What’s Changing in the Income Tax Rules for 2025

What’s Changing in the Income Tax Rules for 2025

The 2025 Income Tax Bill introduces key updates while maintaining several existing rules. While the new tax regime now offers a higher basic exemption limit, traditional deductions under 80C, 80D, and 10(10D) remain available under the old regime.

ULIP taxation, insurance maturity benefits, and FDI reforms have also influenced the role of insurance in tax planning. This blog examines what has changed, what hasn’t, and how policyholders can navigate the year ahead.

Overview of the New Income Tax Bill 2025

 

The Income Tax Bill 2025 continues the government’s push toward a simplified, exemption-free tax structure while maintaining flexibility for taxpayers who prefer the traditional deduction-based system. The most notable update is the higher basic exemption limit under the new regime, which now allows tax-free income of up to ₹12 lakh, aimed at easing the burden on middle-income groups.

At the same time, the old regime with its deductions under Section 80C, 80D, and others remains available, offering a choice based on individual financial behaviour. Insurance continues to play a dual role—offering both protection and tax advantages, although with increased scrutiny surrounding high-value policies, such as ULIPs.

There is also an increased focus on transparency and investment inflows, reflected in the 100% FDI allowance for insurance companies reinvesting within India. This dual-structure approach gives taxpayers the freedom to customise their tax-saving strategy while aligning with long-term financial goals.

Key Changes Introduced in the Income Tax Bill 2025

 

• New tax regime offers tax-free income up to ₹12 lakh
• No change in Section 80C or 80D limits under the old regime
• ULIPs above ₹2.5 lakh annual premium now taxed as capital gains
• 100% FDI allowed for insurers reinvesting in India
• Old and new regimes continue to co-exist, offering flexibility

Introduction of 'Tax Year' Concept

The Income Tax Bill 2025 formally introduces the concept of a 'Tax Year', aligning the financial reporting and tax assessment period with global standards. Unlike the current assessment year & financial year model, the new framework simplifies compliance by having a single unified period: the Tax Year. This change is intended to reduce confusion, streamline documentation, and create a more intuitive structure for both individual taxpayers and businesses. It also aims to enhance data reconciliation across various departments, including the Income Tax Department, GST, and financial institutions.

Taxpayers will now file returns and calculate liabilities based on income accrued within the defined Tax Year, making the process more predictable and user-friendly. The move signals a shift towards modernising India’s tax ecosystem and bringing it closer to global best practices, especially for multinational corporations and NRIs who are used to similar systems in other jurisdictions.

Consolidation of Deductions and Exemptions

The bill hints at a future roadmap of gradually phasing out scattered deductions and replacing them with fewer, broader categories. While Section 80C, 80D, and 10(10D) remain unchanged for now, there’s a clear push to encourage taxpayers to opt for the simplified new regime. This consolidation will reduce paperwork, facilitate easier comparisons, and enable taxpayers to focus on high-impact financial products rather than pursuing multiple exemptions.

Recognition of Virtual Digital Assets (VDAs) in Taxation

The Income Tax Bill 2025 builds on earlier guidelines by formally recognising Virtual Digital Assets (VDAs) such as cryptocurrencies, NFTs, and digital tokens under a dedicated taxation category. Gains from VDAs will continue to be subject to a flat 30% tax, along with applicable surcharge and cess, and no deductions (except for the cost of acquisition) are allowed.

The Bill reinforces reporting obligations for both individuals and platforms involved in VDA transactions, ensuring transparency and compliance. This step signifies regulatory maturity in addressing the digital economy.

Changes in Presumptive Taxation Limits

Category	Earlier Limit	Revised Limit (2025)
Businesses (Section 44AD)	₹2 crore turnover	₹3 crore turnover
Professionals (Section 44ADA)	₹50 lakh gross receipts	₹75 lakh gross receipts

The Income Tax Bill 2025 revises the presumptive taxation limits to provide relief for small businesses and professionals, promoting ease of compliance and reduced paperwork. Here's how the limits compare:The revised limits apply only if at least 95% of transactions are done digitally. This change promotes digital adoption while providing tax simplification to a broader range of taxpayers.

Enhanced Powers of the Central Board of Direct Taxes (CBDT)

The Income Tax Bill 2025 grants the CBDT expanded powers to streamline administration, ensure compliance, and resolve disputes more efficiently. Key enhancements include greater authority to issue binding circulars, frame new compliance schemes, and implement technology-led interventions across the tax lifecycle.

The CBDT can now also prescribe conditions for faceless assessments, conduct targeted audits, and set frameworks for cross-border tax information exchange. These powers aim to reduce litigation, improve taxpayer services, and ensure quicker resolution of complex tax matters. The move is part of a broader effort to make tax governance more agile and transparent.

