During the presentation of the Union Budget 2025, Finance Minister Nirmala Sitharaman announced that a new income tax bill—a direct tax code designed to streamline compliance for individual taxpayers—will be introduced next week.
The new code is expected to simplify the process of calculating taxes and filing returns. One of the anticipated changes is the potential elimination of the distinction between the financial year (FY) and the assessment year (AY). The idea of a new direct tax code was first mentioned by Sitharaman during the presentation of the 2024/25 budget in July, where she highlighted the aim to make income tax laws more straightforward and easier to understand. Additionally, the plan is to reduce the length of the Income Tax Act of 1961 by an impressive 60%.
Current Tax Regimes
Currently, taxpayers have the option to choose between two tax systems. The old tax regime provides exemptions on expenses such as housing rent and insurance, while the new tax regime, introduced in 2020, offers slightly lower tax rates but eliminates most major exemptions.
Salaried individuals can select either regime when filing their returns. However, for those earning income from business or profession, the new tax regime has been the default option since the financial year 2023-24.
