Union Finance Minister Nirmala Sitharaman formally withdrew the old draft of the Income Tax Bill, 2025 from the Lok Sabha last week. The updated version of the bill will be presented today.
The Select Committee of the Lok Sabha made around 285 recommendations and submitted a detailed 4,500-page report to Parliament last month, proposing reforms to the bill. The original bill was introduced in February during the Budget session of Parliament.
The original bill introduced then was immediately sent to the Select Committee so that a thorough review could be done on this new law replacing the old Income Tax Act, 1961.
The Select Committee suggested improvements on many technical, procedural and practical aspects related to taxpayers. Now it has to be seen how many of their suggestions are incorporated in the revised bill.
Old law vs new bill: What will change?
The Income Tax Act, 1961 is still the backbone of tax administration, but the provisions and legal language associated with it over the years have been considered complex. In the new draft bill, the government has:
- Emphasized on making the language simple and the provisions clear.
- The Income Tax Act has been organized in 536 sections and 16 schedules, so that it is easy to read and understand.
- An attempt has been made to eliminate the dual system of “Previous Year” and “Assessment Year” by introducing the concept of “Tax Year”.
- Ambiguous or contradictory provisions have been removed to reduce litigation.
While promoting digital administration, CBDT has been given more power to make rules.
Important suggestions of the Select Committee:
The committee suggested several important changes to provide relief to taxpayers, promote investment and simplify compliance, such as —
- Relief in tax refund – permission to claim refund even if the return is filed late.
- Dividend deduction – Reintroduction of section 80M deduction on inter-corporate dividends.
- NIL-TDS facility – Taxpayers who do not have tax liability will be able to obtain advance NIL-TDS certificate.
- Tax relief on vacant property – Removal of additional tax burden based on deemed rent.
- Clarity in house property income – 30% standard deduction will be applicable after deducting municipal taxes; home-loan interest deduction will be available on rented property as well.
- Procedural reforms – Advance ruling fees, TDS on PF withdrawal and clarification on penal powers.
- Alignment of MSME definition – Define MSME as per MSME Act.
- Correction of linguistic and technical errors – Correction of clause numbering and references.
- Clarification of property classification – Change in terminology ‘occupied’ to avoid confusion between residential and commercial classification.
- Expansion of pension benefits – Extend commuted pension deduction to non-employee individuals as well.
10 major changes in the revised bill — at a glance
Refund claim possible even on late filing of returns.
- Withdrawal of 80M deduction on inter-corporate dividends.
- Facility of NIL-TDS certificate.
- Relief from deemed rent tax on vacant house.
- Clear definition of 30% deduction on house property.
- Home-loan interest deduction on rented property.
- Transparency in procedural rules.
- Linking the definition of MSME to the MSME Act.
- Improvements in legal language and drafting.
- Increasing the scope of commuted pension deduction.
What does it mean for taxpayers and investors?
Experts believe that the revised bill will make compliance easier, reduce litigation and give taxpayers more clarity in planning their finances.