Income Tax bill 2025

Why In news

• The Union Budget for 2025- 2026, presented by Finance Minister Nirmala Sitharaman, introduces significant reforms to India's income tax structure.
• These changes aim to simplify the tax regime, reduce compliance burdens, and stimulate economic growth by enhancing disposable income for taxpayers.

About the income tax bill

Revised Income Tax Slabs and Rates

• A key feature of the new bill is the restructuring of income tax slabs under the new tax regime, providing substantial relief to middle class taxpayers:
• Income up to ₹12,00,000: No tax.
• Income from ₹12,00,001 to ₹16,00,000: 10%
• Income from ₹16,00,001 to ₹20,00,000: 15%
• Income from ₹20,00,001 to ₹24,00,000: 20%
• Income above ₹24,00,000: 25%
• For salaried individuals, a standard deduction of ₹75,000 is applicable, effectively making income up to ₹12,75,000 tax free.

Rebate under Section 87A

• To further alleviate the tax burden on individuals with lower incomes, the bill proposes an enhancement in the rebate under Section 87A:
• Eligibility: Resident individuals with total income not exceeding ₹12,00,000.

Rebate Amount:

• 100% of income tax payable or ₹12,500, whichever is less.
• This effectively ensures that individuals with income up to ₹12,00,000 will not have any tax liability.

Rationalization of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS)

The bill introduces measures to rationalize TDS and TCS provisions to ease compliance

• Interest Income for Senior Citizens: The TDS threshold on interest income has been increased from ₹50,000 to ₹1,00,000.
• Rental Income:
• The TDS threshold on rental income has been raised from ₹2,40,000 to ₹6,00,000.
• These changes aim to reduce the compliance burden on taxpayers and promote timely tax payments.

Tax Exemptions and Deductions

• The new bill proposes several exemptions and deductions to encourage savings and investments:
• National Savings Scheme (NSS): Withdrawals made from NSS accounts by individuals on or after August 29, 2024, will be exempt from tax.

Standard Deduction for Salaried Individuals:

• A standard deduction of ₹75,000 is introduced, enhancing the disposable income of salaried taxpayers.

Extension of Time Limit to File Income Tax Returns

• To provide taxpayers with ample time to comply with tax filing requirements, the bill extends the deadline for filing updated returns:
• Previous Deadline: Two years from the end of the relevant assessment year.
• Revised Deadline: Four years from the end of the relevant assessment year.

Implications of India's Income Tax Bill 2025

Positive Implications

Increased Disposable Income for MiddleClass Taxpayers:

• The new tax slabs and rebates under Section 87A ensure that individuals earning up to ₹12,00,000 will have little or no tax liability, leading to higher savings and consumption.

Boost to the Real Estate Sector:

• With lower tax liabilities and higher disposable income, individuals may be more inclined to invest in real estate, potentially increasing housing demand and benefiting related industries.

Enhanced Savings and Investment Opportunities:

• The bill introduces better tax exemptions for certain savings schemes like the National Savings Scheme (NSS) and increases the threshold for tax free interest on fixed deposits for senior citizens, encouraging retirement savings.

Simplification of Tax Structure:

• The new tax slabs are easier to understand, reducing confusion between the old and new tax regimes, and the extension of the time limit for filing updated returns provides taxpayers with more flexibility.

Encouragement for Digital Transactions:

• The bill promotes transparency by emphasizing digital transactions and compliance, supporting India's push toward a digital economy.

Negative Implications

Loss of Revenue in the Short Term:

• While tax cuts increase disposable income, they also reduce direct tax collection from individuals, potentially leading to higher fiscal deficits if not compensated through indirect taxes or economic growth.

Potential Inflationary Effects:

• Increased disposable income can lead to higher consumer demand, which, if not matched by supply, may result in inflation, eroding purchasing power.

