Income Tax Bill 2025: 5 Major Changes Every Taxpayer Need to Know

Reforming the Tax Year While Retaining the Existing Concepts of Assessment Year and Previous Year

The new income tax bill announced the concept of the tax year, which is going to change the terms such as assessment year (AY) and previous year, which is a little complicated for taxpayers. The tax year is a 12-month period that starts on April 1st and follows the financial year.

If a business or profession is newly started, or a new source of income is created in any financial year, the tax year will begin from:

(a) The date the business or profession is set up, or
(b) The date the new source of income starts.

In both cases, the tax year will end on the last day of that financial year.

Clear Family Relationship for Tax-Free Gifts Received By an Individual.

Under Section 56(2)(x) of the Income Tax Act, gifts received by an individual from their family members—such as parents, grandparents, children, or grandchildren (including those of their spouse)—are not taxed. The new income tax bill clearly states that these family members can be from either the mother’s or father’s side.

Government Employees are Not Eligible for a Deduction on Entertainment Allowance.

The new Income tax bill, which is effective from April 1, 2026, will remove the salary deduction for the entertainment allowance given to government employees. Earlier, only government employees could claim this deduction. The deduction amount was the lowest of the following:

• 1/5th of the basic salary
• Rs. 5,000
• The actual entertainment allowance received

Harsh Punishment for Offences Under Section 276CCC

As per the current Income Tax Act, Section 276CCC deals with cases where a person fails to file their income tax return after a search operation. In the new Income Tax Bill, this is covered under Clause 476 and is proposed to be a non-cognizable offence. This means that legal action can only be taken with the prior approval of the relevant authority. On the other hand, if an individual is convicted of this offence again, they will face a rigorous punishment of at least six months and up to seven years, along with a fine.

CBDT (Central Board of Direct Taxes) Gains More Control Over Tax Regulations

The new income tax bill does not include a rule similar to the seventh proviso of the current Income Tax Act. This rule specifies when a person must file an Income Tax Return (ITR), even if their income is below the tax exemption limit.

Now, the Central Board of Direct Taxes (CBDT) has the authority to decide the conditions under which filing an ITR will be mandatory. CBDT can also ask for details like credit card ownership, high-value expenses, business location, and other financial transactions.