New Income Tax Bill 2025: FAQs issued on provisions for salaried taxpayers, virtual digital assets & more — details

Union Minister Finance Minister Nirmala Sitharaman presented the new Income Tax Bill 2025 in the Lok Sabha on Thursday, February 2025. The proposed bill aims to eliminate intricate language in the existing Act, remove redundant and repetitive provisions, and logically reorganise sections, according to the Finance Ministry.

FM Nirmala Sitharaman urged Lok Sabha Speaker Om Birla to refer the bill to a select committee, which will submit its report by the first day of the next session, scheduled to begin on March 10.

What is the new Income Tax Bill 2025?

The Income Tax Bill 2025 is the set of laws that enables the Income Tax Department to levy, administer, collect and recover taxes. It has 536 sections, 23 chapters and 16 schedules covering various aspects of taxation in India. The new bill will replace the Income Tax Act, 1961.

Following the bill’s presentation in the Lok Sabha, the Ministry of Finance has answered a set of questions.

Q 1. Have the redundant provisions of the Income-tax Act 1961 been removed in the new Income-tax Bill?

Ans: Yes. Certain provisions became redundant due to numerous amendments and/or policy changes over the years. This resulted in a large number of such provisions in the Act.

For example, deduction under section 10A, which was a special provision for newly established industrial undertakings in the free trade zones, is no longer available from the Assessment Year 2012-13, onwards. Such obsolete provisions have been removed from the text of the Bill. However, provisions applicable to earlier Assessment Years shall be governed by Repeal and Savings provisions.

Q 2. How has ‘previous year’ and ‘assessment year’ been dealt with in the new bill?

Ans: The concept of ‘tax year’ has been introduced replacing ‘previous year’ and ‘assessment year’. The timelines and computation in the Bill are now with reference to the financial year for which the income is liable to be taxed. It is expected that the use of ‘tax year’ will make the new Bill easier to comprehend.

Further, many of the comparable tax jurisdictions in the world are using one single term, for purpose of denoting the unit period of taxation. ‘Tax year’ is commonly used in many countries. With the introduction of ‘tax year’, broadly the following principles have been adopted:

i. ‘Tax Year’: Unit period of taxation. This term shall be referred in respect of all transactions and income for that period.

ii. ‘Financial Year’: For purposes of timelines for compliance and for procedural issues.

Q 3. How have the provisions of TDS and TCS been simplified in the new bill?

Ans: TDS and TCS provisions have been made easier to comprehend by providing tables. There are separate tables for payment to residents and non-residents, and where no deduction at source is required. For example, the proposed provisions relating to TDS on rent are shown below:

Q 4. What simplification has been carried out for salaried employees in the new bill?

Ans: All the provisions pertaining to salary have been consolidated at one place for ease of understanding so that the taxpayer does not have to refer to separate chapters for filing his return of income.

The deductions which were earlier allowed under section 10 of the Income Tax Act,1961, like gratuity, leave encashment, commutation of pension, compensation on VRS and retrenchment compensation, are now part of the salary chapter itself.

Some of the allowances like HRA are now provided in Schedule II of the new Bill that finds reference in the provisions relating to salary. The objective was to improve readability by way of providing tables and formulas.

While the chargeability of all the perquisites has been retained in the Act, their valuation, conditions and exceptions have been shifted to Rules as they do not affect every taxpayer. Similarly, redundant and repetitive provisions have also been removed for better readability.

Q 5. Why is it that on comparison of new Income Tax Bill and earlier provisions, it is found that in some cases viz ‘virtual digital assets’, etc there are certain changes?

Ans: The Income Tax Bill 2025 also contains all amendments proposed in Finance Bill 2025. Therefore, the users are advised to compare the provisions of the Income Tax Act, 1961, as updated with proposed amendments in Finance bill 2025, while reading the Income Tax Bill, 2025.

There is, therefore, no change in the scope of ‘virtual digital asset’ under the Income Tax Bill, 2025. The definition under the Bill incorporates the amendment already proposed under the Finance Bill, 2025.

Q 6. What are the changes on rates and other policy in the new bill?

Ans: There are no changes related to rates. Since there have been regular amendments to the Income Tax Act, 1961 including amendments proposed in Finance Bill, 2025, the Act stands updated from policy perspective.

All amendments proposed upto Finance Bill 2025 have been duly incorporated in the new Income tax bill 2025. Therefore, while no major policy related changes have been made in the Bill, the above aspects have led to proposed ‘material’ changes in the existing law.

Q 7. What changes are being made to exemptions for specific incomes and persons?

Ans: Provisions relating to exemptions for specific incomes and persons are being moved to separate schedules for easier reference and simpler compliance as follows:

Q 8. What other steps have been taken to enhance clarity in the new Bill?

Ans: In addition to removal of ‘provisos’, ‘explanation’ and redundant provisions, formulae,tables, and structures have been used to enhance clarity in the new bill. To the extent possible, provisions involving the same issues, which were present in different chapters in the current Act, have now been consolidated. Redundancy has been removed and definitions at multiple places have been consolidated.

In case of provisions relating to Non-Profit organisations (NPOs), the entire text related to NPOs has been consolidated and structured into 7 sub-parts which contain provisions related to Registration, Income, Commercial activities, Compliances, Violations, Registrations for the purposes of eligibility of donations and Interpretations.