Key Points
- Lok Sabha passed the revised Income-Tax (No.2) Bill, 2025 on August 11, aiming to replace the 63-year-old Income-tax Act, 1961; Rajya Sabha passage and Presidential assent are pending before it becomes law.
- Government withdrew the earlier draft and reintroduced a consolidated version incorporating most of the Select Committee’s 285 recommendations from a 4,500+ page report.
- New framework introduces a clear “Tax Year” instead of “Assessment Year” and “Previous Year,” simplifies language, trims redundancies, and targets lower litigation.
- Structure: 23 chapters, 536 sections, and 16 schedules; major drafting clean-up with clearer cross-references and modern, digital-era provisions.
- CBDT gets wider rule-making and administrative powers to align compliance with the digital economy and reduce procedural friction.
The Lok Sabha on August 11 cleared the revised Income-Tax (No.2) Bill, 2025 designed to replace the Income-tax Act, 1961 without debate amid din; the bill now moves to the Rajya Sabha and subsequently requires Presidential assent to become law. The government withdrew the February draft on August 8 to avoid confusion and table a single consolidated version reflecting the Select Committee’s inputs.
Why a New Law
The 1961 Act accumulated complex amendments over decades, making interpretation and compliance harder; the new bill prioritizes plain language, consolidation, clearer definitions, and streamlined processes to reduce ambiguity and litigation. Officials emphasized corrections in drafting, phrase alignment, consequential changes, and cross-referencing in the updated text.
The Big Structural Changes
- Simpler period concept: Replaces “Previous Year” and “Assessment Year” with a single “Tax Year,” aligning with financial year clarity and aiding compliance.
- Reorganized code: 23 chapters, 536 sections, 16 schedules cleaner structure versus sprawling legacy provisions; bill text and clause arrangement published as Bill No.24 of 2025.
- Digital-era alignment: Empowers CBDT to frame rules and modernize administration, leveraging data-driven compliance and reducing procedural bottlenecks.
Key Recommendations Incorporated
The Select Committee delivered a 4,500+ page report with 285 recommendations; the reintroduced draft accepts “almost all” major suggestions to cut ambiguity and improve taxpayer experience. Notable inclusions and clarifications reported by mainstream outlets and summaries include:
- Refund flexibility: Late filers retain right to refunds, reducing hardship from procedural delays.
- House property clarity: 30% standard deduction after municipal taxes; interest deduction extended to rented/let-out property; improved rules for annual value and notional rent to reduce disputes.
- Inter-corporate dividend relief: Reintroduction of deduction to prevent cascading.
- NIL-TDS certificate: Advance “nil TDS” option for persons with no tax liability to avoid blocked cash flows.
- Compliance simplification: Clearer TDS/TCS processes, PF withdrawal TDS clarity, rationalized penalties/fees; alignment of MSME definitions with MSME Act.
- Pensions: Commuted pension deduction extended to certain non-employee recipients via schedule clarification.
What Doesn’t Change (As Reported So Far)
Coverage indicates the new law does not alter existing tax slabs, rebates, or core due dates at this stage, focusing instead on simplification and dispute reduction rather than rate changes. Officials framed the bill as a legal-architecture overhaul rather than a rate-reset exercise.
Official Text and Scope
The bill’s official text (as introduced) lays out the arrangement of clauses, sections, and schedules, codifying the “Tax Year” shift and the reorganized structure intended to improve readability and administration. It is positioned to replace the six-decade-old regime upon passage by both Houses and Presidential assent; commencement details will follow enactment.
What It Means for Taxpayers and Businesses
- Clarity and fewer disputes: Cleaner drafting, fewer contradictions, and standardized definitions should reduce litigation and compliance ambiguity.
- Faster processes: Provisions like NIL-TDS and refund flexibility aim to ease cash-flow pain points and administrative friction.
- Digital compliance: Enhanced CBDT authority supports data-driven monitoring and more responsive rule-making in a fast-evolving economy.
Fast Facts
- Passed: Lok Sabha on August 11, 2025; introduced and cleared the same day after withdrawal of the prior draft on August 8.
- Structure: 23 chapters, 536 sections, 16 schedules; “Tax Year” replaces AY/PY.
- Inputs: 4,500+ page Select Committee report, 285 recommendations “almost all” incorporated.
- Next steps: Rajya Sabha consideration; Presidential assent required to become law.
Note: Implementation details and effective dates will be clear upon final passage and notification; practitioners should track the official gazette and CBDT rule-making that will operationalize the new framework.
