New tax bill will be positive for the economy: Experts

NEW DELHI: Union Finance Minister Nirmala Sitharaman is likely to introduce the new Income Tax Bill in the Lok Sabha today. The bill was approved by the Union Cabinet on February 7, marking a significant step in the government’s efforts to simplify and modernize India’s tax system.

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Speaking on the new income tax bill, Rahul Ahluwalia, Co-Founder at the Foundation for Economic Development, said, “Approximately 8 crore (80 million) people filed returns in 2023-24. Taxpayers in the ₹8 lakh and above income bracket will benefit from the new tax slabs since everyone below that was already not paying tax. The tax-paying group represents around 3 crore people or approximately 38% of the total taxpayer base. This will immediately enhance purchasing power for middle-class taxpayers. Hopefully, it will also impose some fiscal discipline on government spending. Both these factors are positive for the economy.”

New Tax Slabs Under the Proposed Bill

• No tax on income up to ₹4 lakh.

• 5% tax on income from ₹4 lakh to ₹8 lakh.

• 10% tax on income from ₹8 lakh to ₹12 lakh.

• For income beyond ₹12 lakh, the following rates apply:

  • 15% tax on income from ₹12 lakh to ₹16 lakh.

  • 20% tax on income from ₹16 lakh to ₹20 lakh.

  • 25% tax on income from ₹20 lakh to ₹24 lakh.

  • 30% tax on income above ₹24 lakh.

Neelima Kamrah, Principal of KIIT World School, Gurugram, expressed optimism about the reforms, stating, “We strongly applaud the decision to exempt income tax on annual income up to ₹12,00,000 under the new tax regime, which will provide significant relief to taxpayers.”

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The new Income Tax Bill is expected to be 50% shorter than the current Act, with simplified language to enhance clarity. By eliminating unnecessary provisions and outdated sections, the revised framework aims to reduce legal disputes and create a more taxpayer-friendly environment.

Among other key reforms, the Union Budget 2025 has extended the time limit for filing an Updated Income Tax Return (ITR-U) from two years to four years after the relevant assessment year. This extension provides taxpayers with more flexibility to rectify errors, report omitted income, and comply with tax regulations.

The new tax regime aims to replace the six-decade-old Income Tax Act of 1961. Once introduced, the bill will be reviewed by a parliamentary standing committee before returning to the Cabinet for final approval.

The objective is to streamline tax laws, reduce legal disputes, and make compliance easier for taxpayers.

During her Budget 2025 speech, Sitharaman emphasized that the bill would be straightforward and easily understandable, reaffirming the government’s commitment to a fair and transparent tax system.