New Income Tax Bill 2025 —
Everything You Must Know.

Why Was a New Income Tax Act Needed?

The Income Tax Act, 1961 has served India for over six decades. In that time, it has been amended more than 65 times — by budget after budget, Finance Act after Finance Act. The result is a statute of extraordinary complexity: 823 sections, 14 schedules, hundreds of provisos, explanations, exceptions, and cross-references that even experienced practitioners find difficult to navigate.

The Direct Taxes Code (DTC) was attempted earlier — in 2009 and 2013 — but was never enacted. The New Income Tax Bill 2025 is the government's latest and most serious effort at overhauling the law. Unlike the DTC, which proposed significant substantive changes, the 2025 Bill focuses primarily on simplification — making the law clearer, shorter, and easier to comply with — rather than overhauling tax rates and the fundamental structure of taxation.

The Five Core Objectives of the New Bill

• Simplification of language: Replace complex, archaic legal drafting with plain, modern English that ordinary taxpayers can understand without a lawyer.
• Structural reorganisation: Restructure the Act logically — grouping related provisions together so users can find what they need without hunting through disconnected sections.
• Elimination of redundancies: Remove provisions that are obsolete, expired, or duplicated across multiple sections.
• Digital and modern economy provisions: Incorporate explicit statutory provisions for digital assets, virtual digital assets (VDA), crypto taxation, and the faceless assessment regime — which currently exist in ad hoc amendments rather than as cohesive law.
• Reduce litigation: By making the law clearer, reduce the volume of disputes arising from ambiguous drafting.

What Has Not Changed

It is crucial to understand what the new Bill does NOT do:

• Tax rates are not fundamentally altered. The income tax slabs, surcharge rates, and cess structure remain essentially the same as introduced in the Union Budget 2025.
• Major deductions and exemptions remain. HRA exemption, Section 80C deductions, Section 24 home loan interest — these continue in the new framework, though renumbered.
• The assessment and appeal structure is preserved. The Assessing Officer, CIT(A), and ITAT continue as the primary appellate hierarchy.
• All existing judicial precedents remain valid. Cases decided under the 1961 Act on substantive tax principles continue to apply — the new Bill does not wipe out decades of case law.

"Tax Year" Replaces "Previous Year" and "Assessment Year"

One of the most talked-about structural changes is the replacement of the confusing "Previous Year" / "Assessment Year" terminology with a single concept: "Tax Year." Under the new framework, the Tax Year for FY 2025-26 is simply "Tax Year 2025-26" — income earned and taxes paid in the same year are assessed in the same year reference. This eliminates the long-standing confusion where income of "Previous Year 2023-24" is assessed in "Assessment Year 2024-25."

New Tax Regime — Slabs for FY 2025-26

The Union Budget 2025 made the New Tax Regime significantly more attractive, particularly for individuals earning up to ₹12 lakh. Here are the revised slabs:

Old Tax Regime — Slabs for FY 2025-26

The Old Regime allows deductions under Chapter VI-A — Section 80C (₹1.5 lakh), Section 80D (health insurance), HRA exemption, LTA, home loan interest under Section 24, and more. These deductions are not available under the New Regime (except standard deduction and NPS employer contribution).

New Regime vs Old Regime — Which Is Better?

The answer depends entirely on your individual profile. Here is a general framework:

• New Regime is typically better if: Your income is up to ₹12 lakh (NIL tax); you have low deductions (below ₹2–3 lakh total); you are a young professional or early in career with minimal investments; or you are a senior citizen without large 80C investments.
• Old Regime may still be better if: You have a home loan with significant interest deduction; you pay high HRA; your 80C, 80D, and other deductions exceed ₹3.5–4 lakh; or you have significant business losses to set off.
• For most salaried individuals earning ₹8–15 lakh with moderate deductions, the New Regime is now more beneficial following Budget 2025 changes.

Background — How VDA Taxation Was Introduced

The Finance Act 2022 introduced the first explicit statutory framework for taxing Virtual Digital Assets (VDAs) in India — covering Bitcoin, Ethereum, other cryptocurrencies, Non-Fungible Tokens (NFTs), and any other digital asset notified by the government. The New Income Tax Bill 2025 retains and consolidates these provisions into a dedicated, clearly structured chapter — giving VDA taxation a permanent, codified place in the new law rather than treating it as an amendment bolted onto the old Act.

