There is a relief news for taxpayers. Recently, Parliament has passed the Income Tax (No. 2) Bill, 2025, which will come into force from April 1, 2026 and will replace the old Income Tax Act of 1961.
If you are a salaried class and you pay tax then there is good news for you. Let us tell you that recently the Parliament has passed the Income Tax (No. 2) Bill, 2025, which will come into force from April 1, 2026 and will replace the old Income Tax Act of 1961. In the new system, tax slabs have been simplified, rebates have been increased and the rules have been made cleaner than before. Under the rule, there is no tax on the first ₹ 4 lakh income and there will be a big rebate on income up to ₹ 12 lakh. The government says that this will reduce the hassle of tax filing and more money will be saved in the pockets of the people. Let’s know in detail…
What is the provision
The major provisions of the New Income Tax Bill 2025 provide great relief to the salaried class and middle class taxpayers. In the new tax system, there will be no tax on income up to ₹ 4 lakh. At the same time, 5% tax rate will be applicable on ₹ 4–8 lakh, 10% on ₹ 8–12 lakh and 15% on ₹ 12–16 lakh. Also, under Section 87A, those earning up to ₹ 12 lakh will get full tax rebate of up to ₹ 60,000, due to which no tax will have to be paid on salary income up to ₹ 12.75 lakh by adding the standard deduction of ₹ 75,000. Simplifying the complex provisions of the old law, the number of sections has been reduced from 819 to 536 and the new concept of ‘tax year’ has been implemented. Apart from this, provision has also been made for faceless digital assessment, action with advance notice, and early payment of TDS refund. This new law will come into effect from April 1, 2026 and will be applicable from the financial year 2025–26.
Tax exemption
In the new tax regime, under section 87A, those earning up to ₹ 12 lakh will now get a full tax rebate of up to ₹ 60,000. This means that by adding the standard deduction of ₹ 75,000, no tax will have to be paid on salary income up to ₹ 12.75 lakh. Earlier in the new tax regime, this rebate was available only on income up to ₹ 7 lakh, which has now been increased significantly. At the same time, in the old tax system, the current limit of section 87A will continue to be ₹ 5 lakh and the rebate will be ₹ 12,500 as before. Please note that this rebate will not be applicable on special income like short term capital gain (STCG).
Simplification of tax slabs
Under the new tax regime, the proposed tax slabs will be 5% on income from ₹4,00,001 to ₹8 lakh, 10% on income from ₹8,00,001 to ₹12 lakh and 15% on income from ₹12,00,001 to ₹16 lakh. Income from ₹16,00,001 to ₹20 lakh will be taxed at 20%, while income up to ₹24 lakh will be taxed at 25%. Income above ₹24 lakh will be taxed at up to 30%. The aim of these slabs is to simplify tax calculations and reduce the impact of higher marginal rates.
Property Tax
Section 20 clarifies the taxation of property tax, where income from owned buildings or land is taxable under the head ‘Income from house property’. The annual value will now be the higher of the estimated or actual rent received. However, properties used for business purposes are taxed under the head business income. This amendment seeks to provide clarity and fairness in property taxation.
UPS Alignment
The bill also aligns the Integrated Pension Scheme (UPS) with the National Pension System (NPS) for taxation. Up to 60% of the pension amount on retirement is tax-free. In addition, employee and employer contributions will continue to be eligible for tax deductions under sections 80CCD(1) and 80CCD(2). The aim is to remove the disparities in tax treatment between UPS and NPS and encourage more retirement planning.
