India's Lok Sabha Approves Groundbreaking Income Tax Bill 2025: What You Need to Know
Significant Legislative Move in New Delhi
New Delhi: On Monday, the Lok Sabha successfully passed the Income Tax Bill, 2025, a pivotal move aimed at overhauling India's outdated direct tax system that has been in place for over sixty years. This new legislation seeks to strike a balance between fostering investor confidence, providing taxpayer relief, and enhancing administrative efficiency.
Once implemented, this bill will replace the 63-year-old tax framework with a contemporary legal structure that reflects the changing economic landscape.
Finance Minister Nirmala Sitharaman introduced the revised bill in the house, following the government's decision to retract the previous draft that was presented on February 13, 2025.
The earlier version had been sent to a Parliamentary Select Committee for evaluation but was withdrawn on August 8 to avoid confusion from multiple drafts. The current bill consolidates all approved amendments into a single, updated document.
This revised draft includes most of the 285 recommendations proposed by the Select Committee, led by BJP MP Baijayant Panda. The committee submitted its report on July 21 after a thorough review of the provisions, focusing on simplifying the language, eliminating redundancies, and enhancing procedural clarity. It also made various drafting improvements, including aligning phrases, making consequential amendments, and correcting cross-references.
Key highlights of the Income Tax Bill, 2025 include the following:
— Companies opting for the new regime can also benefit from deductions under Section 80M of the 1961 Act (Clause 148 of the IT Bill, 2025).
— Clause 93 of the 2025 bill provides deductions for commuted pensions and gratuities for family members.
— The provisions for Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) are now categorized as two separate sub-sections under Section 206.
— AMT provisions apply solely to non-corporates that have claimed deductions, while LLPs with only capital gains income are exempt from AMT if no deductions are claimed.
— The term 'profession' has been added after 'business' in clause 187, allowing professionals with annual receipts exceeding Rs 50 crore to utilize prescribed electronic payment methods.
— Refund claims can now be filed flexibly even if the return is submitted late, following the removal of Clause 263(1)(ix).
— The provisions regarding the carry forward and set off of losses have been restructured for clarity, maintaining the original intent.
— The definition of receipt has been updated to align with the concept of income, as stated in the existing act.
— The use of capital gains for acquiring new capital assets will be recognized as an application of income by registered non-profit organizations, consistent with the current act.
— If regular income application falls below 85% due to late or unreceived income during the tax year, such income can be deemed as applied in the year it is earned, based on the taxpayer's choice.
— Taxation provisions for anonymous donations have been aligned with existing regulations, and exemptions are now available for mixed-object registered non-profit organizations.
— The definition of mixed-object registered non-profit organizations has been clarified.
— The requirement for mandatory investment and deposit of 15% of regular income in specified modes has been eliminated.
— The timeframe for filing TDS correction statements has been shortened from six years to two years, significantly reducing grievances for deductees.
— Amendments from the Finance Act, 2025, which needed incorporation, have now been included in the new Bill.
— Changes from the Taxation Laws (Amendment) Bill, 2025, have also been integrated into the new Bill.
The new law is set to take effect on April 1, 2026, replacing the Income Tax Act of 1961, which has been in operation since April 1, 1962.
Since 2014, the government has implemented numerous significant reforms in systems and processes, updating laws to reflect changes in corporate tax, personal income tax, capital gains taxation, and merging two trust provision regimes.
Tax administration has become more efficient, transparent, and taxpayer-friendly, with reforms such as the Annual Information System, which utilizes verified third-party data to pre-fill returns, central processing of returns that has reduced average processing time to nearly 10 days, and faceless assessments and appeals that ensure impartiality and efficiency by removing physical interactions and geographical constraints.
To minimize litigation, the Vivad se Vishwas scheme was introduced in 2020 and 2024, providing a window for settling old tax disputes. Additionally, the limits for filing appeals at various forums have been increased.
Tax policy reforms include a corporate tax rate of 22% for companies that do not claim specific deductions and exemptions, and a 15% rate for new manufacturing companies for a designated period. For individual taxation, the new regime offers more favorable slabs and lower rates, with increased rebates, allowing individuals earning up to Rs 12 lakh to avoid tax under these slabs.
Presumptive tax provisions for non-residents have been broadened to encompass cruise shipping, raw diamonds, and services and technology for electronic manufacturing.
To encourage voluntary tax compliance, updated returns can now be filed for up to four years from the end of the assessment year, and the period for reopening assessments has been reduced to five years. Similarly, provisions for assessing search cases have been streamlined.
The merging of two separate trust regimes has provided significant relief to non-profit organizations, while the capital gains taxation framework has been rationalized by eliminating indexation, lowering rates, and adjusting the holding period.