In a significant step toward modernising India’s tax system, the Lok Sabha on Monday passed the Income-Tax Bill, 2025, just hours after it was introduced by Finance Minister Nirmala Sitharaman. This revamped legislation replaces the earlier Income-Tax Bill, 2025 that was tabled in February this year but officially withdrawn last Friday to make way for a more comprehensive and updated draft.
The new bill is designed to replace the over 60-year-old Income-Tax Act, 1961, offering a simplified, technology-driven, and dispute-minimising framework. It incorporates the bulk of recommendations from the 31-member Parliamentary Select Committee led by BJP MP Baijayant Panda, as well as suggestions from various stakeholders.
Explaining the changes, Sitharaman said, “Almost all of the Select Committee’s recommendations have been accepted. Additional inputs from stakeholders have helped refine the legal language, correct drafting issues, align terminology, and make consequential changes.” She clarified that the earlier bill was withdrawn to prevent confusion from having multiple versions in circulation and to ensure all approved changes were consolidated into a single, clear draft.
Top Recommendations Incorporated into the New Income Tax Bill 2025
The Parliamentary Select Committee’s exhaustive 4,575-page report included 285 recommendations, of which 32 were major changes. Key suggestions adopted in the final bill include:
- Revised definition of “beneficial owner” to allow carrying forward of losses when receiving direct or indirect share benefits during a tax year.
- Reinstating the inter-corporate dividend deduction absent in the earlier draft.
- Standard 30% deduction (after municipal taxes) and extended pre-construction interest deduction for let-out properties.
- Simplifying tax compliance with measures such as:
- Issuing ‘Nil’ tax deduction certificates.
- Allowing discretionary waivers of penalties for unintentional non-compliance.
- Facilitating refunds for delayed ITR submissions for small taxpayers.
- Enhanced clarity on NPAs to reduce disputes in tax and banking interpretations.
- Precise definition of “parent company” and clearer provisions for non-profits and charitable trusts, ensuring anonymous contributions do not impact tax exemption eligibility.
- Removal of all remaining references to the Income-Tax Act, 1961 to make the new code fully self-contained and dispute-resistant.
The new framework also aims to expand tax collection through digital taxation mechanisms, improved dispute resolution processes, and robust data-driven monitoring.
