The Centre has withdrawn the Income Tax Bill 2025 in the Lok Sabha, planning to reintroduce a revised version with key updates and reforms on August 11.
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NEW DELHI: The Centre has formally withdrawn the Income Tax Bill, 2025, which was originally presented in the Lok Sabha on February 13, 2025, to replace the six-decade-old Income Tax Act, 1961.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.
Highlights of the Withdrawn Draft
The original Income Tax Bill, 2025, was designed to modernise, simplify, and digitise India’s tax laws while making them more taxpayer-friendly. It proposed simplified legal language with shorter provisions, fewer provisos, and explanations, along with the consolidation of similar deductions for easier compliance.
The Bill aimed to impose lower penalties for certain offences, reducing penalties for minor infractions to encourage voluntary compliance. Importantly, it introduced no new taxes, retaining existing tax slabs, capital gains rules, deadlines, and income categories.
To reduce litigation, it adopted a “trust first, scrutinise later” approach and removed over 300 outdated provisions. For modern tax administration, it granted greater powers to the Central Board of Direct Taxes (CBDT), enabled digital monitoring systems, and proposed a new “tax year” concept to avoid confusion between the financial and assessment years.
Structurally, the Bill was designed in a clear and accessible format, comprising 23 chapters, 536 sections, and 16 schedules, with extensive use of tables and formulas to make interpretation easier.
The new version of the Income Tax Bill to be introduced on August 11 is expected to retain most of these provisions while incorporating refinements suggested by the Select Committee. If passed, it would replace the 298-section Income Tax Act, 1961, with a modern law 50% shorter in length, written in plain language, and designed for a digital-first tax administration.
Income Tax Bill 2025 vs. Old Regime: Major Differences
The new tax legislation introduces several structural and administrative changes:
- Introduction of “Tax Year”: The traditional system of paying tax for income earned in the previous year during the assessment year is being replaced. Now, a single “tax year” will determine tax payments, simplifying compliance.
- Increase in the Number of Sections and Schedules:
- The new bill consists of 536 sections, up from 298 in the existing law.
- The number of schedules has increased from 14 to 16.
- Despite these additions, the bill is more concise at 622 pages, significantly shorter than the 880 pages in the existing Act.
- Delegation of Powers to CBDT: The Central Board of Direct Taxes (CBDT) will have expanded authority to implement tax schemes, compliance measures, and digital monitoring systems without requiring frequent legislative amendments.
- Enhanced Clarity on ESOP Taxation: The bill provides detailed provisions on the taxation of Employee Stock Options (ESOPs) to minimize disputes and offer better tax certainty for employees and companies.
- Public Consultation and Stakeholder Feedback: The government sought 6,500 suggestions from taxpayers, businesses, and legal experts to refine the bill, focusing on simplifying language, reducing litigation, and improving compliance.
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