India makes tax filing easier with new Income Tax Bill 2025

In Budget 2025-26, India raised income tax limit to Rs1.2 million

Manoj Nair (Business Editor)

Dubai: After raising the no income tax limit for residents to Rs1.2 million, India has now brought out an updated Income Tax Bill – and made the whole process of tax filings much simpler.

“The Rs1.2 million tax-free income under the new tax regime is a big deal indeed compared to the earlier Rs300,000 ceiling,” said Girish Chand, Senior Partner at MCA Management Consultants. “There’s also a Rs75,000 standard deduction Indian residents get.

“Beyond that, the new income tax bill allows for simplified filing such as clearer provisions for deductions, TDS (Tax Deducted at Source), and stock options (Employee Stock Ownership Plan).”

It was during her February 1 Budget 2025-26 presentation that Indian Finance Minister Nirmala Sitharaman mentioned the new Income Tax Bill will be out this week.

“The updated tax collection mechanism aims to reduce authoritative scrutiny boosting taxpayers’ confidence through its ‘Trust First, Scrutinize Later’ approach,” said Chand.

“Tax deductions including that on gratuity, leave encashment, and standard deductions have been compiled under one section for better clarity and easy navigation.”

The changes are effective from April 2026.

India has seen significant increases in its tax receipts in recent years, and a further tweaking through the new Income Tax Bill will only help the process further.

While the latest Budget resonated for initiatives focusing on SMEs and easier access to funding support for them, what stood out was the tax ceiling being raised to Rs1.2 million on annual income. For India’s salaried middle-class that was quite a tax break.

“For salaried employees, the standard deduction limit was raised to Rs75,000 or the actual salary, whichever is less,” said Jeet Gianchandani, Managing Partner at the consultancy JCG. “It will benefit pensioners and senior citizens as it will exempt their income up to Rs1.2 million plus the Rs75,000 standard deduction. Thus, the total tax-free income will be Rs 1.275 million.”

‘Half the chapters’

In its overview of the tax bill, the consultancy KPMG refers to what India’s Finance Minister said about the new version having around half the chapters and words of the existing law.

“The goal is reflected in the fact that (new) Bills word count is about 50% that of the 1961 Act,” KPMG states. “This reduction has been achieved in part by eliminating obsolete sections, such as those related to the dividend distribution tax and fringe benefit tax.”

Businesses benefit too

There is enough in the Bill that will please India’s businesses too.

According to Chand, this comes from:

* Reduced compliance burden: Streamlined processes for audits and international transactions.

* Legal certainty: Incorporates 60 years of judicial rulings to minimize disputes.

* The Bill proposes a reduced corporate tax rate for MSMEs, enhanced tax incentives for startups, and simplified GST integration to ease compliance.

* There are also clearer norms for digital taxation to prevent tax evasion by multinational corporations.

* Dispute resolution mechanisms have been streamlined to reduce litigation, ensuring faster case settlements.

* It strengthens anti-evasion measures, raises transparency, and there is a focus on voluntary compliance.

Source: Gulf News