ITR Filing Regulations Update: Anticipated Alterations in Income Tax Submission Procedures Starting From 2025
New Income Tax Bill, 2025: Key Changes for Individual Tax Return Filers
The revised Income Tax Bill, 2025 was passed by the Lok Sabha yesterday, marking a significant overhaul of the existing taxation framework. The new bill aims to replace the Income Tax Act, 1961 and modernise the taxation system. Here's a breakdown of the key changes that will affect individual tax return (ITR) filers:
Permanent Extension of Current Individual Income Tax Rates and Brackets
The new bill maintains the top rate at 37%, permanently extending the current individual income tax rates and brackets, instead of reverting to 39.6% (pre-TCJA levels) which were set to expire at the end of 2025.
Increase and Adjustment of Standard Deduction Amounts
The standard deduction amounts have been increased and adjusted for inflation. Single filers will enjoy a standard deduction of $15,750, while heads of household and married filing jointly will receive $23,625 and $31,500 respectively.
Introduction of a New Senior Deduction
A new temporary senior deduction of $6,000 per person has been introduced for taxpayers aged 65 and older, phasing out at modified adjusted gross income thresholds of $75,000 (single) and $150,000 (married). This is in addition to existing age/blind deductions.
Permanent Repeal of Miscellaneous Itemized Deductions
Miscellaneous itemized deductions, including investment fees, legal fees, and tax preparation fees, have been permanently repealed. A 35% cap on itemized deductions is imposed, replacing the former Pease limitation.
Simplification and Modernization of Tax Compliance
The new bill aims to simplify and modernize tax compliance through clearer structure with fewer sections, tables, and formulas for easier understanding. It also expands definitions such as treating virtual digital assets (cryptocurrencies, NFTs) as undisclosed income. Enhanced enforcement provisions allow tax officers electronic access to online data for compliance checks.
Inflation Adjustments
Inflation adjustments to income tax brackets, thresholds, and deductions continue to be applied annually.
Other Business-Related Changes
The new bill also includes business-related changes, such as increased qualified small business stock exclusion caps, 100% expensing of certain production property, restoration of 100% bonus depreciation, and modifications to business interest deductions.
Changes in Terminology and Provisions
Any assessment of the income or total income will now be done for a 'tax year', replacing the term 'previous year'. The use of the term 'assessment year' has been discontinued. The term 'tax year' will now be used in relation to the rate or rates of income tax.
Standard deduction on house property income has been fixed at 30%. Taxpayers who have no tax liability will be able to get a Nil TDS Certificate in advance under the new Income Tax Bill, 2025, applicable to both Indians and non-residents.
No penalty for late TDS filings and refunds for late ITR filings still apply in the new Income Tax Bill. The old tax rates and court-determined definitions will continue in the new bill.
The new Income Tax Bill will come into force from April 1, 2026, after being ratified by the President of India. The bill also introduces a provision for tax deduction for commuted pension received from LIC Pension Fund.
In the context of the new Income Tax Bill, 2025, the finance sector will witness a shift with the introduction of digital assets like cryptocurrencies and NFTs being treated as undisclosed income. This move could potentially merge the decentralized finance (defi) sector with traditional finance.
The business landscape may also see significant changes, as the new bill includes provisions that impact various areas of business, such as modifications to business interest deductions and increased qualification for small business stock exclusion caps.
