Parliament passes new Income Tax Bill

Economic Times

6 hours ago

The Parliament has approved the revised Income Tax bill, incorporating nearly all recommendations from the Select Committee. This follows the Rajya Sabha's approval, a day after the Lok Sabha's. Chaired by Baijayant Panda, the Select Committee proposed several changes to the Income-tax Bill, 2025, initially introduced in February. The government withdrew the original bill to introduce the Income-tax (No.
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Clause 21 (Annual value of property): Remove the term 'in normal course' and add a clear comparison between actual rent and 'deemed rent' for vacant properties.
Clause 22 (Deductions from house property income): Specify that the 30% standard deduction applies after deducting municipal taxes; extend pre-construction interest deduction to let-out properties.
Clause 19 (Salary deductions – Schedule VII): Allow commuted pension deductions for non-employees receiving pensions from a fund.
Clause 20 (Commercial property): Modify wording to avoid taxing temporarily unused business properties as 'house property' income.
Simplified language, consolidation of deductions, and shorter provisions to ease compliance.
Lower penalties for certain offences to make the system more taxpayer-friendly.
No change in tax slabs, capital gains rules, or income categories.
Reduction in litigation through a 'trust first, scrutinise later' approach.
Modern administration with enhanced CBDT powers, digital monitoring, and the introduction of a 'tax year' concept.
The Parliament on Tuesday passed the modified Income Tax Bill, which the government says will modernise the longstanding income tax legislation for both individuals and corporations, along with the Taxation Laws (Amendment) Bill, 2025.Finance Minister Nirmala Sitharaman introduced the two money bills -- The Income Tax Bill, 2025, and The Taxation Laws (Amendment) Bill, 2025 in Rajya Sabha on Tuesday. The Upper House had returned the legislation with a voice vote to the lower house.The Income Tax Bill will replace the Income Tax Act, 1961.Explaining the reasons for bringing the new income tax law, Sitharaman said some parts of the Income Tax Act, 1961, have become outdated and hence a new legislation was needed.The Select Committee, chaired by Baijayant Panda, had suggested a host of changes in the Income-tax Bill, 2025, which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. "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 parliamentary panel had flagged multiple drafting errors and suggested amendments to reduce ambiguity:The Committee said these changes would improve fairness and clarity while aligning the law with existing provisions.The February draft was described as the most significant reform of India's direct tax code in over 60 years. Key features included:The earlier draft had 23 chapters, 536 sections, and 16 schedules, using tables and formulas for easier interpretation. It also proposed streamlined TDS rules, simplified depreciation provisions, and retention of residency criteria and financial year timelines.