What’s in the Revised Income Tax Bill 2025

Revised Income Tax Bill 2025 i.e. Income-tax (No. 2) Bill has been recently introduced in the Parliament. The first new income tax bill that came in February 2025 was withdrawn due to technical errors, which has now been brought in a corrected form. The main objective of this new income tax bill 2025 summary is to make the old 1961 law easy, transparent and modern so that taxpayers and businesses get relief from complex provisions. Finance Minister Nirmala Sitharaman has clarified that at present no change has been made in the new income tax bill 2025 slab rate.

What’s in the Revised Income Tax Bill 2025?

The Revised Income Tax Bill 2025, formally called the Income-tax (No. 2) Bill, 2025, is a new and simplified law introduced to replace the old Income-tax Act, 1961 of India. The first draft introduced in February 2025 was withdrawn due to technical and language related errors. After that, the government introduced this improved bill in August 2025, incorporating the recommendations of the Select Committee.

The main objective of this bill is:

• To convert complex and lengthy provisions into simple language.

• To make the law concise and understandable by reducing the number of sections and chapters.

• To further strengthen faceless assessment and digital process for taxpayers.

• To implement a single tax year system by removing complex concepts like “Assessment Year” and “Previous Year”.

• To provide relief to small taxpayers, such as avoiding unnecessary penalties in case of no tax liability.

It is important to note that there has been no change in slab rates or exemptions. The existing rates will remain the same.

Timeline of Revised Income Tax Bill 2025

• 13 February 2025: The first Income-tax Bill was introduced in Parliament.

• 21 July 2025: The Select Committee submitted a report with 285 suggestions and 32 major reforms.

• 8 August 2025: The government withdrew the first bill to bring an improved draft.

• 11 August 2025: The new bill was introduced as Income-tax (No. 2) Bill, 2025 and passed in the Lok Sabha.

• 21 August 2025: It received the President's assent and was formally made a law.

• 1 April 2026: The date fixed for the implementation of this new law was announced.

Why was the Bill Revised?

Technical and drafting errors : The first draft presented in February 2025 contained several clerical errors that could distort the true meaning of the law. For example, the words “in normal course” in Clause 21(2) could have made the calculation of rent and deeming rent ambiguous at that time, leading to unnecessary tax increases on vacant properties. The Select Committee recommended its deletion to keep the provisions as they were in the 1961 Act.

Recommendations from the Select Committee review : The Lok Sabha Select Committee (Chairman: Bijayant Panda) submitted around 285 suggestions in July 2025, of which around 32 were significant reforms—aimed at making the tax law more clear, equitable, and efficient. This included reforms in provisions such as “commuted pension”, “vacant property tax”, and “advance tax interest”.

The government withdrew the bill and presented an improved version : On August 8, 2025, the government withdrew the old draft. Finance Minister Nirmala Sitharaman told Parliament that the move was taken to incorporate draining, phrasing, cross-referencing and consequential changes suggested by the Select Committee. The new version was introduced on August 11. This resulted in a consolidated and clean bill.

Reducing ambiguity and disputes : The goal was to simplify and clarify the complexities and ambiguities that have been fueling tax litigation and disputes for so many years—making the compliance system smooth for both taxpayers and authorities.

Advance-tax Penal Interest and other reforms : Some provisions, such as the rate of penal interest on advance-tax (which could be 1% in the first draft), had caused misunderstanding. The Select Committee recommended a modification of this rule and retaining the earlier system of flat 3% (on the first three instalments) and then 1% (on the last instalment) so that there is no additional financial burden on taxpayers. This was later further clarified and the rate remained the same as before: 1% per month.

What the Revised Income Tax Bill Focuses On

1. Simplification of the Law

• Simplification of sections and language: The complex and lengthy sections in the old law have been replaced by clear, short and plain language provisions; for example, the tax charging section is now in short and easy sentences.

• Succinctness of structure: The structure of the law has been reduced from 800+ sections to 536 sections, and the number of chapters reduced to 23 and 16 schedules making it easier to read and understand.

• Use of tables and tabular formulas: The use of tables and formulas has been increased to better explain tax rates and rules, making information easier to access and reducing disputes.

2. Continuity with the 1961 Act

• Policy stability: Key policy aspects such as tax residency, scope of total income, operationalisation of multiple income sources, assessment process, etc. have been kept largely unchanged—making the transition to the new law easier for existing taxpayers and officers.

• Procedural, not policy changes: The major changes in the Bill are mostly limited to technical and procedural improvements such as formatting, context clarity, and ease of compliance; there are no Twitter-slab rate or policy-level changes.

• Basic structure preserved: A unified “Tax Year” system has been introduced, removing complex concepts such as Assessment Year and Previous Year but tax rates, compensation structure, income source headings, etc. remain the same.

What Stayed the Same (No Changes)

1. Tax slab rates and slab structure remain unaffected : Under the Revised Bill, existing slab rates whether in the new or old tax regime remain unchanged. New tax slabs were announced in Budget 2025, such as tax exemption on income up to ?12 lakh, and these limits have been retained in the Bill.

2. The filing process remains the same : The ITR forms, the basic process of filing returns, and the new/old tax regime all remain intact in the current form. This proves that the Bill has only made language and grammatical changes, the process has remained relatively unchanged.

