Income Tax Bill 2025: Proposed Changes in Salary, Pension, and Gratuity Deductions [Read Bill]
The Income Tax Bill 2025 introduces a tax structure with higher exemptions, lower tax rates for middle-income earners, and the removal of key deductions
![Income Tax Bill 2025: Proposed Changes in Salary, Pension, and Gratuity Deductions [Read Bill]](https://www.taxscan.in/wp-content/uploads/2025/02/Income-Tax-Bill-2025-Gratuity-Deductions-Pension-taxscan.jpg "Income Tax Bill 2025: Proposed Changes in Salary, Pension, and Gratuity Deductions [Read Bill]")
The Indian taxation system is set for a major transformation with the proposed Income Tax Bill, 2025, introduced in Parliament on February 13, 2025 (Today) before speaker Om Birla. This bill, if approved, will replace the existing Income Tax Act of 1961 and come into effect from April 2026. The bill aims to simplify tax compliance while modifying tax rates, deductions, and...
The Indian taxation system is set for a major transformation with the proposed Income Tax Bill, 2025, introduced in Parliament on February 13, 2025 (Today) before speaker Om Birla. This bill, if approved, will replace the existing Income Tax Act of 1961 and come into effect from April 2026. The bill aims to simplify tax compliance while modifying tax rates, deductions, and exemptions, particularly for salaried individuals, pensioners, and those receiving gratuity payments.
New Tax Regime
The Income Tax Bill, 2025 proposes a revised tax structure for individuals, Hindu Undivided Families (HUFs), and certain associations. The draft bill suggests the following tax slabs:
- Up to Rs. 4,00,000 - No tax
- Rs. 4,00,001 to Rs. 8,00,000 - 5%
- Rs. 8,00,001 to Rs. 12,00,000 - 10%
- Rs. 12,00,001 to Rs. 16,00,000 - 15%
- Rs. 16,00,001 to Rs. 20,00,000 - 20%
- Rs. 20,00,001 to Rs. 24,00,000 - 25%
- Above Rs. 24,00,000 - 30%
How to Compute Income from Salary with Tax Planning, Click Here
Individuals earning up to Rs. 12 lakh per annum will be eligible for a tax rebate, which is a huge relief for middle-class taxpayers.
| Income Range | Current Tax Rate (1961 Act) | New Tax Rate (2025 Bill) |
| Up to Rs. 2,50,000 | No Tax | No Tax (Up to Rs. 4,00,000) |
| Rs. 2,50,001 - Rs. 5,00,000 | 5% | 5% (Rs. 4,00,001 - Rs. 8,00,000) |
| Rs. 5,00,001 - Rs. 7,50,000 | 10% | 10% (Rs. 8,00,001 - Rs. 12,00,000) |
| Rs. 7,50,001 - Rs. 10,00,000 | 15% | 15% (Rs. 12,00,001 - Rs. 16,00,000) |
| Rs. 10,00,001 - Rs. 12,50,000 | 20% | 20% (Rs. 16,00,001 - Rs. 20,00,000) |
| Rs. 12,50,001 - Rs. 15,00,000 | 25% | 25% (Rs. 20,00,001 - Rs. 24,00,000) |
| Above Rs. 15,00,000 | 30% | 30% (Above Rs. 24,00,000) |
How to Compute Income from Salary with Tax Planning, Click Here
Let's take a look at how much tax a salaried employee would pay under the current vs. new tax regime. We will see sample tax calculations for individuals earning Rs. 10 lakh, Rs. 15 lakh, and Rs. 25 lakh per annum.
| Annual Salary | Tax Payable (Current Regime) | Tax Payable (New Regime) | Tax Savings |
| 10,00,000 | 75,000 | 40,000 | 35,000 |
| 15,00,000 | 1,87,500 | 1,05,000 | 82,500 |
| 25,00,000 | 4,87,500 | 3,30,000 | 1,57,500 |
- A person earning Rs. 10 lakh per year will save Rs. 35,000 in taxes under the new regime.
- A person earning Rs. 15 lakh per year will save Rs. 82,500.
- A person earning Rs. 25 lakh per year will save Rs. 1,57,500 in taxes.
This shows that middle-class and upper-middle-class taxpayers will benefit hugely from the new tax regime.
How to Compute Income from Salary with Tax Planning, Click Here
Salary Deductions Under the New Tax Bill
The Income Tax Bill, 2025, introduces several changes in salary-related deductions under Section 19. These include:
- Employment Tax Deduction: Fully deductible under Article 276(2) of the Constitution.
- Standard Deduction: Salaried individuals will be eligible for a standard deduction of Rs. 50,000 or the salary amount, whichever is lower​.
Losses and depreciation claims from previous years will no longer be carried forward. Taxpayers must opt for these deductions before filing their income tax returns, with limited opportunities to change their selection.
How to Compute Income from Salary with Tax Planning, Click Here
Changes in Gratuity Deductions
The new bill has clarified gratuity exemptions and deductions, making it more structured. According to the draft:
- Gratuity received under the Payment of Gratuity Act, 1972 (on retirement, incapacity, or death) - Fully deductible.
- Retirement gratuity for defense personnel - Fully deductible.
- Death-cum-retirement gratuity - Fully deductible.
- Other gratuity received upon retirement or termination - Deduction limited to Rs. 75,000 or the salary amount, whichever is lower​.
How to Compute Income from Salary with Tax Planning, Click Here
Pension and Compensation Deductions
The bill proposes major deductions on pension and compensation payments:
- Pension Commutation: Fully deductible for civil servants, defense personnel, and other government service pensioners.
- Retrenchment Compensation: Deductible up to Rs. 50,000 or as per Section 25F(b) of the Industrial Disputes Act, 1947.
- Voluntary Retirement Scheme (VRS) Payments: Deductible up to Rs. 5,00,000 or as specified by the central government​.
To Read the full text of the Tax Bill CLICK HERE
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