The Select Committee of Lok Sabha proposed some “corrections” and a few taxpayer-friendly measures in its 4423-page report on the Income Tax Bill, 2025 tabled in the House on Monday.
The Bill is basically intended to simplify the Income Tax Act 1961, rather than make substantive policy changes, but the panel headed by BJP MP Baijayant Panda, identified a few inadvertent omissions in the Bill, and recommended that these be set right.
GAAR, dividend deductions, and loss set-off get a re-look
For instance, it sought restoration of deduction with regard to inter-corporate dividends, a benefit currently available to companies, including those under the general 22% corporate tax, and not just for those paying concessional rate of 15%. The revenue department said the omission with respect to 22%-tax firms was not deliberate, and would be corrected.
Another important suggestion of the panel, which has been accepted by the government, is to make the application of the General Anti-Avoidance Rules (GAAR) context-specific, rather than indiscriminate. While the Section 98 of the I-T Act states that if a transaction is found to be designed primarily for tax avoidance, then the relevant tax benefit would be subject to review, but only after taking into consideration the “circumstances of the case.” This clause is absent in the draft Bill. It would now be inserted, with the committee saying that GAAR should be judiciously applied.
Yet another important change proposed by the panel is with regard to the facility for carry-forward of losses of companies that are not substantially publicly held. Under Section 79 of the I-T Act, such companies cannot carry forward and set off past losses if there was any change in shareholding during the year, unless the same shareholders held at least 51% of voting power on the last day of both the loss year and the previous year. The committee recommended an amendment to Clause 119 in the I-T Bill to allow carry-forward of losses and set-off even if the 51% shareholding is temporarily disrupted, as long as it is restored in subsequent years, Amit Maheshwari, Tax Partner, AKM Global, said.
“This would preserve the legislative intent of preventing misuse while ensuring fair treatment for companies whose shareholders remain ultimately liable to tax. The drafting of clause 119(3) shall be aligned with Section 79 of the Act to remove any ambiguity regarding the newly used term “beneficial owner” as the same is not defined in the clause,” the panel said.
Reliefs for homeowners, trusts and small taxpayers
For house property, the panel suggested that the standard 30% deduction be calculated post-deduction of municipal taxes. Also, it said pre-construction interest deductions be made available even for let-out properties, and not just for self-occupied ones.
The committee also suggested that the exemptions be made available to anonymous donations to religious-cum-charitable trusts from taxation as under the extant I-T Act, instead of only exempting donations to religious trusts (as proposed in the Bill).
The panel’s report focuses on enhancing legal clarity, ensuring taxpayer equity, and facilitating a smooth legislative transition. It also suggested modernising definitions such as “capital asset” and “infrastructure capital company”, clarifying property-related deductions, and reinforcing the “actual payment” rule for business expenses, all steps that are taxpayer-friendly.
The committee observed that the current mandatory requirement to file a return solely for the purpose of claiming a refund could inadvertently lead to prosecution, particularly for small taxpayers whose income falls below the taxable threshold but from whom tax has been deducted at source.
“In such scenarios, the law should not compel a return merely to avoid penal provisions for non-filing. The committee, therefore, recommend to remove sub-clause (1)(ix) from Clause 263 to provide flexibility for allowing refund claims in cases where the return is not filed in due time,” it noted.
Additionally, it said there should be explicit inclusion of “nil” certificates in Clause 395 in the Bill, to resolve confusion for taxpayers seeking complete exemption from TDS.
Observing that there is a “significant divergence in the treatment of anonymous donations” to registered Non-Profit Organisations (NPOs), the committee suggested that such donations should be exempt for religious as well as charitable trusts because many such entities have a hybrid nature.
The committee opposed taxing ‘receipts’ of NPOs as it contravenes the principle of real income taxation under the I-T Act. It recommended reintroducing the term ‘income’ to ensure only net income of NPOs is taxed.
The existing law provides more comprehensive exemption: anonymous donations are not taxed if received by any trust or institution created or established wholly for religious and charitable purposes, unless such a donation was specifically directed towards a university, educational institution, hospital, or medical institution run by that same trust or institution.
On inter-corporate dividends, an amendment reinstating the deduction — Clause 200 corresponding to section 115BAA – was made. “The reference to inter-corporate deduction is now made, which was absent in the original draft. This is a beneficial change and reduces the tax cost of distributing profits to shareholders,: Rohinton Sidhwa, Partner, Deloitte India, said.
Sveral stakeholders had urged the Committee to reconsider the extent of search and seizure powers in relation to virtual digital space in light of safeguarding privacy and third-party rights, risk of overbroad searches, etc. “However, no key changes seem to have been recommended,” Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co, said.