By Chaitanya
BBA Finance Graduate with over 6 years of experience in the stock market and finance.
In a significant move poised to reshape India’s financial landscape, the Lok Sabha on August 11, 2025, successfully passed the Income-Tax (No. 2) Bill, 2025. This pivotal legislation is set to replace the long-standing Income Tax Act, 1961, which has been in effect for 63 years. The new Income Tax Bill 2025 aims to simplify the tax framework, enhance compliance, and foster a more predictable environment for investors across the nation.
The bill’s journey was comprehensive; an earlier draft was withdrawn on August 8, 2025, after a Parliamentary Select Committee review. The revised version, incorporating approximately 285 recommendations, is a streamlined document, effectively cutting the original tax text by about half and reducing active sections and chapters.
Key Changes and Citizen Benefits Under the New Tax Regime
The revamped tax structure introduces several changes designed to benefit individuals and businesses. A notable update is the introduction of new income tax slabs under Clause 202(1), which are structured to provide relief to various income groups. These new rates, as stipulated in the bill, are detailed below:
| Income Range (INR) | Tax Rate |
|---|---|
| Up to 400,000 | No tax |
| 400,001 to 800,000 | 5% |
| 800,001 to 1,200,000 | 10% |
| 1,200,001 to 1,600,000 | 15% |
| 1,600,001 to 2,000,000 | 20% |
| 2,000,001 to 2,400,000 | 25% |
| Above 2,400,000 | 30% |
Beyond the new slabs, the bill clarifies deduction rules. A 30% standard deduction for house property will apply after municipal taxes, and pre-construction interest deduction is now allowed for both self-occupied and let-out properties, a welcome move for investors.
Taxpayers can now claim refunds even after missed deadlines due to illness or technical issues, as a problematic blocking clause has been deleted. Equal pension deduction is extended to non-employees (commuted pension), and commercial property taxation clarifies that temporarily unused business premises are exempt from notional rent tax.
Further, the Alternate Minimum Tax (AMT) on Limited Liability Partnerships (LLPs) has been ended, simplifying compliance. A temporary personal exemption is also provided for taxpayers aged 65 and above, regardless of Social Security receipt, supporting senior citizens.
Strengthening Compliance and Modernising Tax Administration
The Income Tax Bill 2025 also focuses on bolstering compliance and leveraging technology for better tax administration. It introduces stricter taxes and penalties for promoters found to be misleading taxpayers about tax credits, such as the Employee Retention Tax Credits (ERTC), a measure highlighted in reports from government tax authorities. This aims to curb fraudulent claims and ensure the integrity of the tax system. Several provisions within the bill simplify dispute resolution processes, enhance digital taxation mechanisms, and expand the use of data and technology in tax collection, paving the way for a more efficient and transparent system.
Global Tax Landscape: Relevant Updates for Multinationals
While the primary focus is on India’s domestic tax reform, it’s important for multinational companies operating in India to note recent developments in global tax policies. The US 2025 Tax Bill, enacted July 25, 2025, introduces significant changes relevant for multinational companies. These include permanent 100% bonus depreciation for property placed in service on or after January 19, 2025, and increased Section 179 deduction limits to $2.5 million (phaseout at $4 million). Qualified business income deduction phaseout ranges also increase to $150,000 for married filing jointly and $75,000 for single filers.
Other US updates, passed by the US House on June 11, 2025, extend Qualified Opportunity Zones (QOZ) through December 31, 2033 (with narrowed eligibility) and make the New Markets Tax Credits (NMTC) permanent, with a projected $10 billion allocation in Fall 2025. The effective FDII tax rate will drop from 16.406% (2026) to 14%, and gambling losses will be 90% deductible against winnings from 2026.
What Lies Ahead?
With the Lok Sabha’s approval on August 11, 2025, the Income Tax Bill 2025 now moves to the Rajya Sabha for review. Following its passage there, it will require Presidential assent for final enactment. The bill is expected to bring substantial clarity for investors, offering certainty well before its anticipated rollout in April 2026. This comprehensive reform represents a significant stride towards modernising India’s income tax system, aiming to improve dispute resolutions and enhance overall tax administration efficiency.
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