23 chapters, 16 schedules and 536 clauses: Here is what the new Income Tax Bill says

The New Income Tax Bill, set to be presented in Parliament on Thursday, February 13, will span over 622 pages and aims to replace the six-decade-old Income Tax Act of 1961. Once passed, the proposed legislation will be called the Income Tax Act, 2025, and is expected to take effect in April 2026.

Experts have long criticised the current Income Tax Act for being complex and cumbersome, resulting in numerous legal disputes. The government has recognized the need for a more streamlined direct tax law to reduce ambiguities and provide greater clarity.

Here is what the new Income Tax Bill says

Income Tax Deductions on Salaries: Comprehensive Breakdown of Allowances and Gratuities

Section 19: Deductions from Salaries

The income chargeable under the head “Salaries” will be computed after making deductions of the nature mentioned below, to the extent specified.

Tax on Employment: The sum paid by the assessee as a tax on employment, as per Article 276(2) of the Constitution, will be deducted in full.

Standard Deduction: A standard deduction is available to employees, amounting to ₹50,000 or the salary, whichever is less.

Gratuity Received under the Payment of Gratuity Act: Gratuity received on retirement, incapacity, or death, as per the Payment of Gratuity Act, 1972, is fully deductible.

Retiring Gratuity for Defense Service Members: Retiring gratuity received under the Pension Code or Regulations for members of defense services is fully deductible.

Death-cum-Retirement Gratuity: Gratuity received on death or retirement is fully deductible.

Other Gratuity Received upon Retirement or Termination: Gratuity received upon retirement, incapacity, or termination of employment is deductible. The deduction is the lesser of ₹75,000 or the salary, whichever is less.

Loss and Depreciation: Any loss or depreciation mentioned in subsection (2)(b) is considered to have been fully accounted for, and no further deductions will be allowed in subsequent years.

Option for Taxpayer: A taxpayer may opt for this deduction before the due date for filing income returns for the tax year. Once this option is exercised, it will apply to subsequent years, and withdrawal is allowed only once. After withdrawal, the person will not be able to exercise the option again, except if they cease to have income from business or profession.

New Tax Regime for Individuals and Others (Section 202)

For individuals, Hindu Undivided Families, associations of persons, bodies of individuals, and artificial juridical persons, the income tax will be computed based on total income for the tax year, unless the person opts for the prescribed rate of tax.

Up to ₹4,00,000: No tax will be levied.

From ₹4,00,001 to ₹8,00,000: The tax rate is 5%.

From ₹8,00,001 to ₹12,00,000: The tax rate is 10%.

From ₹12,00,001 to ₹16,00,000: The tax rate is 15%.

From ₹16,00,001 to ₹20,00,000: The tax rate is 20%.

From ₹20,00,001 to ₹24,00,000: The tax rate is 25%.

Above ₹24,00,000: The tax rate is 30%.

For computing total income, there will be no exemptions or deductions under certain sections or schedules, including income from house property and capital gains.

Pension and Compensation Deductions

Pension Commutation: Commutation of pension received under the Civil Pensions (Commutation) Rules of the Central Government or similar schemes for civil services, defense, and other government services will be fully deductible.

Compensation on Retrenchment: Compensation received under the Industrial Disputes Act, 1947, or any similar Act will be deductible. The minimum deduction is ₹50,000 or as per Section 25F(b) of the Act.

Voluntary Retirement Scheme Payments: Payments received under a voluntary retirement scheme will be deductible, with a minimum amount of ₹5,00,000 or as specified by the Central Government.

New income tax bill

Last week, the Union Cabinet cleared the new income tax bill.

Sitharaman had said in her budget speech on February 1 that the bill will be soon introduced in Parliament.

“Over the past 10 years, our Government has implemented several reforms for convenience of tax payers, such as (1) faceless assessment, (2) taxpayers charter, (3) faster returns, (4) almost 99 per cent returns being on selfassessment, and (5) Vivad se Vishwas scheme. Continuing these efforts,I reaffirm the commitment of the tax department to “trust first, scrutinize later. I also propose to introduce the new income-tax bill next week,” she said in the budget speech.

In July 2024 Budget, the government had proposed a comprehensive review of the Income-tax Act, 1961. The purpose was to make the Act concise and lucid and reduce disputes and litigation.