Parliament approves new Income Tax Bill 2025, set to replace 1961 Act after six decades

Mint

2 days ago

Parliament passes new Income Tax Bill to replace IT Act, 1961.
The Income Tax Bill, once enacted, will replace the archaic 6-decade-old income tax law. The legislation will make tax law simple by reducing the number of chapters and wordage.
Lok Sabha passes new Income Tax Bill in just 3 minutes
The Income Tax Bill (No.2) 2025 - a major legislative move to replace the 63-year-old law governing income taxation for individuals and corporations - was passed in the Lok Sabha on Monday in just three minutes, without any debate.
The Bill, which streamlines TDS, exemptions and other compliance-heavy provisions as also allows individuals to claim refunds without penalty on delayed filings, was passed as the opposition parties continued to disrupt proceedings over allegations of irregularities in the special intensive revision (SIR) of electoral rolls in Bihar.
Finance Minister Nirmala Sitharaman, who had on August 8 withdrawn the Income Tax Bill, 2025 she had introduced in February, on Monday introduced an updated version incorporating recommendations made by a Parliamentary panel that scrutinised the legislation. Amid slogan shouting by the opposition, the bill was put to vote and passed by voice vote.
The Bill will now go to the Rajya Sabha for approval and thereafter to the President for assent. It will become law once the Presidential assent is provided.
The new bill reduces the size and complexity of the current Income Tax Act, drastically cutting the number of effective sections and chapters and nearly halving the word count.
"Almost all of the recommendations of the Select Committee have been accepted by the Government. In addition, suggestions have been received from stakeholders about changes that would convey the proposed legal meaning more accurately," said the statement of Objects and Reasons of the Income Tax (No.2) Bill.
It does away with the confusing concepts of assessment year and previous year, replacing them with easier to understand 'tax year'.
According to the revised Bill, individuals will be allowed to claim TDS refund even if their return of income is filed beyond the statutory timeline provided for filing of the original income-tax return.
Thus, the Finance Ministry has incorporated the provision of the existing Income Tax Act, 1961.
The Income Tax (No.2) Bill provides for 'nil' TCS on Liberalised Remittance Scheme (LRS) remittances for education purposes financed by any financial institutions.
Nangia Andersen LLP Partner Sandeep Jhunjhunwala said deductions in respect of certain inter-corporate dividends for companies opting for concessional rate of taxes have been re-introduced in line with the provisions of the existing Income-tax Act, 1961
The provisions relating to the carry forward and set-off of losses have been appropriately amended and the reference to the beneficial owner has been omitted to align with Section 79 of the Income-tax Act, 1961.
"By enabling refunds for belated returns and harmonising definitions of Micro and Small enterprise with allied statutes, the Bill reflects a balanced, pragmatic, and taxpayer-oriented approach," Jhunjhunwala said.
While the Bill has welcome changes for enhancing clarity and reducing litigations, there seems to be no significant changes made to contentious provisions surrounding search and seizure in the virtual digital space.
The present act provides authorised officers to conduct search and seize assets and books of accounts of individuals who may be suspected to have any undisclosed income or documents in order to evade paying tax. This allowed the authority to break the lock on any door, box, or locker if they couldn't find their keys or had cause to believe that any books of accounts or undeclared valuables were being stored there.
In the bill introduced in February, Clause 247 allows tax officers to bypass passwords and access digital platforms like emails and social media during searches if taxpayers refuse cooperation.
It stipulates that an authorised officer, in consequence of information in his possession, has reason to believe, can "break open the lock of any door, box, locker, safe, almirah, or other receptacle for exercising the powers conferred by clause to enter and search any building, place, etc., where the keys thereof or the access to such building, place, etc., is not available, or gain access by overriding the access code to any said computer system, or virtual digital space, where the access code thereof is not available".
This provision had sparked concerns around privacy.
The updated bill states that tax authorities can "break open the lock of any door, box, locker, safe, almirah, or other receptacle or override the access code to any computer system ... where the keys thereof are, or the access to such building, place, etc., or the access code to such computer system ... is not available".
While the 'digital space' is missing from the clause, it is included in the definition of computer systems.
Tax experts believe that starting April 1, 2026, when the new income tax law comes into force, income tax officials could get the authority to access individuals' digital accounts, such as emails, social media, bank accounts, trading platforms, and online investments, if they suspect tax evasion.