Definition of Virtual Digital Asset Under the New Bill

The new Bill retains the broad definition of VDA introduced in 2022:

• Any information, code, number, or token (not being Indian or foreign currency) generated through cryptographic means or otherwise, that can be transferred, stored, or traded electronically
• Non-Fungible Tokens (NFTs)
• Any other digital asset notified by the Central Government
• Excluded: Gift cards, mileage points, loyalty points, subscriptions, and digital representations of fiat currencies

Tax Rate — 30% Flat, No Deductions

The tax treatment of VDA income under the new Bill is:

TDS on VDA Transactions — What Buyers Must Know

Under the new Bill (equivalent to current Section 194S), any person paying consideration for transfer of a VDA must deduct TDS at 1% before making payment. This applies to:

• Crypto exchange transactions — exchanges are required to deduct 1% TDS on each trade
• Peer-to-peer transfers — the buyer is responsible for deducting TDS when paying the seller
• NFT purchases — the buyer must deduct 1% TDS on the consideration paid

Failure to deduct TDS on VDA transactions results in the buyer being treated as an assessee in default — attracting interest, penalty, and potential prosecution.

Practical Impact — Common Mistakes to Avoid

• Not reporting crypto gains: The 1% TDS means the department already has data on crypto transactions. Non-reporting in ITR is a high-risk strategy that frequently results in notices.
• Claiming deductions against VDA income: Exchange fees, internet costs, and electricity for mining — these cannot be deducted. Only the cost of acquisition is allowed.
• Attempting to set off crypto losses against salary or business income: This is specifically prohibited. Crypto losses are ring-fenced.
• Ignoring airdrops and staking rewards: Income from airdrops, staking rewards, and mining is taxable as VDA income at 30% in the year of receipt.

Search and Seizure — What the New Bill Changes

Search and seizure operations under income tax — commonly known as "IT raids" — are among the most traumatic and consequential events a taxpayer can face. The existing provisions in Sections 132–132B of the 1961 Act are dense, complex, and have generated enormous litigation. The New Income Tax Bill 2025 restructures and consolidates these provisions with several important changes:

Key Changes in Search Provisions

• Authorisation requirements made explicit: The new Bill provides clearer and more explicit conditions under which search authorisation can be issued — including the requirement that the authorising authority must have "reason to believe" based on tangible information, not mere suspicion.
• Time limits for completing search: Explicit statutory time limits for completion of search proceedings, providing certainty to taxpayers about how long the process can continue.
• Digital search provisions: The new Bill explicitly covers search of digital devices, cloud data, email accounts, and cryptocurrency wallets — addressing the reality of modern record-keeping that was not contemplated in 1961.
• Rights during search codified: The right to have a witness present, the right to receive copies of seized documents, and the right to make statements voluntarily — these are codified more explicitly in the new Bill.

Block Assessment — The Undisclosed Income Framework

When a search is conducted, the department assesses "undisclosed income" discovered during the search through a "block assessment." The new Bill refines this framework:

• Six-year block period: Undisclosed income for up to 6 years preceding the year of search can be assessed — this is rationalised from the earlier more complex provisions.
• 60% tax on undisclosed income: Income found to be undisclosed during search continues to attract tax at 60% plus a surcharge of 25% of the tax — making the effective rate approximately 78%, a significant deterrent.
• No deduction for seized assets: Where assets seized during search are offered as undisclosed income, no deductions or exemptions are available against such income.

Survey Operations — Key Clarifications

Survey operations (covered under Section 133A of the 1961 Act) are distinct from search — they are conducted at business premises during business hours and are generally less intrusive. The new Bill clarifies several important points:

• Statements made during survey are not admissible as confessions — retraction of statements made under coercion during surveys is explicitly preserved as a right.
• Surveys cannot be conducted at residential premises (only search warrants permit this).
• Digital survey provisions now explicitly include examination of business systems and accounting software.

The TDS Simplification — What Has Changed

The existing TDS framework under the 1961 Act has grown into an enormously complex web — over 30 separate sections (194A, 194B, 194C, 194D... all the way to 194S and beyond), each with different thresholds, rates, and conditions. The New Income Tax Bill 2025 rationalises this into a cleaner structure, though the fundamental TDS obligation remains.

