Daybreak - A quick guide to the new Income Tax Bill

Episode Date: August 12, 2025

The new Income Tax Bill 2025 was passed by the Lok Sabha without debate yesterday. It is a huge step towards simplifying and modernising India's tax system after six decades. But what does this major reform mean for you, the average taxpayer? Tune in to find out.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Ramon, Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. I think it was the American statesman Benjamin Franklin who once wrote in a letter

that the only thing certain in life are debt and taxes. Well, I'm not trying to be morbid here. but I was kind of reminded of it yesterday when the finance minister Nirmala Sita Raman introduced a revised draft of the new income tax bill in the loksaba. And it was passed without debate. Now, this new consolidated bill is a massive undertaking by the government to modernize the country's over six decades-old income tax act of 1961.

And the core idea is to create a tax code that is shorter, simpler and more transparent. You could think of it like this. They put the old intimidating tax law on a crash diet and trimmed its word count by more than half from over 5 lakh words to a little over 2.5 lakhs now. But this is not just about abstract legal reform. It is about our salary, our investments, our property and our financial future.

The government is trying to simplify a complex system but with every simplification come in new details, new fine print and new things that you need to absolutely understand. So today we will try to do just that. We are going to be cutting through all the complexities to answer one simple but critical question. How will these changes directly affect us? Welcome to Daybreak, a business podcast from the Ken. I'm your host Nick Dha Sharma and I Don't Chase the New Cycle. Instead, every day of the week, My colleague, Rahal Philippos and I will come to you with one business story that is worth understanding and worth your time.

Today is Tuesday, the 12th of August. First, let us clear up a major point of confusion. The government has made it clear that the new bill does not change the existing income tax rates or slab. Like I mentioned earlier, the bill's main focus is on simplifying legal language and removing obsolete provisions and not on imposing new taxes or altering the tax burden on individuals. And this means that the tax lab for both new and old tax regime remain the same. Okay, so now that that is out of the way, here is the first practical change that could be

a lifesaver for many of us and it is about TDS refunds and late filings. Now, let's be honest, we've all been there. A deadline looms, something urgent comes up, and you missed the due date for filing your income tax returns. Under the old system, this could make it difficult or almost impossible to get a TDS refund or tax deducted at source refund. The Parliamentary Committee recognized this hardship and made a recommendation that taxpayers should be allowed to claim TDS refunds even after the due date for filing returns without incurring any fines.

This is obviously a massive relief for anyone who might be. miss a deadline due to genuine reasons. The revised bill has accepted this recommendation and it is a move towards a more compassionate and taxpayer-friendly system. Now, let us talk about a more specific change that could affect you if you are a homeowner or a landlord. Vacant properties. Under the existing law, you are taxed on either the actual rent you received or the reasonable expected rent, whichever is less, particularly for a period of vacancy. The initial draft of the new bill had a worrying change that could have led you to being taxed on a notional rent even if your property was vacant and you received no income.

The revised bill addresses this concern directly. It incorporates recommendations from the Parliamentary Committee to ensure that the annual value of a partially vacant let-out property is determined fairly. The new language explicitly provides for a comparison of the actual rent received with the deeming rent, preventing you from being unfairly taxed on money you never earned. So if you own a vacant property, this new bill with its new changes is a relief, but do learn more about the specifics of how your rental income is calculated. Coming up next, two more critical changes that could impact your wallet.

Stay tuned. Okay, so now let us look at a change that will affect some of you in retirement. Commuted pensions for non-employees. A commuted pension is an option available to retirees that allows them to receive a portion of their pension as a lump sum while proportionally reducing the monthly pension amount. Under the existing rules, salaried employees who received a commuted pension get a tax deduction under the salaries head. But what about non-employees like freelancers who receive a similar pension from a fund?

The Parliamentary Committee recognised this disparity and recommended that a similar deduction be explicitly allowed for non-employees under the head income from other sources. The new bill has accepted this recommendation and this is a small but powerful change that levels the playing field for different types of workers, ensuring that everyone who receives a commuted pension is treated equitably under the tax code. This applies to those receiving pensions from specific funds like LIC pension fund. Also, the Indian government says that it will not bring back the old pension scheme for central government employees who are under the national pension scheme or NPS. The finance minister, Nirmalasita Raman, said that OPS,

was too expensive for the government to sustain in the long run. Instead, a new option called the Unified Pension Scheme or UPS has been added under NPS. And it gives assured retirement payouts, 50% of the average basic salary from the last 12 months before retirement if the person worked at least 25 years. And if the service is less than 25 years, then the pension is reduced proportionately. Now, the next change is about donations. Many people like to donate to religious or charitable trusts, and the tax benefit from these contributions are often an important consideration. Under the old rules, there was some ambiguity. The new bill clarifies this, but it is a detail that you need to pay close attention to.

It now says that purely religious trusts can continue to receive anonymous donations without this. them being taxed. However, and this is the important part, if a religious trust also undertakes other charitable activities such as running a hospital or a school, any anonymous donation it receives will be taxed. So if you're one of these donors, it is vital to understand the specific nature of the trust that you are donating to. All donations will not be treated the same way. You will need to find out if the organization that you're donating to is purely religious or if it is a mix of religious and charitable. So, finally, what is the big picture here?

The new income tax bill is a massive step towards modernizing and simplifying Indian tax laws. And that is, of course, a good thing. The government's decision to listen to feedback and refine the bill shows a willingness to make a more fair and transparent system. But here's the thing. While the bill aims for simplicity, it is up to us to start. be informed. So do pay close attention to the details and consult with the tax professional.

When it comes to your money, being proactive is the best policy. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by Snigda Sharma and edited by Rajiv CN.