Financial Legislation for 2025: Proposed regulations encompass income tax, pension plans, and home real estate taxes
The Income Tax (No. 2) Bill, 2025 was recently passed by the Lok Sabha, marking a significant step towards modernizing India's income tax framework. The new Bill, effective from April 1, 2026, aims to simplify, digitalize, and clarify the existing Income Tax Act, 1961, while largely retaining existing tax rates and regimes.
For Individual Taxpayers
The basic exemption limit of ₹12 lakh remains unchanged. However, the standard deduction is increased by ₹75,000, effectively raising the no-tax threshold to ₹12.75 lakh for salaried individuals (excluding special incomes like capital gains).
The Bill removes tax on notional rent for vacant houses, relieving a significant burden on homeowners. Clarifications have been made regarding the 30% standard deduction on house property income, with the deduction now applying after municipal taxes are deducted.
Tax refunds remain possible even if Income Tax Returns (ITRs) are filed late, and no penalty applies solely for missing deadlines. For students remitting money abroad, the Bill clarifies that no tax will be collected at source on remittances, easing education-related financial transfers.
A new “Tax Year” concept replaces the old “Previous Year” and “Assessment Year” distinction, aiming to simplify annual tax processing and payroll reconciliation.
For Businesses
The new Bill consolidates the number of sections from over 800 to 536 and chapters from 47 to 23, streamlining compliance and readability for businesses. Provisions for faceless, digital assessment and collection of taxes are retained and generalized, allowing the government to frame schemes enhancing transparency and efficiency by minimizing direct taxpayer-officer interaction.
Payroll teams can expect clearer, codified rules for pensions, property income, and interest deductions, including pre-construction interest, aiding payroll and tax compliance. The Bill maintains the corporate tax rates and regimes without change but offers a simplified and digital-first framework, reducing administrative burdens and improving tax administration.
For Non-Profit Organizations
The Bill introduces stricter rules on tax exemptions for donations, with trusted charities protected but others subjected to tightened scrutiny. Faceless mechanisms support transparent and accountable tax administration, which could impact compliance and reporting standards for non-profits.
General Points
The Bill removes redundant and outdated provisions, aiming for more straightforward language and lesser complexity. No changes are proposed to offences and penalties, retaining the existing framework.
Anonymous contributions will not affect the eligibility for tax exemptions for non-profit organizations and religious-cum-charitable trusts, as per the new Income Tax Bill. The Bill removes the phrase "without affecting the generality of subsection (1)" from the transfer pricing provisions to reduce ambiguity and potential disputes.
The revised definition of "beneficial owner" in the new Income Tax Bill allows individuals to carry forward losses when they receive direct or indirect share benefits during the tax year. The Bill provides clarity regarding deductions for income from house property, stating that the standard 30% deduction should be calculated on the annual value after deducting municipal taxes.
The Bill expands the powers of income tax officials to forcibly access personal emails and social media accounts of assessees during search operations. The Bill introduces a provision for a 'NIL' Tax Collected at Source (TCS) on LRS remittances for educational purposes financed by any financial institution.
In summary, the Bill modernizes India's income tax framework with digital-first, faceless compliance, clearer rules for payroll and property income, improved refund policies, and more precise tax treatment for donations, while essentially preserving the existing tax rates and structures for individuals, businesses, and non-profits.
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