The Lok Sabha passed the Income Tax Bill on Monday, 2025, a significant milestone in rewriting India's direct tax policy that has existed for more than six decades. The legislation seeks to reconcile raising investor confidence, providing relief to taxpayers, and improving administrative efficiency.
When passed into law, this bill will replace the Income Tax Act 63 years old with a contemporary legal framework that is more representative of today's economic realities.
Finance Minister Nirmala Sitharaman brought the new bill to Parliament after the government withdrew the original version tabled on February 13, 2025. The original draft had been sent to a Parliamentary Select Committee but was withdrawn on August 8 to prevent complications arising from competing versions. This bill incorporates all committee-approved recommendations in a single, new document.
The new draft includes the majority of the 285 recommendations presented by the Select Committee, led by BJP MP Baijayant Panda. The committee's report, presented on July 21, marked after the complete scrutiny of the provisions in the bill, focusing on less complex language, removal of redundancies, more transparent procedures, and a number of technical amendments including alignment of sentences and cross-references.
Important features of the Income Tax Bill, 2025 are:
- Firms switching to the new regime shall be given the benefit of deductions under Section 80M (Clause 148 of the new bill).
- Commuted pension and gratuity deduction for family members is dealt with under Clause 93.
- Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) provisions have been clearly bifurcated under Section 206.
- AMT is now only applicable to non-corporate taxpayers claiming deductions; Limited Liability Partnerships (LLPs) with only capital gains income and no deductions are exempted.
- The word "profession" has been inserted together with "business" in Clause 187, permitting professionals with turnovers more than ₹50 crore annually to make use of specified electronic payment systems.
- Claiming refunds is now possible with more ease even if returns are filed in time, after the abolition of Clause 263(1)(ix).
- Loss carry forward and set-off provisions have been reworded for readability without changing their meaning.
- "Receipt" has been substituted with "income" to bring it in line with the current act.
- Capital gains used to purchase new capital assets by registered non-profits will still be counted as application of income.
- Where the application of normal income by a non-profit is less than 85% owing to the late or non-receipt of income, the income will be considered applied in the year of actual receipt on the option of the assessee.
- Tax provisions regarding anonymous donations have been brought in line with existing law, and exemptions also cover mixed-object registered non-profits.
- The term "mixed-object registered non-profits" has clearly been defined.
- 15% mandatory investment or deposit of accumulated income has been deleted.
- Filing of TDS correction statements is reduced to two years from six years to curb taxpayer complaints.
- The Finance Act, 2025, and Taxation Laws (Amendment) Bill, 2025 amendments have been included in the new bill.
- This legislation will come into force on April 1, 2026, to replace the Income Tax Act, 1961, which has been in practice since April 1, 1962.
Since 2014, the government has made a range of systemic and procedural changes and policy reforms impacting corporate tax, personal income tax, capital gains tax, and trust provisions. The tax department has become more transparent, efficient, and taxpayer-friendly, with innovations such as the Annual Information System utilizing authenticated third-party information to pre-populate returns, central processing that reduces average processing time to around 10 days, quicker refunds, and faceless assessments and appeals that do away with physical interfaces and geographical limitations.
Steps to curb litigation involve the Vivad se Vishwas scheme launched in 2020 and 2024, which offers taxpayers an opportunity to close pending litigation. Filing thresholds for appeals in different forums have also been increased.
Corporate tax reforms consist of a 22% for businesses not availing specified exemptions and 15% for new manufacturing companies for a specific time. For taxpayers as a whole, the new regime provides broader slabs and reduced rates with higher rebates, excluding those who earn up to ₹12 lakh from taxation.
Non-resident presumptive tax provisions now extend to sectors like cruise shipping, raw diamonds, and technology services for electronic manufacturing.
For ensuring voluntary compliance, filing of returns has been allowed up to four years from the assessment year, and the period of reassessment has been brought down to five years. The provisions relating to search assessment have also been simplified.
The unification of two distinct trust tax regimes relieves non-profit entities, and capital gains taxation has been made rational by eliminating the benefits of indexation, lowering rates, and modified holding periods.