Key TDS Changes in Budget 2025 / New Bill

New TDS on Floating Rate Bonds and Specified Securities

The New Bill introduces explicit TDS provisions for several categories of income that were previously in a grey zone — including income from floating rate savings bonds, certain government securities, and specified infrastructure bonds. This closes a compliance gap that existed under the 1961 Act.

Higher TDS / TCS for Non-Filers — Retained in New Bill

The provision requiring higher TDS/TCS for persons who have not filed income tax returns for the past two years (where TDS/TCS exceeds ₹50,000 in each year) is retained in the New Bill. Under this provision:

• Non-filers face TDS at twice the normal rate or 5% — whichever is higher
• The CBDT maintains a list of "specified persons" (non-filers) which deductors must check before making payment
• This provision is a strong compliance incentive — non-filing of ITR directly results in higher TDS deduction from all future payments

Consequences of TDS Default Under the New Bill

The new Bill retains strong consequences for TDS defaults — these are among the most litigated areas of income tax. A deductor who fails to deduct TDS faces:

• Disallowance of 30% of expense in the year of default (under the equivalent of current Section 40(a)(ia))
• Interest at 1% per month from the date when TDS should have been deducted to the date it is actually deducted
• Interest at 1.5% per month from the date of deduction to the date of deposit with the government
• Penalty under the equivalent of Section 271C — equal to the amount of TDS not deducted
• Prosecution in cases of habitual default or deliberate non-compliance

The Appellate Structure — What Is Preserved

For taxpayers and practitioners currently engaged in income tax litigation, the most important question about the New Income Tax Bill 2025 is: does it change the appellate process? The answer is: the structure is preserved, but with important enhancements.

• CIT(A) — First Appeal: The Commissioner of Income Tax (Appeals) remains the first appellate authority. Time limit for filing: 30 days from the date of demand notice (with provision for condonation of delay).
• ITAT — Second Appeal: The Income Tax Appellate Tribunal remains the second appellate authority for both taxpayers and the department. Its decisions on questions of fact are final.
• High Court: Appeals on substantial questions of law from ITAT orders continue to lie before the respective High Courts.
• Supreme Court: The final appellate forum on constitutional and legal questions remains the Supreme Court.

Faceless Assessment — Now a Statutory Right

One of the most significant upgrades in the New Bill is the statutory codification of Faceless Assessment and Faceless Appeals. Currently, these exist under the Faceless Assessment Scheme notified by executive order — not as part of the Act itself. This means they can be modified or withdrawn by the government without Parliamentary approval.

The New Bill incorporates Faceless Assessment directly into the statute, which means:

• The right to faceless assessment becomes a statutory right — not an administrative concession
• Any modification to the faceless regime requires Parliamentary approval — providing greater stability
• Taxpayers can enforce their right to faceless proceedings through legal challenge if the department deviates from the statutory scheme
• Exceptions to the faceless regime (such as search cases, international tax cases, and transfer pricing cases) are explicitly defined in the statute

New Dispute Resolution Panel (DRP) — Strengthened

The Dispute Resolution Panel — currently available in transfer pricing and international tax cases — is strengthened under the new Bill, with clearer timelines, binding directions, and a more structured process for taxpayers who opt for DRP over CIT(A) in eligible cases.

Pending Appeals Under the 1961 Act — What Happens?

This is a question of enormous practical importance for anyone currently involved in income tax litigation. The New Bill will contain transitional provisions addressing pending appeals, assessments, and proceedings. Based on the expected framework:

• Pending CIT(A) and ITAT appeals will continue to be decided under the old Act's provisions — the new numbering does not affect substantive rights in pending matters.
• Assessment proceedings under the old Act (for years before the new Bill's effective date) will continue under the old Act's framework.
• New assessments after the effective date will follow the new Bill's procedures and section references.
• All judicial precedents under the 1961 Act remain applicable — the courts will interpret the new Bill's provisions in light of the established case law on identical or similar provisions.

Vivad Se Vishwas 2.0 — Pending Scheme

The Vivad Se Vishwas 2.0 scheme — a direct tax dispute resolution scheme offering settlement of pending appeals with waived interest and penalty — was announced and is currently open for eligible taxpayers. If you have pending income tax appeals, this scheme may offer significant financial relief. We strongly recommend evaluating whether your pending disputes qualify before the scheme's deadline.