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India’s Tax Code Gets a Major Overhaul: New Bill Promises Clarity for Taxpayers
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Introduction
India’s Union Finance Minister tabled the revised Income Tax Bill, 2025, in the Lok Sabha on August 11, 2025, marking a pivotal moment in the nation’s tax history. Formally titled“The Income-tax (No. 2) Bill, 2025,” this proposed legislation aims to consolidate and update India’s income tax laws, replacing the six-decade-old Income Tax Act, 1961. The Bill incorporates most of the 285 recommendations from the Select Committee and public feedback, reflecting a responsive legislative approach.
The primary objectives of the Income Tax Bill, 2025, are to simplify and modernise the tax code by reducing its volume and sections by approximately 50%, making it easier to understand and implement. It seeks to significantly reduce the compliance burden for all taxpayers, including individuals, organizations, and MSMEs, and to establish a reliable, predictable, and clear taxation framework essential for economic growth and investment.
Key Changes Introduced by the Income Tax Bill, 2025
Unified “Tax Year”: It replaces the distinct “assessment year” and “previous year” with a single, unified “tax year,” simplifying the taxation timeline.
Refunds for Late Returns: The Bill now explicitly allows taxpayers to claim refunds even if their returns are submitted after the specified deadlines, providing considerable relief.
Shortened TDS Correction Window: The time limit for submitting Tax Deducted at Source (TDS) correction statements has been reduced from six years to two years, aiming to decrease disputes.
Abolition of “Nil TDS” Certificates for NRIs: Non-Resident Indians will no longer be able to obtain “nil TDS” certificates, meaning some TDS will always be applicable on their Indian income, though lower rates can still be applied for. This change aims to enhance visibility on income trails for the tax department.
Clarified Deductions: The Bill provides clearer provisions for tax deductions on commuted pensions from approved funds and clarifies how the 30% standard deduction for house property is applied after municipal taxes, extending pre-construction interest deductions to rented properties.
Relief for Businesses and Non-Profits: It removes the levy of Alternate Minimum Tax on LLPs and eases restrictions on charitable trusts, restoring their ability to reinvest capital gains and spend funds in the subsequent financial year.
Reinstatement of Section 80M: A significant relief for corporate taxpayers is the reintroduction of Section 80M deduction for inter-corporate dividends, preventing cascading taxation.
Digital Taxation: The Bill broadens the definition of ‘virtual digital assets’ to include crypto-assets and NFTs and mandates taxpayer access to virtual spaces during search operations, with assurances of privacy protection through CBDT SOPs.
Section 87A Rebate – Old vs. New Tax Regimes
Income Tax Rebate Condition
Existing Limit
New Tax Regime
Maximum Rebate
INR 12,500 or full tax payable (whichever is lower)
INR 60,000 or full tax payable (whichever is lower)
Income eligibility for full rebate
Total income ≤ INR 500,000
Per new slab rates, full rebate available within eligible income range
A Comparative Analysis: Income Tax Bill, 2025 vs. Income Tax Act, 1961
The Income Tax Bill, 2025 is set to replace the long-standing Income Tax Act, 1961. The current act, in place for over 60 years, has become complicated for taxpayers due to numerous amendments.
The new bill, with its 536 sections and 16 schedules, aims to simplify the tax system. It introduces the single term “Tax Year” to replace the confusing “Previous Year” and “Assessment Year” distinction. This new framework also seeks to reduce legal disputes by getting rid of unnecessary and conflicting rules. The bill also gives more power to the Central Board of Direct Taxes (CBDT). This allows the CBDT to create new rules that are better suited for today’s digital economy, keeping the tax laws flexible and up-to-date.
Conclusion:
The Income Tax Bill, 2025, marks a significant paradigm shift, moving India’s direct tax landscape from complexity to a modern, simplified, and taxpayer-friendly framework. It balances ease of compliance with robust revenue collection through enhanced digital capabilities. This legislation, shaped by extensive stakeholder feedback, lays a strong foundation for future economic growth by fostering a stable and predictable tax environment. As the new law prepares for implementation from April 1, 2026, understanding its provisions will be crucial for all taxpayers to leverage its benefits and ensure seamless compliance.
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