New Delhi: The Lok Sabha on Monday, August 11, approved the income Tax (No 2) Bill, 2025, alongside the Taxation Laws (Amendment) Bill, marking an overhaul of India's direct tax regime. The legislation,
which replaces the Income Tax Act, 1961, will now head to the Rajya Sabha before seeking a Presidential assent.
Once signed, the bill will come into force as law. According to the Finance Ministry, the revised bill will reflect the government's aim of "simplifying taxation with a clear, modern framework" built on the acronym SIMPLE:
S: Streamlined structure and language
I: Integrated and concise
M: Minimised litigation
P: Practical and transparent
L: Learn and adapt
E: Efficient tax reforms
The Income-Tax Bill, 2025 has been introduced in the Lok Sabha today.
The Bill aims to simplify the tax system for all and is built on these core "SIMPLE" principles:⬇️ pic.twitter.com/bX4Zc1ImdR— Income Tax India (@IncomeTaxIndia) February 13, 2025
Here's What It Entails
Plain Language, Clear Structure: Tax provisions are rewritten in simple terms, consolidated into a single Act, and presented with tables and structured formatting to remove any ambiguity. FAQs and guidance notes will help avoid multiple interpretations.
Streamlining and Best Practices: Redundant clauses are eliminated, cross-references are simplified, and global best practices are adopted while keeping India’s core tax principles intact.
Procedural Reforms for Compliance: Key irritants are addressed, such as reducing the TDS correction statement deadline from six years to two, revising loss carry-forward provisions for clarity, and requiring high-receipt professionals to use specified digital payment modes.
Relief for Late Filers: Taxpayers can now claim refunds even when filing returns late, and late TDS submissions will not attract penalties.
Restoration of Key Exemptions: Provisions from the 1961 Act, including exemptions for anonymous donations to mixed-object trusts and flexibility in claiming TDS refunds without strict filing deadlines, are reinstated after being proposed for removal in the earlier draft.
Sector-Specific Clarifications and Relief
The revised bill restores deductions for commuted pensions from specified funds and inter-corporate dividends under Section 80M, and updates property valuation rules to use the higher of expected or actual rent. It reintroduces nil-TDS certificates for taxpayers without liabilities, extends anonymous donation exemptions to religious and mixed-purpose trusts, and grants direct tax benefits to Saudi Arabia’s public investment funds.
The key reforms include replacing the dual financial and assessment year system with a single ‘tax year’ and aligning MSME definitions with the MSME Act. Tax slabs remain unchanged, and court-defined terms will be retained. The accompanying Taxation Laws (Amendment) Bill offers further relief to foreign sovereign wealth funds investing in India.
