The New Income Tax Bill 2025 (No 2) was passed in Lok Sabha within 3 minutes, just days after the original bill was withdrawn, signaling swift legislative action.
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NEW DELHI: The Lok Sabha has recently passed the Income Tax Bill 2025 (No 2), 2025, along with the Taxation Laws (Amendment) Bill, 2025, marking a crucial change in India’s tax legislative reforms. This new bill aims to replace the decades-old Income Tax Act, 1961, consolidating and modernizing the laws governing income tax in the country.
ALSO READ: BREAKING | New Income Tax Bill 2025 Withdrawn: Centre in Lok Sabha
Overview of the New Income Tax Bill, 2025
Finance Minister Nirmala Sitharaman introduced the revised bill on Monday, incorporating “almost all” recommendations from the Parliamentary Select Committee. This updated bill, known as the Income Tax (No. 2) Bill, 2025, was passed shortly after the minister tabled it.
The government’s decision to revise and replace the earlier Income Tax Bill, 2025, came after a detailed review process. The Select Committee, led by BJP MP Baijayant Panda, submitted a comprehensive report with 566 suggestions, including 285 key recommendations aimed at simplifying and clarifying the tax laws.
“Almost all of the recommendations of the Select Committee have been accepted by the government. Additionally, feedback from stakeholders helped refine the legal language for better clarity,”
said the statement of objects and reasons accompanying the bill.
The new bill now awaits consideration and approval by the Rajya Sabha and will then seek the President’s assent to become law.
The original Income Tax Bill, 2025, had several drafting and technical issues, including misaligned phrasing, consequential errors, and incorrect cross-references. To address these, the government decided to withdraw the previous bill and introduce the Income Tax (No. 2) Bill, 2025, which corrects these defects and improves the legislation’s readability and legal precision.
Key Changes and Recommendations in the New Income Tax Bill
- The modified Income Tax Bill, 2025, incorporates several important changes recommended by the Select Committee to simplify tax compliance and provide relief to taxpayers. Notably, the bill relaxes the refund provisions by allowing taxpayers to claim refunds even if their Income Tax Returns (ITRs) are filed after the due date, removing the earlier restriction that denied refunds for late filings.
- Additionally, the bill introduces a new provision under clause 148 for a Section 80M deduction on inter-corporate dividends, which benefits companies that avail the concessional tax rate under Section 115BAA. This change is expected to encourage smoother dividend flows and reduce cascading tax effects for corporate taxpayers.
- Furthermore, the Select Committee recommended permitting taxpayers to obtain a NIL TDS certificate, simplifying compliance by allowing those with income below the taxable threshold to avoid unnecessary TDS deductions. These amendments collectively aim to make the tax regime more taxpayer-friendly and efficient.
‘S.I.M.P.L.E’ New Law
The Income Tax (No. 2) Bill, 2025, designed to replace the six-decade-old Income Tax Act of 1961, was swiftly passed by the Lok Sabha despite protests from the INDIA bloc MPs over Bihar’s voter list revisions.
Finance Minister Nirmala Sitharaman emphasized the bill’s S.I.M.P.L.E. principles—Streamlined structure and language; Integrated and concise; Minimised litigation; Practical and transparent; Learn and adapt; Efficient tax reforms, aimed at making the tax laws easier to understand and comply with.
After incorporating 285 recommendations from the Select Committee led by BJP MP Baijayant Panda, the revised bill furthers the mission to simplify the tax code by nearly 50%, reducing complexity and helping taxpayers, especially individuals and MSMEs, avoid unnecessary litigation.
Key improvements include clearer definitions of terms like ‘capital asset’ and ‘micro and small enterprises’, strengthened cross-referencing, clarification of deductions related to house property income and home loan interest, and alignment of tax treatment for pension contributions and scientific research expenditures.
The new legislation is expected to come into effect on April 1, 2026, marking a major overhaul of India’s income tax regime.
What Happened Earlier?
The Centre has formally withdrawn the Income Tax Bill, 2025, which was originally presented in the Lok Sabha on February 13, 2025, to replace the six-decade-old Income Tax Act, 1961. The decision paves the way for a fresh and updated version of the Bill, one that incorporates most of the recommendations made by the Select Committee chaired by BJP leader Baijayant Party, to be introduced on Monday, August 11, 2025.
The withdrawal is aimed at avoiding confusion caused by multiple versions of the Bill and ensuring that lawmakers debate and vote on a comprehensive, updated draft.
The February draft, presented by Finance Minister Nirmala Sitharaman, was already being hailed as the most significant overhaul of India’s direct tax law in more than 60 years. However, after extensive scrutiny by the Select Committee, several recommendations were proposed. Instead of introducing amendments piecemeal, the government chose to reintroduce the entire Bill with all changes incorporated, streamlining the legislative process.
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