Union Finance Minister Nirmala Sitharaman has formally withdrawn the old draft of the Income Tax Bill, 2025, from the Lok Sabha and introduced a revised version in Parliament. This new draft is the result of extensive feedback and scrutiny, including around 285 recommendations from a Select Committee, aiming to modernize and simplify India’s direct tax framework, replacing the existing Income Tax Act, 1961.
Why Was the Earlier Bill Withdrawn?
The original bill, introduced during the Parliament’s Budget session in February 2025, was immediately referred to a Select Committee for thorough review. Major reasons for withdrawal:
- Drafting inconsistencies and technical errors needed correction.
- Terminology clarifications and improved legal language were necessary to convey the correct legislative intent.
- Stakeholder and committee feedback was extensive, demanding a consolidated, clearer bill that avoids confusion between multiple versions.
Structure and Key Features of the New Bill
- Simplified Language: The bill’s legal terminology has been rewritten for clarity. Provisions that were ambiguous or contradictory have been removed to reduce disputes—a common issue under the old law.
- Organized Provisions: There are now 536 sections and 16 schedules organized for easy navigation, compared to the older act’s 298 sections.
- Introduction of “Tax Year”: The new bill attempts to eliminate the dual system of “Previous Year” and “Assessment Year,” introducing the concept of a single “Tax Year” for better clarity and administration.
- Digital-first Approach: The Central Board of Direct Taxes (CBDT) gets enhanced powers to make rules promoting digital administration and automation, including faceless processes to reduce the scope for corruption and unnecessary litigation.
- No Immediate Tax Slab Changes: The revised bill does not change tax rates or income categories at this stage but focuses on simplifying processes and paperwork.
Major Select Committee Recommendations
The Select Committee’s detailed 4,500-page report suggested significant reforms. Key recommendations now likely included in the revised bill:
Taxpayer Benefits & Relief
- Refunds on Late Returns: Taxpayers can now claim refunds even if their returns are filed after the deadline, helping individuals who miss filing due to genuine reasons.
- Dividend Deduction (Section 80M): Reintroduction of inter-corporate dividend deductions, easing tax burden on companies receiving dividends from other domestic companies.
- NIL-TDS Facility: Taxpayers with no tax liability can obtain advance NIL-TDS (tax deducted at source) certificates, reducing compliance hassle.
- Tax Relief for Vacant Property: Additional tax burden based on deemed rent for vacant house properties is removed.
- Clear 30% Deduction for House Property: The deduction is now applicable only after subtracting municipal taxes; also, home-loan interest deduction is available for let-out (rented) properties.
Compliance & Procedural Changes
- Simplified Advance Ruling Fees: Making advance tax rulings more accessible by altering the fee structure.
- Clarifications on Penal Powers and TDS: Clear rules about when penalties apply, especially for provident fund withdrawal and other procedural aspects.
- Definition Alignment: MSME (Micro, Small & Medium Enterprises) definition is now linked directly to the MSME Act, reducing confusion.
- Legal Drafting Improvements: Numerous linguistic and technical errors have been corrected, including clause numbering and property terminology.
- Expanded Pension Deduction: Commuted pension deduction (previously only for employees) is now extended to non-employee individuals.
Top 10 Changes at a Glance
- Refund claim possible even for late returns.
- Reintroduction of Section 80M deduction for inter-corporate dividends.
- Facility for NIL-TDS certificates to those with no liability.
- Removal of ‘deemed rent’ tax for vacant properties.
- Clear calculation of 30% deduction after municipal taxes for house property.
- Extension of home-loan interest deduction to let-out properties.
- Improved transparency and clarity in procedural rules.
- Alignment of MSME definition with the MSME Act.
- Correction of legal language and clause references.
- Wider scope for commuted pension deduction to non-employee individuals.
What Does It Mean for Taxpayers and Investors?
- Simplification and Transparency: The bill aims to make tax compliance easier, with fewer technical hurdles and clearer rules. This helps taxpayers plan their finances with more certainty and reduces disputes with tax authorities.
- Reduced Litigation: Many ambiguous provisions that often led to legal battles have been removed, and the law is now organized to reduce opportunities for misinterpretation.
- Support for Digital India: The emphasis on digital processes and automation will make tax filing and refunds quicker, improve convenience, and support a faceless, corruption-free environment.
- Investor Confidence: By clearly aligning definitions (such as MSMEs and house property), the bill promotes investment by reducing uncertainties in tax rules affecting businesses and individuals.