Income Tax Bill 2025 - New Slabs, Rebate Changes, Key Provisions

India’s Union Finance Minister tabled the revised Income Tax Bill in the Lok Sabha (lower house of the Parliament) on August 11, 2025. The present version of the proposed legislation carries most of the 285 recommendations that were put forward by the Select Committee and through public feedback.

The proposed Bill has been passed in the Lok Sabha which aims to simplify the tax system for all and is built on core "SIMPLE" principles.

 

Letter	Meaning
S	Streamlined structure & language
I	Integrated & concise
M	Minimized litigation
P	Practical & Transparent
L	Learn & Adapt
E	Efficient Tax Reforms

 

The Bill intends to replace the six-decade-old Income Tax Act, 1961 to modernize and consolidate India's income tax regulations. The goal of the new measure is to streamline the tax code by cutting the Income Tax Act, 1961's existing 800+ sections to 536.

The Bill broadens the powers of income tax officials and allows them to forcibly break into personal emails and social media accounts of assessees during search operations

 

 

Income Tax Bill, 2025: Key provisions

The Select Committee has had almost all of their suggestions approved by the policy makers. The report also states that some attempts to improve the wording and precise clauses have their intended meaning, especially the legal meaning, after considering different stakeholders’ inputs.

Clause 2021: New tax regime (1)

The new tax structure is established under clause 202(1). Individuals, Hindu Undivided Families (HUFs), and taxpayers.

Income Tax Slab — New Regime	Tax Rate
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%

 

Income tax rebate under Section 87A provisions

The amended income tax bill's Chapter IX contains several articles that carry over the regulations pertaining to the Section 87A refund from the Income Tax Act of 1961.

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.

Income Tax Rebate Condition	Existing Limit	New Tax Regime (Clause 202(1))
Maximum rebate	Rs. 12,500 or full tax payable (whichever is lower)	Rs. 60,000 or full tax payable (whichever is lower)
Income eligibility for full rebate	Total income ≤ Rs. 5,00,000	Per new slab rates, a full rebate is available within the eligible income range

For incomes above INR 1.2 million, if the tax payable exceeds the amount by which the total income is greater than INR 1.2 million, the rebate will equal the excess amount.

In all cases, the rebate cannot exceed the income tax payable per the slab rates in Clause 202(1).

 

 

Eligibility for Section 87A rebate

The rebate under Section 87A is available only to individuals who qualify as residents of India. 

 

Income exclusions from Section 87A rebate

• Certain categories of income are excluded from this rebate. Specifically, you cannot claim the Section 87A rebate on gains from the selling of listed equity shares over the long term (LTCG).

• Section 112A of the Income Tax Act of 1961 now taxes LTCG from equity-oriented mutual funds.

• The rebate advantage is not applicable to this component of the tax burden, and these capital gains are subject to a fixed tax rate of 12.5%.

 

Other tax reliefs and compliance easing

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).

In the previous draft, this exemption was not explicitly mentioned, prompting the Parliamentary Select Committee to recommend its inclusion.

The revised bill also delivers broader compliance relief. It removes the levy of Alternate Minimum Tax (AMT) on limited liability partnerships (LLPs), eases earlier restrictions on charitable trusts, and relaxes provisions related to transfer pricing (TP), including the definition of “Associated Enterprise” to which these rules apply.

 

 

Select Committee’s recommendation on the income tax bill

In July, the Select Committee comprising 31 Members of Parliament (MPs) submitted a comprehensive report spanning over 4,500 pages. The document outlines a wide range of recommendations for refining the draft Income Tax Bill. 

One of the most notable suggestions is the introduction of greater flexibility for tax refunds, even in cases where returns are filed after the due date. The committee also recommended reinstating the Section 80M deduction for inter-corporate dividends, a move that could benefit corporate taxpayers by reducing double taxation on distributed profits.

Here are some of the other recommendations put forth by the Select Committee on the Income Tax Bill, 2025:

• Advance NIL-TDS (tax deducted at source) certification: Enabling individuals with no tax liability to secure a NIL-TDS certificate in advance. At present, late filing of TDS returns attracts a fee of INR 200 per day under Section 234E of the Income Tax Act, 1961.

• Vacant property tax relief: Eliminating the notional rent-based tax levy on unoccupied properties.

• Clarity in property income calculations: Applying the 30 percent standard deduction after deducting municipal taxes and extending home loan interest deductions to rented properties.

• Procedural improvements: Revising advance ruling fees, addressing TDS on provident fund withdrawals, and clarifying the scope of penal provisions.

• MSME definition alignment: Adopting the definition under the MSME Act for consistency.

• Property classification clarity: Modifying the term “occupied” to avoid confusion between residential and commercial usage.

• Pension benefit expansion: Extending the commuted pension deduction to individuals who are not former employees.

• More powers of income tax officials and allows them to forcibly break into personal emails and social media accounts of assessee during search operations

 

Income Tax Act, 1961, vs. Income Tax Bill, 2025: Key differences

• The old Income Tax Act language and structure have often proved confusing for the common man. The new bill has been brought with the intention of changing it completely.

• The Income Tax Bill, 2025 seeks to replace this framework with a modern, streamlined structure. 

• The Bill has around 2.59 lakh words compared with the 5.12 lakh words in the Income Tax Act, 1961. The number of chapters has been brought down to 23 from 47 and the number of Sections to 536 from 819. 

• In order to provide greater clarity, the new Bill has increased the number of tables to 57 from 18 and the number of formulae to 46 from six.

• It introduces a unified term, “Tax Year,” in place of the earlier distinction between “Previous Year” and “Assessment Year.”

• CBDT has been given more power to make rules according to the digital age.

• In simple words, the new law will be much easier to read, understand and implement than the old one.

 

Summary

The Income Tax Bill, 2025 is an essential step for modernizing India’s tax framework. By incorporating extensive parliamentary and public feedback, introducing a simplified tax regime, refining rebate provisions, and removing outdated clauses. The bill also aims to make compliance easier while ensuring fairness and clarity for taxpayers across the country.