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Income-Tax(No.2) Bill, 2025 - Key Highlighted & Changes Explained
On August 11, 2025, Finance Minister Nirmala Sitharaman introduced the Income-Tax (No. 2) Bill, 2025 in the Lok Sabha. This version builds upon the February draft but incorporates 285 recommendations from the Parliamentary Select Committee led by Baijayant Panda.
The Bill represents one of the most significant overhauls of the Income-Tax Act, 1961, aiming to create a simpler, clearer, and more taxpayer-friendly law. It promises modernized administration, reduced litigation, and greater transparency through digital integration.
₹12 lakh annual exemption retained - offering relief to middle-income earners.
Simplified structure - Sections reduced from ~819 to 536, with 23 consolidated chapters.
Faceless, digital-first assessments - minimizing human interaction and potential corruption.
Enhanced taxpayer protections - refunds allowed after ITR deadlines without penalties, and prior notice before any action.
Restrictions on anonymous donations - to certain charitable and religious institutions.
Single “Tax Year” concept - replacing “Previous Year” and “Assessment Year.”.
Guided by S.I.M.P.L.E. principles - Streamlined, Integrated, Minimised litigation, Practical, Learn-and-adapt, Efficient.
Background and Purpose
The old Income-Tax Act had become complicated after decades of amendments. The new Bill aims to reduce complexity, improve clarity, and align with today's economic realities.
Structural Improvements
Clearer language - to remove ambiguity.
Fewer cross-references - for easier reading.
Digital integration - for faster, transparent processes.
Taxpayer-Friendly Reforms
● Higher exemption limits.
● Faster dispute resolution through time-bound cases.
● Easier refunds and advance notices to taxpayers.
Business Impact
● Predictable taxation for better planning.
● Lower compliance burden for SMEs and startups.
● Reduced legal battles, saving costs and time.
| Income Slab | Old System (Pre-2025 Bill) | New System (2025 Bill) |
|---|---|---|
| ₹0 - ₹3,00,000 | No tax | No tax |
| ₹3,00,001 - ₹6,00,000 | 5% of income above ₹3L | 5% of income above ₹3L |
| ₹6,00,001 - ₹9,00,000 | 10% of income above ₹6L | 10% of income above ₹6L |
| ₹9,00,001 - ₹12,00,000 | 15% of income above ₹9L | 15% of income above ₹9L |
| ₹12,00,001 - ₹15,00,000 | 20% of income above ₹12L | 20% of income above ₹12L |
| ₹15,00,001 and above | 30% of income above ₹15L | 30% of income above ₹15L |
| Exemption Limit | ₹7,00,000 (with rebate) | ₹12,00,000 (with rebate) |
| PhaseNo | Implementation Period | Key Actions / Changes |
|---|---|---|
| Phase-1 | August 2025 | Bill passed in Lok Sabha with committee recommendations |
| Phase-2 | Aug-Sep 2025 | Rajya Sabha review and Presidential assent. |
| Phase-3 | Oct-Dec 2025 | Rule-making and income-tax portal updates. |
| Phase 4 | Jan-Mar 2026 | Awareness drives and dry runs of new systems. |
| Phase 5 | April 1, 2026 | Full implementation of slabs, exemption, faceless assessments, and dispute timelines. |
The Income-Tax (No. 2) Bill, 2025 is a landmark in India's tax reforms. By focusing on simplicity, fairness, and efficiency, it aims to build trust between taxpayers and the government. The retained ₹12 lakh exemption, digital-first approach, and time-bound dispute resolution are set to transform tax compliance into a smoother, more transparent process.
Once implemented, it won't just modernize India's tax system - it will make it easier for individuals and businesses to comply, encouraging a stronger, more investment-friendly economic environment.