India’s income tax law is older than colour television in this country. Drafted in 1961, it has outlived governments, reforms, and even the licence raj. The economy has changed massively over 60 years, but the tax law hasn’t evolved at the same pace.
Instead, it has been bandaged and stitched 65 times, with more than 4,000 individual amendments. The result is a tax code that feels less like a clean law and more like a patchwork - layered with footnotes, exceptions, and clauses that often contradict one another.
We’ve tried before to escape this mess. In 2010, then finance minister P. Chidambaram tabled the Direct Taxes Code Bill, an ambitious attempt to wipe the slate clean by replacing the Income Tax Act, 1961 and the Wealth Tax Act, 1957. It promised clarity, it promised modernity. It promised a tax law for a new India.
But that reform never made it past Parliament. It died the slow death of committee debates and political hesitations. And the old law limped on, more bloated every year.
Now, fifteen years later, we are back at the same crossroads. The Income Tax Bill, 2025 claims to be simpler, shorter, and finally fit for the times. The question is: will this effort succeed where the last one failed?
What the bill gets right
The new bill is slimmer, about 600 pages compared to nearly 1,000 in the current Act. Decades of redundancy and archaic phrasing have finally been cleared out. Sections have been cut from 819 to 536, chapters from 47 to 23, and the text itself from 5.12 lakh words to 2.6 lakh.
And for the first time, the Income Tax Department has tried a different approach: 39 new tables and 40 formulae to replace long-winded narration. It’s a small but telling shift. Instead of a dense rulebook meant only for professionals, the law is now trying to look like a reference guide for ordinary taxpayers. That, in itself, is a change in attitude.
Terminology has been modernized too. Until now, taxpayers had to juggle two timelines:
- Financial Year (FY): the year income is earned
- Assessment Year (AY): the year it is taxed
This needless split often created confusion. The bill simplifies it with one phrase “tax year,” a single, straightforward way of referring to the year income was earned.
And crucially, the bill doesn’t touch tax rates or slabs. Whether you’re on the old regime or the new one. It’s purpose is structural — to be simpler, clearer, and friendlier to those who live under it.
But more importantly, there are concrete changes that matter in practice:
1. Relief for TDS refunds:
If you’ve ever missed the income-tax filing deadline, you know how stressful it can be. Under the old rules, you risked losing your TDS refund altogether.
The new bill fixes this. If you earn below the taxable limit but TDS is deducted, you can now file belated return up to December 31, and claim your TDS refund without worrying about penalties. A rare moment of compassion in tax law.
2. Fair treatment for vacant properties:
Property owners, this one’s for you. Earlier drafts of the bill suggested that you might be taxed on “notional rent” or imagined income, even if your flat was lying vacant. Understandably, this caused concern.
The revised bill clears that up. Tax will now be based on the actual rent you receive, not an assumed figure. So if your property sits empty, you won’t be unfairly taxed for income you never earned.
3. Tax relief on pension lump sums:
Some retirees choose to take a chunk of their pension as a one-time lump sum instead of receiving the full amount as monthly payments. Until now, that lump sum was tax-free only for salaried employees. Freelancers, self-employed professionals, or others receiving pensions from specified funds like LIC were left out of that benefit.
That gap is now closed. Lump-sum pensions from recognized pension schemes will now be exempt for non-employees too. A move that finally levels the field and ensures all pensioners are treated the same, regardless of how they earned their living.
4. No return of old pension scheme
The government has ruled out any return of the old pension scheme (OPS). Instead, a new Unified Pension Scheme (UPS) has been introduced under NPS.
It guarantees payouts of 50% of the average basic salary from the last 12 months before retirement, if the employee has completed 25 years of service. For those with fewer years, the payout is reduced proportionately. It’s a middle path, not as generous as OPS, but a step toward more certainty within NPS.
5. Donations to trusts:
The bill also clears up a long-standing grey area:
- Purely religious trusts can still accept anonymous donations tax-free.
- Religious trusts that also run charitable institutions like schools or hospitals, those donations will now be taxed.
For donors, this won’t change much in everyday giving. But for larger contributions, it means knowing whether the trust is purely religious or partly charitable, because that decides how much of your money the trust actually keeps.
So all in all, the Income Tax Bill, 2025 doesn’t change slabs or rates. Its ambition is to make India’s tax law readable, usable, and fit for today’s economy.
With the President’s assent, this bill is no longer just another draft gathering dust. It will take effect from 1st April 2026, marking the first real reset of India’s tax code since 1961.
It may not close every loophole, but it finally sets India’s tax code on a clearer, simpler path. Reform, after all, isn’t about cutting pages, it’s about building a system people can trust.