Comprehensive Guide to Deductions under Income Tax Bill 2025

The Income Tax Bill 2025, introduced to replace the decades-old Income Tax Act of 1961, brings a wave of modernization and clarity to the Indian taxation system. One of the most significant aspects of this bill is the reorganization of deductions under Chapter VIII, aimed at simplifying compliance and reducing ambiguity. In this article, we provide an in-depth analysis of these deductions, including eligibility, limits, additional conditions, and notable changes from the previous act.

1. Overview of Deductions under Income Tax Bill 2025

Deductions play a crucial role in reducing taxable income, thus lowering the overall tax liability. The Income Tax Bill 2025 categorizes deductions under four broad sections:

• Deductions in respect of Certain Payments
• Deductions in respect of Certain Incomes
• Deductions in respect of Other Incomes
• Other Deductions

The bill retains most traditional deductions while introducing new categories relevant to contemporary financial practices, like the Agnipath Scheme and Electric Vehicles. Let's explore each category in detail.

2. Deductions in respect of Certain Payments

These deductions focus on investments, insurance, education loans, donations, and other specified payments.

a. Life Insurance, Provident Fund, and Pension Schemes (Section 123)

• Basis of Deduction: Investments in life insurance, provident fund, pension schemes, etc.
• Conditions: The investment must be in the taxpayer's name, spouse, or children.
• Limit: ₹1,50,000 (Overall limit).
• Remark: Includes contributions under the Agnipath Scheme, a new addition in the 2025 Bill.
• Difference from 1961 Act: Similar to Section 80C but adds Agnipath Scheme.

b. Health Insurance Premium (Section 126)

• Basis of Deduction: Premiums paid for health insurance for self, spouse, children, and parents.
• Conditions: Payment must be in non-cash mode.
• Limit: ₹25,000 (₹50,000 for senior citizens).
• Remark: Includes preventive health check-ups.
• Difference from 1961 Act: Similar to Section 80D with unchanged limits.

c. Interest on Education Loan (Section 129)

• Basis of Deduction: Interest on loans taken for higher education.
• Conditions: Loan must be from a financial institution or approved charity.
• Limit: No Limit.
• Remark: Available for 8 consecutive years.
• Difference from 1961 Act: Same as Section 80E.

d. Donations to Charitable Institutions (Sections 133 & 135)

• Basis of Deduction: Donations to specified funds, charitable institutions, and scientific research.
• Conditions: Donations above ₹2,000 must be made in non-cash mode.
• Limit: 50% or 100% of donation, as per government notification.
• Remark: Detailed categorization in Schedule XV.
• Difference from 1961 Act: Similar to Sections 80G & 80GGA.

3. Deductions in respect of Certain Incomes

These deductions encourage investments in infrastructure, startups, housing projects, and Special Economic Zones (SEZs).

a. Industrial Undertakings & Infrastructure Development (Section 138)

• Basis of Deduction: Profits from industrial undertakings or enterprises engaged in infrastructure development.
• Conditions: Applicable only to newly established units.
• Limit: 100% deduction for 3 years.
• Remark: Promotes industrial growth and infrastructure development.
• Difference from 1961 Act: Similar to Section 80-IA.

b. Eligible Startups (Section 140)

• Basis of Deduction: Profits from eligible startups.
• Conditions: Must qualify as an eligible startup as per Schedule XV.
• Limit: 100% deduction for 3 consecutive years.
• Remark: Encourages startup ecosystem and job creation.
• Difference from 1961 Act: Similar to Section 80-IAC.

c. Bio-degradable Waste Processing (Section 145)

• Basis of Deduction: Income from processing bio-degradable waste.
• Conditions: For businesses collecting and processing bio-degradable waste.
• Limit: 100% of profits.
• Remark: Promotes environmental sustainability.
• Difference from 1961 Act: New provision introduced in 2025 Bill.

4. Deductions in respect of Other Incomes

Interest on Deposits (Section 153)

• Basis of Deduction: Interest on deposits in savings accounts.
• Conditions: Excludes time deposits.
• Limit: ₹10,000 (₹50,000 for senior citizens).
• Remark: Encourages savings.
• Difference from 1961 Act: Similar to Sections 80TTA & 80TTB.

5. Other Deductions

Disability (Section 154)

• Basis of Deduction: For individuals certified as a person with disability or severe disability.
• Conditions: Disability certificate required.
• Limit: ₹75,000 (₹1,25,000 for severe disability).
• Remark: Covers both mental and physical disabilities.
• Difference from 1961 Act: Similar to Section 80U.

6. New Additions in Income Tax Bill 2025

1. Agnipath Scheme (Section 125): Deduction for contributions to the Agnipath Scheme.
2. Electric Vehicle Loan (Section 132): Deduction for interest on loans taken for purchasing electric vehicles, encouraging eco-friendly investments.
3. Bio-degradable Waste Processing (Section 145): To promote environmental sustainability by supporting businesses involved in waste processing.

7. Structural Changes and Simplification

The Income Tax Bill 2025 brings a streamlined approach to deductions by:

• Consolidating them under Chapter VIII with clear categories.
• Using straightforward language, making compliance simpler.
• Providing structured tables and schedules for easy reference.

These changes aim to reduce legal disputes, enhance voluntary compliance, and support government initiatives like Make in India, Startup India, and environmental sustainability.

8. Summary and Insights

The Income Tax Bill 2025 retains most traditional deductions but modernizes them to reflect current financial practices. By introducing new deductions like the Agnipath Scheme and Electric Vehicle Loan, it not only supports contemporary financial needs but also encourages eco-friendly and startup investments.

The structural revamp under Chapter VIII enhances clarity, reducing ambiguity and simplifying compliance. With a balanced approach to retaining conventional deductions and introducing new-age provisions, the bill sets the stage for a more efficient and taxpayer-friendly system.

Conclusion

The Income Tax Bill 2025 marks a significant shift in India's tax landscape by preserving valuable deductions while aligning with modern financial realities. As it is set to be implemented from April 1, 2026, taxpayers and financial advisors should familiarize themselves with these provisions to make the most of the available deductions.

Authored By CA Rohit Rajendra Sonar