Cabinet approved New Income Tax Bill to replace Old tax Law

Cabinet approved New Income Tax Bill to replace Old tax Law

The Union Cabinet has approved a new Income Tax Union Budget Bill to replace the Income Tax Act of 1961, aiming to simplify and modernize India’s tax system. It will also simplify legal language so that taxpayers can easily understand the provisions  The bill focuses on reducing legal complexities, making compliance easier for taxpayers, and minimizing litigation. Notably, it does not introduce new taxes but emphasizes clearer legal language with a focus on simplifying tax laws and shorter provisions for better understanding. Instead, making compliance easier for taxpayers. The govt has also said that the new law will be 50% shorter than the current one. A major goal is also to reduce litigation and also introduce lower penalties for certain offences, making the tax system more taxpayer-friendly

Additionally, the bill proposes lower penalties for certain offenses to create a more taxpayer-friendly environment. Finance Minister Nirmala Sitharaman announced this initiative during her budget speech on February 1, 2025. The new income tax system is set to take effect from FY 2025-26, applying to taxpayers from the AY 2026-27.

In the 2025 Union Budget, significant changes were made to the income tax structure under the new tax regime. The minimum taxable income was increased to INR 12,00,000/- with a standard deduction of INR 75,000, effectively exempting income up to INR 12,75,000/- from Income taxation. The revised tax slabs are as follows:

• Nil: Up to INR 4 lakh
• 5%: INR  4 lakh to INR 8 lakh
• 10%: INR 8 lakh to INR 12 lakh
• 15%: INR 12 lakh to INR 16 lakh
• 20%: INR 16 lakh to INR 20 lakh
• 25%: INR 20 lakh to INR 24 lakh
• 30%: Above INR 24 lakh

New Tax Regime: Revised Slabs & Higher Rebate:

100% tax rebate on income up to INR 12,00,000, Here’s the updated tax slab structure

• These adjustments aim to increase disposable incomes, thereby enhancing consumption, savings, and investments in the economy. The government anticipates that these measures will stimulate economic growth by boosting consumer demand.
• The new tax regime, introduced in 2020, offers lower rates but fewer exemptions. The government hopes to encourage more individuals to adopt this system, predicting that 75% of income taxpayers will file under it in 2024-25.
• Now, there are multiple tax regimes applicable in the case of various taxpayers, such as companies, HUFs, AOPs, individuals, BOIs, cooperative societies, etc.
• Overall, the new income tax bill and the revised tax structure reflect the government’s commitment to creating a more straightforward and taxpayer-friendly system, aiming to reduce the compliance burden and provide tax certainty.
• Tax Reforms & Relief: Simplified TDS rates and major tax relief for senior citizens show efforts to ease tax compliance. TDS exemption on rent increased to INR 6 lakh, and no penalty on delayed TCS payments will benefit small taxpayers. The introduction of a new income tax bill next week suggests a potential overhaul of tax laws, aligning with simplification efforts.

Significant Announcements: Major reform in the New Income Tax Bill:

These are some significant announcements! The biggest takeaway is the proposed no tax on income up to ₹12 lakh, which, if implemented, would be a major reform in the tax structure. Here are some key insights:

1. Agriculture & Rural Development: Dhan Dhanya Yojana in 100 districts and a 6-year mission for pulses indicate a strong push for food security and self-reliance in agriculture. A Makhana Board in Bihar aligns with the state’s specialty and aims to boost exports and farmer income. An increased Kisan Credit Card limit to ₹5 lakh will help small and marginal farmers access credit easily. A Urea plant in Assam will reduce dependency on imports and ensure adequate supply for farmers.
2. Industry & MSMEs: A special credit card for small businesses and interest-free funds for states will improve liquidity and infrastructure development. The Leather & Footwear scheme creating 22 lakh jobs is a big employment booster. India’s push to become a global toy hub aligns with “Make in India” and reducing toy imports from China.
3. Technology & Education: AI research centers and a special focus on Indian languages in education will boost innovation and local knowledge promotion. More IITs and 75,000 medical seats will improve access to higher education.
4. Infrastructure & Development: INR 1 lakh crore fund for urban development and focus on nuclear energy show long-term planning. Expanding the Udaan scheme and new airports will boost regional connectivity. 40,000 housing units under SWAMIH to address stalled real estate projects.
5. Foreign Investment & Trade: 100% FDI & FPI in insurance to attract global investors.  Export promotion schemes & R&D incentives will strengthen India’s global competitiveness.
6. Healthcare & Essentials: Custom duty removal on 36 life-saving medicines will make healthcare more affordable.