New Income Tax Bill approved: What's new after withdrawal of earlier draft

India Today

10 hours 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The Lok Sabha has passed a revised version of the Income Tax Bill, 2025, just a week after the earlier draft was withdrawn.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 and aims to replace the six-decade-old Income Tax Act, 1961.advertisementWHY THE EARLIER BILL WAS WITHDRAWNThe first draft of the Income Tax Bill was introduced in February this year as part of the most significant reform to India's direct tax code in more than sixty years. However, the government decided to pull it back last week to make certain corrections and adjustments.Explaining the move in Parliament, Sitharaman said the changes included refining the language, aligning phrases, making consequential changes, and improving cross-referencing. She pointed out that the revised draft was intended to give lawmakers a single, clear version to work with and to prevent any confusion.MAJOR CHANGE REGARDING COMMUTED PENSIONOne of the key updates in the revised Bill is an explicit tax deduction for commuted pension, 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 stated, which led the Select Committee to recommend its inclusion. The Committee noted that the change was needed to ensure fair tax treatment for non-employees receiving pensions from approved funds, similar to the relief already given to employees.
According to Dinesh Kanabar, CEO, Dhruva Advisors, "While we study the provisions of the amended Bill, we see 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."He added, "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."Kanabar further noted that, regarding charitable trusts, the new Bill proposes to restore the capital gains tax reinvestment benefit and the option to utilise funds in the following year. For individuals, the clarifications on claiming standard deduction for income from house property after municipal tax payment, as well as the deduction of pre-construction interest on let-out properties, are positive moves.KEY FEATURES OF THE WITHDRAWN DRAFTThe February draft sought to simplify India's tax law by using clearer language, consolidating deductions, and shortening provisions. It also proposed lower penalties for some offences, a 'trust first, scrutinise later' approach to reduce disputes, and modernised tax administration through greater digital monitoring and stronger CBDT powers.advertisementDespite these changes, the earlier version did not alter tax slabs, capital gains rules, or income categories. It kept the same residency criteria and financial year timelines while streamlining TDS rules and simplifying depreciation provisions.With the revised Bill now approved by the Lok Sabha, the legislation takes a major step towards replacing the 1961 Act, potentially reshaping India's income tax system for decades to come.(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