Comparison Between Old and New Income Tax Provisions

 

The Income Tax Bill 2025 retains the dual-tax regime approach while introducing notable updates aimed at simplifying compliance and expanding benefits for certain taxpayer groups. The new regime becomes more attractive with a higher basic exemption limit, although it continues to exclude popular deductions such as 80C and 80D. Meanwhile, the old regime remains unchanged, offering consistency for those who prefer itemised deductions.

Aspect	Old Provisions	New Provisions (2025)
Tax Regime Structure	Two regimes, optional	Both regimes retained with revised slabs
Basic Exemption (New Regime)	₹7 lakh	Increased to ₹12 lakh
Section 80C / 80D Deductions	Available under old regime	Not applicable under new regime
ULIP Maturity Proceeds	Exempt under Section 10(10D)	Taxable if premium exceeds ₹2.5 lakh/year
VDA Gains	Taxed at flat 30%	Taxed similarly, but now formally recognised
Filing Basis	Based on Assessment Year	Shifted to unified ‘Tax Year’ concept

This comparison highlights that while the new regime simplifies taxation for high earners or low-investment individuals, the old regime still holds value for those who actively use deductions to manage their tax liability.

Implications for Different Taxpayer Categories

 

• Salaried individuals benefit from a higher exemption under the new regime but lose out on popular deductions, such as HRA and 80C, unless they opt for the old structure.
• Small business owners and professionals benefit from revised presumptive taxation limits and simpler compliance, particularly if they conduct digital transactions.
• Senior citizens see no change in deductions, but can still avail of higher health insurance limits under 80D in the old regime.
• Investors in high-value ULIPs and digital assets may face additional tax liability due to new capital gains rules.
• NRIs and global taxpayers will appreciate the streamlined ‘Tax Year’ concept and digital filing improvements that align with international practices.
• High-income earners who don't rely on exemptions may benefit more from the new regime due to simplified tax slabs and reduced documentation requirements.

Impact on Salaried Individuals

The new tax regime offers higher tax-free income, making it attractive for salaried individuals with minimal deductions. However, those who claim exemptions for HRA, standard deduction, or invest heavily under 80C may still find the old regime more beneficial.

The lack of flexibility in claiming deductions under the new structure requires salaried taxpayers to evaluate which regime offers a better post-tax income carefully. Ultimately, the benefit depends on salary composition and annual savings behaviour.

Impact on Small Business Owners and Professionals

For small businesses and professionals, the revised presumptive taxation limits under Sections 44AD and 44ADA offer major relief. With higher turnover and receipt thresholds—₹3 crore for businesses and ₹75 lakh for professionals—many can now avoid complex bookkeeping and still pay taxes based on presumptive income.

However, the eligibility is linked to a 95% digital transaction threshold, prompting business owners to adopt digital compliance. The changes simplify filing but require attention to the mode of receipts.

Impact on Investors and Digital Asset Holders

The bill formalises the treatment of digital assets, such as cryptocurrencies and NFTs, taxing them at a flat 30% rate without deductions. High-value ULIPs also come under tighter scrutiny—maturity proceeds are now taxable as capital gains if annual premiums exceed ₹2.5 lakh.

This may impact traditional investment strategies that use insurance products for tax-free returns. Investors will need to reassess portfolios and consider tax-efficient alternatives while ensuring timely reporting of digital asset gains.

The Income Tax Bill 2025 takes a step toward simplifying the tax system while retaining the flexibility of choice. The new regime, with its higher exemption threshold, is designed to appeal to a broader base, especially those who don’t rely heavily on deductions.

At the same time, the continued availability of the old regime ensures that deduction-driven taxpayers aren't forced to change strategies overnight. From revised presumptive limits to the formal treatment of digital assets, the bill reflects a shift toward transparency, compliance, and global alignment.

For taxpayers, the key lies in evaluating their income sources, investment patterns, and financial goals to make an informed decision. The message is clear: your tax planning must now be more innovative, more personalised, and future ready.

FAQs on the New Income Tax Bill 2025

 

Q1. When is the New Income Tax Bill expected to be introduced in the parliament?

The bill is expected to be tabled during the 2025 Monsoon Session of Parliament.

Q2. What is the purpose of introducing the new income tax bill?

The bill aims to modernise tax laws, simplify compliance, improve transparency, and align India’s tax system with global standards.

Q3. What is the effective date of the New Income Tax Bill 2025?

The proposed changes are expected to take effect on April 1, 2026, subject to parliamentary approval.

Q4. Will the new bill affect existing deductions and exemptions?

No immediate changes have been made to current deductions under the old regime. However, the new regime continues to exclude them.

Q5. How does the new bill empower the CBDT?

The bill grants CBDT wider powers to issue binding guidelines, implement digital compliance frameworks, and resolve tax disputes more efficiently.

AN Aug 26/25