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Income Tax Bill 2025 passes Lok Sabha: What are the new provisions? How do you benefit?
Union Finance Minister Nirmala Sitharaman said the changes of the Select Committee had been incorporated. PTI File
The Lok Sabha on Monday passed the new income tax bill. The Income-Tax (No.2) Bill, 2025 seeks to replace the Income Tax Act, 1961.
The development comes days after Finance Minister Nirmala Sitharaman withdrew the Income Tax Bill, 2025, in the Lok Sabha.
But what do we know about the changes in the bill? Why was the earlier bill withdrawn? How do you benefit?
Let's take a closer look:
Why was the earlier bill withdrawn?
The government had withdrawn the bill on Friday.
It said it would bring in a new version of the bill after including changes recommended by the select committee headed up by senior BJP member Baijayant Panda.
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The bill was reportedly withdrawn to avoid confusion about the different versions circulating.
'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 bill.
'There are corrections in the nature of drafting, alignment of phrases, consequential changes and cross-referencing. Therefore, a decision has been taken by the government to withdraw the Income-tax Bill, 2025 as reported by the Select Committee. Consequently, Income-tax (No. 2) Bill, 2025 has been prepared to replace the Income-tax Act, 1961,' the statement said.
The Select Committee, chaired by Baijayant Panda, had suggested a host of changes in the Income-tax Bill, 2025, which was introduced in the Lok Sabha on February 13.
Panda said the Income Tax Act had become too complex and the bill simplifies the tax code.
The committee made 285 suggestions, most of which have been accepted, Sitharaman said.
What do we know?
The bill will take effect from April 1, 2026. It begins by making the language easier for the layman to read.
The committee had suggested allowing refunds even if the Income Tax Return was filed after the due date. The earlier version of the bill had denied refunds if ITR was filed after the due date. It also allows penalties to be waived in case of accidental non-compliance.
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The committee also suggested no penalty on late filing of Tax Deducted at Source. Those who have to pay no tax – both Indians and NRIs – can apply for a 'nil certificate' in advance.
The bill will take effect from April 1, 2026. It begins by making the language easier for the layman to read. Representational image.
It also does away with terminologies of 'Financial Year' and ' Accounting Year' in favour of the 'Tax Year.' Under the current law, tax on income for the previous year is paid during this year. However, now tax on income will be paid that very year itself.
Another change suggested by the Select Committee is the restoring the 80M deduction for companies relating to intercorporate dividends.
This provision had been missing in the previous version of the draft. Companies were allowed to choose the 22 per cent tax rate in order to give up certain exemptions. However, this raised concerns about dual taxation given the way certain companies are structured.
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It makes clearer the definitions of 'capital asset', 'micro and small enterprises', and 'beneficial owner'.
MSMEs have been previously defined under the MSME Act. A micro enterprise is one that has an investment of less than 1 crore and a turnover of 5 crores. A small enterprise has been defined as having an investment of under Rs 10 crore and a turnover of Rs 50 crore.
It also set a 30 per cent standard deduction on tax on income from rental properties. The interest payable on borrowed capital to buy, build, repair a property can also be deducted from the rental property.
The Finance Ministry earlier said 'key words' and 'phrases defined in court rulings (will) remain'.
The Lok Sabha also passed the Taxation Laws (Amendment) Bill, 2025 which seeks to amend the Income-tax Act, 1961 as well as the Finance Act, 2025.
It aims to provide tax exemptions to subscribers of the Unified Pension Scheme. The government in July announced that all tax benefits available under the New Pension Scheme (NPS) shall apply to the Unified Pension Scheme (UPS), which was implemented from April 1, 2025.
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It also seeks to give tax benefits to public investment funds of Saudi Arabia which is investing in India. These Bills were passed without any debate amid vociferous protest by members of Opposition over revision of electoral rolls in Bihar. After the passage of these bills by voice vote, the Lok Sabha was adjourned for the day.
The bills needs to be passed by the Rajya Sabha – after which it will go to President for Droupadi Murmu for her assent.
What do experts say?
Experts have praised the changes in the new bill.
Rajesh Gandhi, partner, Deloitte India, told Financial Express that the proposals for tax benefits by pension funds and sovereign funds in the infrastructure sector are similar to the existing tax law.
Experts have praised the changes in the Bill.
'…the provisions have been drafted in a more structured and concise manner. The government could have considered industry suggestions while drafting the proposals including extension of tax benefits to holding companies setup prior to 2021, allowing reinvestment of dividend income within the group without triggering double taxation of dividend income, extension of tax exemption to indirect share transfers, extension of tax benefit to capital gains from unlisted bonds / debentures as well as removal of withholding tax on exempt income earned by such funds', Gandhi said.
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Dinesh Kanabar, CEO, Dhruva Advisors, added that the new bill has witnessed some very welcome changes.
'There were a number of provisions against which representations were made to select committee. These have now been accepted in the Bill presented today. To give a few examples, the provisions of levying Alternate Minimum Tax on LLPs has been done away with, the rigours placed on Charitable Trust have been removed, the provisions of Transfer Pricing and the definition of Associated Enterprise to whom these provisions apply, have been relaxed. A set of very welcome changes. Glad that the representations to the Select Committee have borne fruit'.
With inputs from agencies
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