The Revised Income Tax Bill 2025 marks a landmark shift in the country’s direct tax framework. Introduced in Parliament on August 11, 2025, by Finance Minister Nirmala Sitharaman, the legislation aims to replace the nearly 65-year-old Income Tax Act, 1961. The new bill incorporates recommendations from a parliamentary select committee and is designed to streamline tax laws, modernise compliance processes, and resolve long-standing ambiguities in interpretation.
The bill’s core objectives include simplicity and clarity in the law, achieved through the use of plain language, logical restructuring of sections, and the removal of redundant provisions. It also strengthens faceless administration, enabling digital collection of information and assessments to minimise personal interaction and enhance transparency.
In addition, the bill introduces a unified tax year, seeking to harmonise assessment timelines for smoother compliance and reduced litigation. By refining rules and offering precise definitions, it aims to reduce disputes, close interpretational gaps, and limit court challenges. According to the bill’s statement of objectives and reasons, the central government has accepted nearly all of the Select Committee’s suggestions.
It also notes that feedback from various stakeholders has been incorporated to refine the language and ensure the provisions convey their intended legal meaning with greater precision. The latest version of the bill introduces the framework for the new tax regime under Clause 202(1). This tax regime, applicable to individuals, Hindu Undivided Families (HUFs), and other taxpayers, lays down the income tax rates and slabs as announced in the Union Budget 2025 and will serve as the basis for computing tax liabilities more straightforwardly.
The provisions relating to the Section 87A rebate from the Income Tax Act, 1961, are carried forward and included under various clauses in Chapter IX of the updated income tax bill. These provisions explain how the rebate is applied when computing income tax. The rebate is calculated on the income tax payable before deductions. It is available only to resident individuals in India and is subject to certain income limits.
The rebate under Section 87A is available only to individuals who qualify as residents of India. It is not applicable to partnership firms, companies, or non-resident individuals. LTCG from equity-oriented mutual funds is currently taxed under Section 112A of the Income Tax Act, 1961.
These types of capital gains are subject to a fixed tax rate of 12.5 per cent, and the rebate benefit does not apply to this portion of the tax liability. The revised bill also introduces clearer provisions for tax deductions on commuted pensions—lump-sum pension payments—received by certain taxpayers. This applies to pensions drawn from approved funds listed in Schedule VII of the bill (for example, the LIC Pension Fund).
Income Tax Act, 1961, vs. Income Tax Bill, 2025: Key differences: The Income Tax Act, 1961, has served as the basis of India’s tax system for over six decades. Over the years, it has undergone numerous amendments and updates, which, while addressing specific needs, have also made the law complex and challenging for the average taxpayer to navigate.
The Income Tax Bill, 2025, seeks to replace this framework with a modern, streamlined structure. It comprises 536 sections and 16 schedules and introduces a unified term, “Tax Year,” in place of the earlier distinction between “Previous Year” and “Assessment Year.”
The bill eliminates redundant and contradictory provisions to reduce disputes and enhance legal clarity. It also grants the Central Board of Direct Taxes (CBDT) greater authority to frame rules suited to the needs of a digitally driven economy, ensuring the legislation remains responsive to evolving business and compliance requirements.
