Finance Minister Nirmala Sitharaman introduced the Income Tax Bill, 2025 to the Parliament on 13th February 2025 as a part of the Union Budget and Income Tax budget 2025-26. The bill marks notable changes and aims to ease the burden of the middle class while improving compliance.
A new income tax regime with revised income tax slabs is central to the budget that ensures zero tax liability for anyone earning up to 12 lakhs per annum.
New Income Tax Slabs 2025-26
The income tax slab rates according to Financial Year 2025-26’s new tax regime is as follows:
| Income Range | New Tax Rate |
| 0,400,000 | Nil |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Why the New Tax Regime?
The Income Tax Act of 1961 also known as the Present Act that was drafted 60 years ago underwent several revisions throughout the year. The inherent complexities of the Act and the gradual revisions made it hard to comprehend; therefore the government announced the Direct Tax Code(DTC) ten years ago but got postponed and failed to pass into law.
India’s Finance Minister (Ms Sitharaman) introduced the new Direct Tax Code as a part of the new Income Tax Bill to reduce the complexity of the tax structure. In effect, the overall deductions and exemptions available to taxpayers are also reduced.
The new tax regime will lead to systematic and easy-to-understand tax laws and reduce legal ambiguities; thereby encouraging taxpayers to comply voluntarily. Furthermore, the simplification of tax laws aims to minimize the litigation burdens on businesses and individuals effectively.
Five Major Income Tax Changes
The Income Tax Bill 2025 has introduced five major income tax amendments that all taxpayers must familiarise themselves with, as it will ensure compliance and plan finances accordingly.
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Introduction of Tax Year
The terms ‘’previous year’’ and ‘’assessment year’’ have been removed and the term ‘’Tax Year’’ has been included in the financial year (April to March). The tax year will begin for a particular profession and business, depending on when the date of their establishment. Furthermore, the start date of a new revenue system is also an important factor.
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Zero Entertainment Allowance Deduction for Government Employees
Government employees will not be able to deduct their entertainment expenses from their respective salaries as per the new tax bill which will go into effect in April 2026. According to the previous Act, government employees could only enjoy this deduction.
The new income tax budget 2025 and the bill will allow individuals with Rs 5000 or one-fifth of their base pay or the real amount they receive as an amusement allowance.
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Tax Exemption on Received Gifts By an Individual
Section 56(2)(x) of the present Income Tax Act exempts individuals from paying income tax on gifts that they have received from their spouse or family members. The new tax act has clarified that the family member or lineal descendant can be from the father’s or mother’s side of the family.
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Stricter Penalty For Offences Committed Under Section 276CCC
Section 276CCC of the Income Tax Act, 1961 under clause (a) of section 158BC states that an individual can face imprisonment if they provide an income tax return despite getting an official notice.
However, the new bill makes this a non-cognizable offence, preventing a person from getting arrested without a warrant for this particular offence. Simultaneously, the bill highlights that the appropriate authority (Principal Commissioner, Commissioner, Joint Commissioner (Appeals), or Commissioner (Appeals) can initiate the prosecution.
Also, a person will encounter conviction if they commit the same offence repeatedly; they can face six months of imprisonment that can extend up to seven years with a mandatory fine.
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More Power Given to CBDT (Central Board of Direct Taxes)
The Income tax bill does not have a provision that relates to the seventh proviso of the Income Tax Act. This provision outlines the circumstances under which an individual can file an ITR, such as foreign travel, and turnover gross receipt extending beyond a particular limit despite their income level being below the basic income exemption limit.
That is where the Central Board of Direct Taxes (CBDT) can utilise their power to determine the conditions according to which the return filling will become essential. Moreover, CBDT can demand the credit card details of the assesssee and expenditures that go beyond the threshold. Also, the assesseee must comply with the procedure accordingly and provide the necessary details of the establishment or place of business.
Who can benefit the most from the new tax regime?
The beneficiaries of the new income tax budget include:
- Salaried Employees and Middle-Class Taxpayers – They will enjoy increased tax exemption limits and enhanced disposable income due to lower tax rates.
- Senior Citizens – With a higher TDS limit of ₹1 lakh, less tax is automatically deducted from interest income for senior citizens.
- Self-employed and Business Owners – Simplified tax rules, a fairer tax structure, and lower automatic tax deductions for business owners and self-employed individuals.
- Start-ups and Entrepreneurs – Entrepreneurs who launch their startups and complete the legal formalities before April 1 2030 will be eligible for tax incentives under the Five-Year Tax Relief Extension for Startups.
Additional Benefits
- TDS/TCS Rationalization:
- TDS limit on interest income increased from ₹50,000 to ₹1 lakh for senior citizens
- TDS exemption limit raised from ₹2.4 lakh to ₹6 lakh concerning Rent Payments
- No TCS on Education Loans under the Liberalized Remittance Scheme (LRS).
- Easier Compliance & Paperless Tax Filings help to Simplify the tax filing process and extend the time for voluntary compliance.
Conclusion
The Union Budget 2025-26 is taxpayer-friendly, providing major tax relief for salaried employees and the middle class. Furthermore, a significant part of the Indian population can benefit from the new income tax slabs, which ensure zero tax for income up to 12 lakhs. Likewise, entrepreneurs and business owners can make appropriate investments in startups and other ventures accordingly.