The Income Tax (No. 2) Bill, 2025, passed by the Lok Sabha, is set to overhaul the existing tax system for individuals and families in India. Spearheaded by Union Finance Minister Nirmala Sitharaman, this new legislation will replace the Income Tax Act, 1961, and come into effect on April 1, 2026.
The key highlight is the introduction of a new, simplified tax regime under Clause 202(I), which offers a full tax exemption on income up to ₹4 lakh.
Key Changes and Benefits
- New Tax Regime & Slabs: The bill proposes a simplified tax structure with reduced rates. The slabs are as follows:
- Nil: Up to ₹4 lakh
- 5%: ₹4,00,001 to ₹8 lakh
- 10%: ₹8,00,001 to ₹12 lakh
- 15%: ₹12,00,001 to ₹16 lakh
- 20%: ₹16,00,001 to ₹20 lakh
- 25%: ₹20,00,001 to ₹24 lakh
- 30%: Above ₹24 lakh
- Tax Rebates: Taxpayers will see increased relief through rebates in both regimes.
- Old Regime: A 100% rebate is available for income up to ₹5 lakh, with a cap of ₹12,500.
- New Regime: The benefit is extended to incomes up to ₹12 lakh, with a maximum rebate of ₹60,000.
- Property and Pension Income: The bill clarifies how certain incomes are taxed:
- House Property: Income from house property is now the higher of the notional or actual rent received. Properties used for business purposes will be taxed under business income.
- Unified Pension Scheme (UPS): The UPS is now aligned with the National Pension System (NPS). Up to 60% of the pension corpus at retirement is now tax-exempt.
- Tax Year Definition: The bill officially defines the ‘Tax Year’ as beginning on April 1st of each financial year. For new businesses, the tax year starts from the date of inception.
These changes are part of a broader government strategy to simplify tax administration, reduce the tax burden on middle-income earners, and create a more transparent and favorable business environment.