New Income Tax bill 2025: Nirmala Sitharaman retains Rs 12 lakh exemption, cuts sections to 536, & enables faceless assessments

Time of India

2 days ago

Finance Minister Nirmala Sitharaman introduced the revised Income Tax (No. 2) Bill, 2025 in the Lok Sabha, aiming to replace the 1961 Income Tax Act with a modern, streamlined framework. This follows the withdrawal of the earlier bill tabled in February 2025, which was reworked based on recommendations from the Select Committee led by Baijayant Panda. The revised draft incorporates almost all committee suggestions, addressing drafting corrections, phrase alignment, consequential changes, and cross-references.
No change to Rs 12 lakh exemption
Ahead of the bill's presentation, speculation circulated online about the removal of the Rs 12 lakh income tax exemption. Parliamentary Affairs Minister Kiren Rijiju dismissed these claims, confirming that the exemption announced in the previous Union Budget remains intact. He clarified that the revised bill is not a complete replacement of the February draft but an updated version that integrates 285 recommendations, including 32 major changes, to improve clarity and efficiency.
60,000 man hours were needed in drafting the new Income Tax Bill. Since 1961 it has not been touched and layers and layers got added to it. A comprehensive review had not happened. So, that work which was taken up, required that many number of hours. I appreciate the CBDT for… pic.twitter.com/2u3i7l0mv4
Key provisions and structural changes
The Income Tax Bill 2025 reduces the number of sections from 819 to 536 and the chapters to 23, with a focus on simplicity, transparency, and improved use of technology. Provisions include a digital-first, faceless assessment system to simplify compliance and limit corruption risks. The bill also limits anonymous donations to religious trusts not engaged in additional social services, allows taxpayers to claim TDS refunds after the ITR deadline without penalties, and mandates that tax officials issue notices and invite responses before action is taken.
Committee recommendations and legislative approach
Rijiju explained that accepting the committee's amendments and reintroducing the bill saves legislative time and ensures procedural efficiency. The Select Committee's inputs aim to create a simplified and litigation-resistant tax code aligned with global best practices. The reforms target better public understanding of tax obligations while maintaining robust oversight. By consolidating laws and integrating modern compliance tools, the bill is positioned as a key step in India's tax system modernization plan.
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