The new Income Tax Bill, which will replace the outdated Income Tax Act of 1961, will be presented in Parliament on Thursday, February 13. The bill is 622 pages long and, if passed, will come into effect in April 2026, becoming the Income Tax Act of 2025. Experts have often criticized the current Act for its complexity, leading to many legal disputes. The government recognizes the need for a simpler tax law to reduce confusion and bring more clarity.
Here’s an overview of what the new bill says:
Income Tax Deductions on Salaries: A Breakdown of Allowances and Gratuities
- Section 19: Deductions from Salaries: The income under the “Salaries” category will be calculated after applying the following deductions:
- Tax on Employment: The full amount paid as a tax on employment, according to Article 276(2) of the Constitution, will be deducted.
- Standard Deduction: Employees can claim a standard deduction of ₹50,000 or their actual salary, whichever is lower.
- Gratuity under the Payment of Gratuity Act: Gratuity received upon retirement, incapacity, or death under the Payment of Gratuity Act, 1972, is fully deductible.
- Retiring Gratuity for Defense Services: Gratuity received by defense personnel under the Pension Code or Regulations is fully deductible.
- Death-cum-Retirement Gratuity: Full deduction for gratuity received on retirement or death.
- Other Gratuities: Gratuities received on retirement, incapacity, or termination of employment are deductible, with the deduction being the lower of ₹75,000 or the actual salary.
- Loss and Depreciation: Any loss or depreciation mentioned in Section (2)(b) will be fully accounted for, with no further deductions allowed in future years.
- Taxpayer’s Option: A taxpayer can choose this deduction before the due date for filing their returns. Once chosen, this option will apply for future years, and withdrawal is allowed only once.
New Tax Regime for Individuals and Other Taxpayers (Section 202) The income tax payable for individuals, Hindu Undivided Families (HUF), associations of persons, bodies of individuals, and artificial juridical persons will be calculated as follows (unless the taxpayer opts for another scheme):
- Up to ₹4,00,000: No tax.
- From ₹4,00,001 to ₹8,00,000: 5% tax.
- From ₹8,00,001 to ₹12,00,000: 10% tax.
- From ₹12,00,001 to ₹16,00,000: 15% tax.
- From ₹16,00,001 to ₹20,00,000: 20% tax.
- From ₹20,00,001 to ₹24,00,000: 25% tax.
- Above ₹24,00,000: 30% tax.
No exemptions or deductions will be allowed under certain sections, including income from house property and capital gains, for computing total income.
Pension and Compensation Deductions
- Pension Commutation: Pension commutation under the Civil Pensions (Commutation) Rules for government services, defense, and other civil services will be fully deductible.
- Retrenchment Compensation: Compensation under the Industrial Disputes Act, 1947, or any similar law will be deductible, with a minimum deduction of ₹50,000 as per Section 25F(b).
- Voluntary Retirement Scheme: Payments received under a voluntary retirement scheme will be deductible, with a minimum of ₹5,00,000 or the amount specified by the Central Government.
Government Announcement The Union Cabinet recently approved the new Income Tax Bill, which Finance Minister Nirmala Sitharaman announced would be introduced in Parliament soon. In her budget speech on February 1, she mentioned that the bill would be presented in the coming week. She also highlighted several reforms introduced in the past decade, such as faceless assessments, faster returns, and the Vivad se Vishwas scheme, all aimed at making tax processes easier for citizens. The government had proposed reviewing the Income-tax Act in the July 2024 budget to simplify it and reduce disputes and litigation.
You May Like It: Mohini Mohan Dutta: Ratan Tata’s Possible Rs 650 Crore Heir