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