Limited Benefits for HighIncome Earners:

• Individuals earning above ₹24,00,000 will face a 25% tax rate, which is relatively high, and the lack of major deductions in the new tax regime means high income earners may end up paying more tax than before.

Compliance Challenges for Businesses:

• The revised TDS and TCS provisions may increase compliance requirements for businesses, potentially leading to additional costs in upgrading accounting and payroll systems.

Real Estate Price Bubble Risks:

• Increased demand for real estate, fueled by tax cuts, could lead to an artificial price surge, decreasing home affordability for lower and middleincome groups.
• Risk of Increased Tax Evasion Attempts: Some individuals and businesses might attempt to exploit loopholes, leading the government to introduce stricter auditing and enforcement mechanisms, increasing compliance costs.

Procedure for Introduction of the Income Tax Bill in India

The introduction of an Income Tax Bill in India follows a well defined legislative process as outlined in the Indian Constitution.

Constitutional Basis for the Income Tax Bill

Article 110 – Definition of a Money Bill

• The Income Tax Bill is classified as a Money Bill since it deals with taxation.
• A Money Bill is defined under Article 110(1)(a) as a bill that imposes, abolishes, remits, alters, or regulates any tax.
• The Speaker of the Lok Sabha has the final authority to certify whether a bill is a Money Bill.

Article 117 – Special Provisions for Financial Bills

• A Money Bill can only be introduced with the recommendation of the President.
• Only a Minister (usually the Finance Minister) can introduce it in Lok Sabha, not a private member.
• Steps for the Introduction of the Income Tax Bill in Parliament

Preparation by the Ministry of Finance

• The Finance Ministry drafts the Income Tax Bill as part of the Union Budget.
• Inputs are taken from experts, tax authorities, and economic advisors.
• The bill is sent to the Cabinet for approval before being presented in Parliament.

Introduction in Lok Sabha (First Reading)

• The Finance Minister introduces the Income Tax Bill in Lok Sabha along with the Union Budget.
• No detailed discussion occurs at this stage—only the title and objectives are read.

General Discussion (Second Reading Stage 1)

• Members debate the broad principles of the bill.
• No amendments are moved at this stage.
• The Finance Minister responds to concerns raised by MPs.

Committee Stage (Second Reading Stage 2)

• The bill may be sent to a Parliamentary Committee (such as the Standing Committee on Finance) for detailed examination.
• The committee analyzes the bill and may suggest modifications.
• The committee’s report is advisory but influences further discussions.

Clause by Clause Consideration (Second Reading Stage 3)

• The bill returns to Lok Sabha for detailed scrutiny.
• Each clause is debated, voted upon, and amendments may be introduced.
• After final approval, the bill moves to the next stage.

Voting and Third Reading in Lok Sabha

• Lok Sabha votes on the final bill.
• If passed, the bill is sent to Rajya Sabha for consideration.

Rajya Sabha’s Role

• Since the Income Tax Bill is a Money Bill, Rajya Sabha has limited powers:
• It cannot reject or amend the bill.
• It can suggest changes, but Lok Sabha is not bound to accept them.
• It must return the bill within 14 days, after which it is deemed to be passed even if Rajya Sabha takes no action.

Presidential Assent and Enactment

• After passing both Houses, the bill is sent to the President for approval.
• As a Money Bill, the President cannot refuse assent (Article 111).
• Once the President signs the bill, it becomes law and is enforced as part of the Income Tax Act, 1961

Conclusion: Balancing Growth with Fiscal Stability

• The Income Tax Bill 2025- 2026 brings substantial benefits to the middle class, encourages savings, and simplifies tax compliance.
• However, challenges remain, such as potential revenue loss, inflation risks, and compliance burdens for businesses.
• By restructuring tax slabs, increasing rebates, and promoting digital transactions, the bill seeks to boost disposable income, drive economic growth, and improve tax compliance.
• At the same time, the government must ensure fiscal stability, prevent inflationary pressures, and address compliance concerns to achieve sustainable economic growth.