New Income Tax Bill 2025: Concept Of "Tax Year" To Be Introduced Instead Of "Assessment Year", "Financial Year" To Remain Unchanged

The new Income Tax bill is set to introduce the concept of 'Tax Year'. This will replace the current concept of assessment year (or previous year) from the Income Tax Act. 

The "tax year" has been defined as follows:

3. (1) For the purposes of this Act, “tax year” means the twelve months period of the financial year commencing on the 1st April.
(2) In the case of a business or profession newly set up, or a source of income newly coming into existence in any financial year, the tax year shall be the period beginning with—
(a) the date of setting up of such business or profession; or
(b) the date on which such source of income newly comes into existence, and, ending with the said financial year. 

It must be noted that while the tax year is expected to replace the assessment year, there will be no change in the definition of financial year, which will start on April 1 and end on March 31.

Other developments:

1. Tax free income

In the proposed new tax regime, the maximum total income, for which tax liability for individual taxpayers is NIL, is INR 12 lakh. Earlier, the limit of income for nil tax payments was INR 7 lakh. By increasing this limit to INR 12 lakh around one crore assesses, who were earlier required to pay tax varying from INR 20,000 to INR 80,000, will be now paying nil tax.

Further, a standard deduction of Rs. 75,000 is available to a tax payer in the new regime. Therefore, a salaried tax payer will not be required to pay any tax when his income before standard deduction is less than or equal to INR 12,75,000.

2. No change in the residency laws:

The new income tax bill has not changed the residency laws. They are likely to remain the same in the new act as well. Current income tax laws divide the residency provisions into three categories:

Ordinarily resident individual

Non-ordinarily resident individuals

Non-residents individuals

3. Tax slabs:

Individuals earning up to INR 12 lakh annually will not have to pay any income tax under considering the new tax regime as Finance Minister Nirmala Sitharaman on Saturday gave relief to middle class by raising exemption limit and rejigging slabs.

For salaried employees, this nil tax limit will be INR 12.75 lakh per annum, after taking into account a standard deduction of INR 75,000.

The tax slabs are as follows:

0 – Rs.4 lakh — tax is 0 per cent

Rs.4-8 lakh — tax is 5 per cent

Rs.8-12 lakh — tax is 10 per cent

Rs.12-16 lakh — tax is 15 per cent

Rs.16—20 lakh — tax is 20 per cent

Rs.20-24 lakh — tax is 25 per cent

More than Rs.24 lakh — tax is 30 per cent

4. Tax net on brand collaborations & endorsement deals:

Persons engaged in digital content creation, including social media influencers and online platforms, shall be required to register for Goods and Services Tax (GST) if their turnover exceeds Rs 20 lakh in a financial year (Rs 10 lakh for special category states).

As per Section 194J, any payment exceeding Rs 30,000 in a financial year for professional services, including brand sponsorships, will be subject to a 10% tax deducted at source (TDS). This means brands must deduct tax before making payments.

Earnings from brand collaborations, social media promotions, and digital content creation will likely be treated as profits and gains of business or profession (PGBP). This means influencers can claim deductions on expenses, but their income will be subject to taxation.

The bill references “virtual digital space,” which includes social media platforms. Influencers receiving cryptocurrency or NFTs as payment will be taxed at 30%, with no deductions except for the cost of acquisition.

5. Amortisation of certain preliminary expenses:

As per the existing Income Tax Act, 1961, Section 35D states that where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2), (i) before the commencement of his business, or (ii) after the commencement of his business, in connection with the extension of his undertaking or in connection with his setting up a new unit, then the assessee shall, in accordance with and subject to the provisions of this section, be allowed a “deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years” beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the undertaking is completed or the new unit commences production or operation.

However, as the new Income tax Bill, 2025, Section 44 states that if an assessee, being an Indian company or a person (other than a company), who is resident in India, incurs any expenditure specified in sub-section (2), (a) before the commencement of its business; or (b) after the commencement of its business, in connection with the extension of its undertaking or in connection with its setting up a new unit, the assessee shall be allowed a “deduction of an amount equal to one-fifth of such expenditure for each of the five successive tax years” beginning with (i) the tax year in which the business commences, for clause (a); or (ii) the tax year in which the extension of the undertaking is completed or the new unit commences production or operation, for clause (b).