Income Tax Bill 2025:
Deductions on salaries, pension & gratuity explained
New Delhi, Feb 12, 2025
The Bill proposes a revised tax structure for individuals, Hindu undivided families, and certain associations
India’s tax laws are set for a major overhaul with the government expected to introduce a new Income Tax Bill in Parliament on February 13, 2025. If approved, the Income Tax Act, 2025, will replace the existing legislation, which has been in place since 1961, and will come into effect from April 2026.
New tax regime
The Bill proposes a revised tax structure for individuals, Hindu undivided families, and certain associations. According to the draft, circulated by Members of the Parliament, taxpayers will be subject to the following rates:
Up to Rs 4,00,000: No tax
Rs 4,00,001 to Rs 8,00,000: 5%
Rs 8,00,001 to Rs 12,00,000: 10%
Rs 12,00,001 to Rs 16,00,000: 15%
Rs 16,00,001 to Rs 20,00,000: 20%
Rs 20,00,001 to Rs 24,00,000: 25%
Above Rs 24,00,000: 30%
Budget 2025-2026 also announced at tax rebate for those earning up to Rs 12 lakh annually.
The Bill removes exemptions and deductions related to income from house property and capital gains, meaning taxpayers will have to calculate their liability based on gross income.
Income tax deductions on salaries
For salaried individuals, the bill outlines specific deductions under Section 19:
Tax on employment: Fully deductible under Article 276(2) of the Constitution
Standard deduction: Rs 50,000 or the salary amount, whichever is less
Gratuity deductions:
Gratuity received under the Payment of Gratuity Act, 1972, on retirement, incapacity, or death: fully deductible
Retiring gratuity for defence service members: fully deductible
Death-cum-retirement gratuity: fully deductible
Other gratuity upon retirement or termination: deductible up to Rs 75,000 or salary amount, whichever is lower
Additionally, losses and depreciation claims from previous years will not be carried forward, according to the draft bill. Taxpayers can opt for these deductions before filing their income tax returns, and once chosen, the option remains in place unless withdrawn. However, a taxpayer can withdraw the option only once, after which they cannot opt back unless they no longer earn income from business or profession.
Pension and compensation deductions
Pension commutation: Fully deductible for civil, defence, and other government service pensioners
Compensation on retrenchment: Deductible up to Rs 50,000 or as per Section 25F(b) of the Industrial Disputes Act, 1947
Voluntary retirement scheme payments: Deductible up to Rs 5,00,000 or as specified by the centre
The introduction of the bill is expected to streamline tax compliance and simplify the structure for individuals and businesses, pending parliamentary approval.
"The new Income Tax Bill will not bring in any new tax but concentrate on facilitating tax compliance in a better way. Moreover, announcements for income-tax reliefs or amendments to the income-tax law will now no longer be required to wait till Budget proposals. The government can make the changes to relief by way of executive orders only," said Sanjay Basu, Founding Partner, AQUILAW.
[The Business Standard]
