Income Tax department denies rate change in new I-T Bill, calls reports misleading

The Income Tax Department has made it clear that there will be no changes in tax rates under the proposed Income Tax Bill, 2025. This includes long-term capital gains (LTCG) tax rates, which had been the subject of speculation in recent reports. The department issued a public clarification on Tuesday, July 29, 2025, saying that the main purpose of the bill is to simplify the law, not to increase or decrease tax rates.

In a post shared on its official social media account on X (formerly Twitter), the department said:

“The Income Tax Bill, 2025 aims at language simplification and removal of redundant or obsolete provisions. It does not seek to change any rates of taxes.”

This statement comes at a time when several media outlets and social media platforms were suggesting that the government might be planning to change certain tax rules, particularly those involving capital gains. However, the department has assured taxpayers that there is no proposal to alter tax rates, and that all confusion will be addressed when the bill is debated and passed in Parliament.

Bill aims to simplify old tax law, not change tax structure

The Income Tax Bill, 2025 is designed to replace the current Income Tax Act of 1961, which has been in place for over six decades. The bill was first introduced in the Lok Sabha in February 2025 and was then referred to a Select Committee of Parliament for further review. This committee was headed by BJP MP Baijayant Panda, and it submitted its report on July 21, after examining the bill in detail.

The new bill is aimed at simplifying the legal language, removing outdated clauses, and making the tax law easier to understand for the common people and tax professionals. One of the major issues with the 1961 Act was that it contained complex and technical language that created confusion and led to frequent legal disputes.

The Select Committee has made 285 suggestions in its report. These include:

• Updating definitions such as “capital asset”, “parent company”, and “micro or small enterprise” to make them more suitable for modern business and legal contexts.

• Reintroducing certain deductions and exemptions that had been removed earlier. These include the inter-corporate dividend exemption, pre-construction interest on rented properties, and standard deduction for municipal taxes paid by property owners.

These changes are expected to make the tax system more fair and efficient for both individuals and businesses.

Support for small taxpayers and charities

The committee has also suggested several relief measures for small taxpayers and charitable organisations. These are aimed at making it easier for them to comply with tax laws and avoid unnecessary penalties.

Some of the key suggestions include:

• Waiving penalties in cases where the taxpayer did not break the law on purpose (non-wilful non-compliance).

• Allowing refunds for those who file returns late, under certain conditions.

• Bringing back the “deemed application” clause, which allows charitable trusts to show that funds have been used for charitable purposes, even if not spent fully within the financial year.

• Removing references to the 1961 Act to avoid confusion and ensure the new law is clean and easy to interpret.

The aim of these reforms is to reduce legal battles, encourage voluntary compliance, and protect genuine taxpayers from unnecessary harassment.

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New law may be implemented from FY2026

The Finance Ministry is likely to include most of the committee’s recommendations in the final draft of the bill. If everything goes according to plan, the Income Tax Bill, 2025 will be passed during the ongoing Monsoon Session of Parliament.

Once passed, the new tax law will come into force from April 1, 2026, which marks the beginning of the financial year 2026–27 (FY26). This will replace the older 1961 law entirely, bringing in a modern, simplified, and user-friendly tax code.

The government believes that this new law will not only improve tax compliance but also boost transparency and reduce litigation, as the law will be easier to understand and apply.

The Income Tax Department has clearly denied any plans to change the tax rates under the new Income Tax Bill, 2025. Instead, the bill is focused on making tax laws easier to understand, removing outdated rules, and supporting honest taxpayers through reforms and relief measures. With the new law expected to take effect from April 2026, the government is aiming to bring a simpler and fairer tax regime for all citizens.