New Income-Tax Bill 2025: What salaried, freelancers, and small business owners should know

The new Income Tax Bill, 2025, signifies a much-needed reform in the direct tax system, replacing the more than six-decade-old Income Tax Act, 1961. It now awaits the President’s assent before coming into force on April 1, 2026. The Bill aims to simplify and make the Indian income tax regime taxpayer-friendly.

“An important feature of the new legislation is the consolidation of salary-related provisions into a single, unified chapter," said chartered accountant Suresh Surana. "Moreover, by bringing together most of the deductions previously scattered across multiple sections, such as Section 10, into a centralised structure, the Bill simplifies long-standing complexities faced by salaried individuals.”

This consolidation will help employers and employees calculate their tax obligations more easily. Also notable is the simplification of eligible deduction rules.

“Complex sections such as Section 80C have been restructured for clarity, with extra details moved to well-organised schedules,” said Surana.

Meanwhile, the Bill maintains vital deductions, such as those for insurance, pensions, medical expenses, interest on home and vehicle loans, and benefits for start-ups and IFSCs.

“The overhaul of Section 10, which had become complicated with over 140 exemptions and layered provisos, is another key reform. The new structure organises exemptions across six clear schedules, presented in a tabular format,” said Surana.

This transformation directly tackles interpretive challenges and compliance risks faced by taxpayers and professionals alike. By removing redundancies and outdated clauses, the law becomes easier to understand and also reduces litigation.

For the self-employed, freelancers, and professionals, the provisions of the Income Tax Act grant the tax authorities discretionary power to impose penalties for failing to maintain or retain the prescribed books of accounts and documents.

“Although clause 441 of the original Bill draft suggested a mandatory penalty for non-compliance, the version passed by Parliament has restored the discretionary nature of the provision, bringing it in line with the existing I-T Act framework,” Surana stated.

Furthermore, simplifying section numbering and enhancing cross-referencing will greatly assist professionals and taxpayers in understanding the law.

Additionally, regarding the exemption of gifts from taxation when received from relatives, the Bill explicitly clarifies that a lineal ascendant or descendant includes both paternal and maternal sides, said Surana.

Ultimately, by streamlining language, consolidating provisions, and adopting digital-first processes, it cuts reasoning and procedural burdens for taxpayers.

These improvements are likely to enhance voluntary compliance and trust in the tax system, especially among first-time and hesitant tax filers.