With the introduction of the New Income Tax Bill, 2025, India is on the brink of a significant transformation in its tax landscape. Designed to replace the outdated Income Tax Act of 1961, this upcoming legislation aims to streamline the filing process, enhance transparency, and reduce the burden on ordinary taxpayers.
As the government reviews the recommendations submitted by a parliamentary committee, taxpayers can anticipate several changes that promise to make tax compliance more efficient and less confusing. This article explores three major proposed changes and what they could mean for individuals across the country.
Overview of the New Income Tax Bill, 2025
- Comprehensive reform: Seeks to update and consolidate tax laws, replacing the over six-decade-old framework
- Extensive consultation: Over 285 suggestions submitted by the Select Committee for improvement
- Focus on ease of use: Designed to make the process more digital, transparent, and taxpayer-friendly
1. No Penalty for Late ITR Filing When Claiming Refunds
One of the most welcome changes on the horizon is the proposed elimination of penalties for those filing their Income Tax Return (ITR) solely to claim a refund—provided their total income is below the taxable threshold.
Current System
- Taxpayers face a penalty of up to ₹1,000 for filing ITR after the deadline, even when just seeking a legitimate refund.
- This particularly affects salaried employees and small taxpayers who occasionally miss the deadline due to oversight or lack of awareness.
Proposed Change
- If you are filing your ITR just to claim a refund and your income falls below the taxable limit, you will no longer be penalized for missing the deadline.
Key Benefits:
- Provides relief to lakhs of small taxpayers.
- Ensures that individuals are not unfairly penalized for seeking refunds that are rightfully theirs.
- Promotes fairness and inclusivity in the tax system.
2. Changes in Tax Rules for House Property Income
The committee has suggested targeted reforms to bring clarity and equity for those earning rental or property income.
2.1. Clarity on Standard Deduction
- The law already allows a 30% standard deduction on income from house property after deducting municipal taxes.
- There has been confusion over how this deduction applies in practice.
Proposed Update:
- The Bill will explicitly detail the standard deduction, removing ambiguity and making it easier for taxpayers to calculate taxable income on house property.
2.2. Extension of Home Loan Interest Deduction
- Currently, home loan interest deductions are restricted to self-occupied properties.
- Investors or those with rental properties do not get this benefit.
Proposed Update:
- Homeowners who let out properties on rent will also be eligible for home loan interest deductions.
Key Benefits:
- Encourages property investment and supports the middle class.
- Reduces tax liability for those earning rental income, making property investments more attractive.
3. Simpler and Faster Refund Process for TDS and TCS
Delays in the refund of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) have long been a pain point for taxpayers.
Current Issues
- Lengthy and opaque refund process.
- Many individuals and companies face cash flow issues due to delays.
Proposed Solutions
- A faster, simpler, and more transparent process for TDS and TCS refunds.
- The Central Board of Direct Taxes (CBDT) is working on new rules under the principle of “Enforcement with Empathy.”
- The goal is to reduce procedural hassles and instill greater trust in the system.
Key Benefits:
- Quicker access to rightful refunds.
- Improved transparency and accountability in tax administration.
- Promotes a more taxpayer-centric approach.
What Lies Ahead?
- The government is carefully reviewing the committee’s 4,500-page report.
- The final version of the New Income Tax Bill, 2025, is expected to be tabled in the next Budget session.
- Once enacted, the Bill will overhaul the Indian tax system, aiming to make it modern, digital-friendly, and more accessible to the average person.
The New Income Tax Bill, 2025, marks a significant step toward making India’s tax system fairer and more user-friendly. By focusing on simplification, transparency, and empathy, the proposed rules are set to make compliance easier for everyone—from salaried individuals and small taxpayers to property owners and investors. As these changes move closer to becoming law, taxpayers can look forward to a more streamlined and less daunting tax filing experience.