3. Basic structure of appeals, assessments, and penalties remains : The essence of the process of appeals, assessments, and penalties remains the same in the new Bill. While the grammar and language have been cleaned up, the core provision and concept of these important processes remain the same.

4. Other Unchanged Provisions : Tax rules on Capital Gains, Dividends, Interest, and other investment income remain unchanged; these are unchanged in the bill.

NRI Residency Rules remain the same individuals who stay in India for less than 182 days will be considered NRIs. Stay conditions (such as the 120-day limit) are also unchanged.

Why This Rewrite Matters

1. Huge reduction in tax disputes : The old Income Tax Act of 1961 had ambiguous provisions and amendments over decades, leading to a massive tax dispute burden. By March 2024, the amount of disputes had reached ?13.4 trillion, of which ?3.8 trillion was added in just two years. The aim of this new bill is to reduce disputes by making it clearer.

2. Simpler law = less confusion : The tax law has now become shorter (self-explanatory), simplified and organised. For example, keeping rules in the form of tables and formulas, using clear sentences instead of long blocks, and replacing the complexity of “Previous Year–Assessment Year” with a Tax Year concept, these steps have made the law easier to understand. This will reduce confusion among businesses and individuals and improve compliance.

3. Facilitating compliance : The CBDT is now set to simplify ITR forms in line with the new law, making return filing easier and digital-friendly. This will save both time and effort, especially for startups, small businesses and unorganised taxpayers.

4. Time-bound dispute resolutions : The government Select Committee has recommended a time-bound process for resolving tax disputes. This will reduce legal gridlock and facilitate faster disposal of cases making the overall tax system more reliable.

Impact on taxpayers and businesses

Impact for individuals 

• No immediate change in slab rates: The Revised Income Tax Act, 2025 retains the existing tax slabs such as tax-free up to ?12 lakh thereby requiring no sudden changes to individual planning.

• Filing process alive and familiar: The basic process of filing tax returns (ITR) remains the same. However, the Bill removes the complexity of “Previous Year–Assessment Year” and adopts a single “Tax Year” concept making filing and financial planning simpler.

• If there is a change in slab rates : it will be through Budget 2025, not this Bill: Slab reforms were announced in the Budget, but the rates in the Revised Bill remain unaffected.

Relief for small taxpayers and monthly income group

• No penalty on non-filing: The new bill removes the provision that could have imposed a penalty for not filing ITR even when there was no tax liability, as recommended by the Select Committee. Now, non-filing will be penalty-free for small taxpayers.

Benefits for Businesses & Startups

• Compliance framework more predictable: The new bill brings clarity in language and structure making it easier for tax teams to translate and map new provisions and clauses.

• Reduction in interpretation disputes: Open and clear clause structure will reduce interpretation disputes, reducing legal hassles.

Impact for Global Investors

• Increased clarity for global investors: The bill clarifies definitions (e.g., NRI residency, source of income), processes, and compliance making it easier for international investors to plan tax regulations and investments.

• Reliability in tax treatment: The way tax laws have been made clear and stable for foreign investors enhances cross-border treaty interpretation and investment confidence.

Common Misunderstandings (Myths Busted)

“New bill = new tax slab rates” : This is the biggest misconception. Actually, the purpose of the Revised Income Tax Bill 2025 is not to change the tax rate or slab. It has been brought only to simplify and clarify the old law. Changes in tax slab rates are made only through the annual budget (Finance Bill), not through such a Consolidation Bill.

“The old bill has been completely repealed” : This is also wrong to say. The first draft presented on 13 February 2025 was only withdrawn so that the errors present in it and the recommendations of the Select Committee could be included. Then it was reintroduced on 11 August 2025 as Income-tax (No. 2) Bill, 2025. That is, the bill was not repealed, but a new improved version was brought.

“Penalties and fines have become more stringent in the new law” : Actually the opposite has happened. Relief has been provided to small taxpayers in the Revised Bill. For example, if someone does not have any tax liability and just has not filed the return, then the unnecessary penalty in such cases has been removed. That is, the penalty for small taxpayers has been made more lenient and fair than before.

Conclusion

The Revised Income Tax Bill 2025 is a major initiative to simplify, clarify and modernise India's tax structure. This is not a bill to introduce new slab rates, but an attempt to mould the complex law of 1961 into simpler language and structure. Relief to small taxpayers, predictable compliance for businesses and clear rules for investors all these changes will enhance trust and transparency in the long run. Now all eyes will be on its implementation from April 2026 and the upcoming budget, where changes in actual tax rates may be seen.

FAQs

Q1. What is the Revised Income Tax Bill 2025?

This is a new law to simplify, clarify and modernize the old Income Tax Act of 1961.

Q2. Does the new income tax bill change slab rates?

No, there is no change in slab rates yet.

Q3. Why was the first Income Tax Bill 2025 withdrawn?

There were technical errors in the first bill, so a new draft was brought after the recommendations of the Select Committee.

Q4. When will the new law come into effect?

This law will come into effect from 1 April 2026.

Q5. Does this bill provide relief to small taxpayers?

Yes, unnecessary penalties have been removed in cases of no tax liability.