The Indian government came forth with a new budget and the New Income Tax Bill for 2025 in August, announcing a comprehensive reform to the income tax system. These all come toward a simplified tax structure, reduced compliance costs, and above all, an economic boost.
Revised Income Tax Slabs and Increased Exemption Limits
The topic of a new tax regime, along with reworked income tax slabs, was introduced through the Union Budget 2025, which sought to best benefit taxpayers from middle-income groups:
- Above ₹4 lakh: Nil
- Between ₹4 lakh-₹8 lakh: 5%
- Between ₹8 lakh-₹12 lakh: 10%
- Between ₹12 lakh – ₹16 lakh: 15%
- Between ₹16 lakh – ₹20 lakh: 20%
- Between ₹20 lakh – ₹24 lakh: 25%
- More than ₹24 lakh: 30%
The threshold for exemption increased from ₹7 lakh to ₹12 lakh, which means that now any individual earning up to ₹12 lakh is exempt from income tax. This has been facilitated via a rebate under Section 87A of the Income Tax Act, 1961.
Introduction of the Income Tax Bill 2025
The 2025 Income Tax Bill contains a list of structural reforms that will continue to streamline this tax framework:
- Simplification of the Tax Code: Between 25 and 30 percent of all statutory sections in the Income Tax Act must be repealed, to make the code more user-friendly to the average user.
- Single Tax Year: The introduction of a common tax year for the entire populace would enable more seamless reporting and compliance for taxes.
- Deductions and Exemptions: Deductions and exemptions will be simplified by their consolidation.
- Unified Corporate Tax Rates: Incandescent Internal and External Corporation Tax Rates would be unchanged to promote various forms of investment.
Impacts of the Changes on the Taxpayer
It will make the complex tax system much simpler and minimize the burdens for compliance and for disposable incomes, especially among middle-income earners. Revised slabs and higher exemptions are expected to further increase household consumption and savings. The Income Tax Bill 2025 thus intends to pave the way toward an easily understandable as well as a fairer tax environment for better compliance and so for economic growth.
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