- The new Income Tax Bill will replace the 1961 Act and is set to be implemented from April 1, 2026.
- The bill simplifies tax laws, making them shorter and easier to understand.
- Introduction of a ‘Tax Year’ to replace the existing financial and assessment year system.
- New tax slabs introduced, with a tax rebate for individuals earning up to Rs 12 lakh annually.
- No changes in tax heads, residency rules, or ITR filing deadlines.
- Revised salary deductions for gratuity, pension, and voluntary retirement benefits.
The much-anticipated new Income Tax Bill was tabled in Parliament today, proposing a significant overhaul of the current tax system. If approved, it will replace the existing Income Tax Act of 1961 and is expected to come into effect on April 1, 2026. The bill primarily focuses on simplifying tax laws, removing outdated provisions, and making compliance easier for taxpayers.
Tax experts have assured that the new bill does not introduce additional taxes or change tax rates. Instead, its goal is to make tax laws more transparent and reduce legal disputes.
Munjal Almoula, Head of Tax at BDO India, emphasized, “The objective of the new tax bill is to remove unnecessary provisions and simplify the language of the tax law to make it easier to understand. I do not expect any additional tax burden on taxpayers through the new tax bill.”
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Key Highlights of the New Income Tax Bill
Shorter and Simpler Tax Law
The current Income Tax Act comprises 52 chapters spanning 1,647 pages. The new bill aims to be more concise, reducing the number of chapters to 23 and the total pages to 622. This restructuring eliminates unnecessary provisions, making tax laws more accessible to the average taxpayer.
Introduction of ‘Tax Year’
One of the major structural changes in the new bill is the introduction of a single ‘Tax Year,’ replacing the existing dual system of the financial year (April to March) and the assessment year.
Rohinton Sidhwa, Partner at Deloitte India, explained, “By replacing complex provisions with clearer provisions, it aims to reduce legal disputes and encourage voluntary tax compliance. A notable change introduced by the bill is the shift from the ‘Assessment Year’ to the ‘Tax Year.’”
For businesses or professionals who start during the year, the tax year will begin from:
- The date of setting up the business or profession, or
- The date a new source of income begins.
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No Change in Residency Rules
The criteria for determining residential status remain unchanged.
Tax expert CA Dr. Suresh Surana clarified, “There is no change in how residential status is determined. The new bill only rephrases existing provisions and replaces ‘previous year’ with ‘Tax Year’.”
New Tax Slabs
The new bill proposes a revised tax regime with the following tax slabs:
- Up to Rs 4,00,000: No tax
- Rs 4,00,001 to Rs 8,00,000: 5%
- Rs 8,00,001 to Rs 12,00,000: 10%
- Rs 12,00,001 to Rs 16,00,000: 15%
- Rs 16,00,001 to Rs 20,00,000: 20%
- Rs 20,00,001 to Rs 24,00,000: 25%
- Above Rs 24,00,000: 30%
Additionally, the Budget 2025-26 has introduced a tax rebate for individuals earning up to Rs 12 lakh annually.
No Change in Income Tax Heads
The five existing income tax heads remain the same:
- Salaries
- Income from house property
- Profits and gains from business or profession
- Capital gains
- Income from other sources
Changes in Salary Deductions
The bill introduces new deductions for salaried individuals:
- Standard Deduction: Rs 50,000 or salary amount, whichever is lower.
- Employment Tax: Fully deductible.
- Gratuity Deduction:
1. Payment under the Payment of Gratuity Act, 1972: Fully deductible.
2. Retiring gratuity for defence service members: Fully deductible.
3. Death-cum-retirement gratuity: Fully deductible.
4. Other gratuity on retirement/termination: Deduction up to Rs 75,000 or salary amount, whichever is lower.
Pension and Compensation Benefits
- Pension commutation: Fully deductible for government, defence, and civil service pensioners.
- Compensation on retrenchment: Deductible up to Rs 50,000 or as per Section 25F(b) of the Industrial Disputes Act, 1947.
- Voluntary retirement payments: Deductible up to Rs 5,00,000.
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No Change in ITR Filing Deadlines
The government has confirmed that there will be no changes to:
- Tax return filing deadlines.
- Tax slabs (apart from those introduced in the new regime).
- Capital gains tax rules.
The new Income Tax Bill aims to modernize India’s tax system by simplifying laws and making compliance easier. The introduction of the ‘Tax Year,’ revised tax slabs, and streamlined deductions are expected to benefit taxpayers. While the bill awaits approval in Parliament, tax experts remain optimistic about its impact on reducing disputes and improving voluntary compliance.
