New Income Tax Bill 2025: Will changes in the revised bill impact taxpayers?

India Today

4 days ago

The Lok Sabha has passed a revised version of the Income Tax Bill, 2025, just a week after the earlier draft was withdrawn. The updated Bill, presented by Finance Minister Nirmala Sitharaman on August 11, incorporates most of the recommendations made by the Select Committee. It is set to replace the six-decade-old Income Tax Act, 1961.The first draft of the new Bill was introduced in February this year as part of the biggest reform to India's direct tax laws in more than sixty years. However, the government withdrew it last week to make corrections and adjustments.Preeti Sharma, Partner at Global Employer Services, Tax & Regulatory Services, BDO India, said the biggest benefit of the new law is its simpler language. 'A common man may easily understand it with lesser effort compared to the old law,' she said.Sharma added that most of the Select Committee's recommendations have been included. The new tax regime announced in Budget 2025 remains part of the Bill, and taxpayers will still need to assess which regime works best for them when filing returns. She also clarified that there are no changes to the tax rates announced in Budget 2025.One key update in the revised Bill is a clear tax deduction for commuted pension, or lump sum pension payments, for certain taxpayers.This applies to those receiving pensions from specific funds listed in Schedule VII of the Bill, such as the LIC Pension Fund. In the earlier draft, this exemption was not clearly mentioned, which led the Select Committee to suggest its inclusion. The aim was to ensure fair tax treatment for non-employees receiving pensions from approved funds, similar to the benefits already given to employees.Dinesh Kanabar, CEO of Dhruva Advisors, welcomed several changes made in the revised Bill. 'There were a number of provisions against which representations were made to the Select Committee. These have now been accepted in the Bill presented,' he said.Kanabar highlighted three major changes. First, the proposal to levy Alternate Minimum Tax on Limited Liability Partnerships (LLPs) has been removed.Second, restrictions placed on charitable trusts in the earlier draft have been rolled back.Third, provisions related to Transfer Pricing and the definition of Associated Enterprises have been relaxed. 'A set of very welcome changes. Glad that the representations to the Select Committee have borne fruit,' he said.One example of a change in the definition of Associated Enterprise is in how management and control are determined.In the earlier Bill, two enterprises could be considered associated if they had common management or control at any time during the year. Kanabar said this would have created a 'subjective challenge.' Now, it has been clarified that only in specific circumstances will management and control be considered common, and the test will be applied as of the end of the year. 'This will take away the subjectivity and all litigation that goes with it,' he noted.On charitable trusts, Kanabar pointed out that the revised Bill restores the ability to reinvest capital gains and spend funds in the following year, a provision that had been removed in the earlier draft.Regarding LLPs, he said the removal of Alternate Minimum Tax was important, calling it 'an error in drafting the earlier Bill' that has now been corrected.For individual taxpayers, Kanabar said the Bill offers important clarifications. This includes how standard deduction is applied when computing income from house property after deducting municipal taxes, and how pre-construction interest is treated for let-out properties. 'The clarification is welcome,' he said.advertisement(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)- EndsMust Watch