Source Credit : Portfolio Prints
Background & Legislative Journey
- The original Income-tax Bill, 2025 was introduced on 13 February 2025 and referred to a Select Committee chaired by MP Baijayant Panda. By 21 July 2025, the committee submitted 285 recommendations, 32 of which were considered key.
- To address drafting issues and integrate the suggestions, the government withdrew the February version on 8 August 2025 and tabled a revised version—Income-tax (No. 2) Bill, 2025—on 11 August 2025, which was swiftly passed by the Lok Sabha.
- Parliamentary Affairs Minister Kiren Rijiju emphasized that the new bill preserves the original intent while incorporating committee feedback.
Key Highlights & Reforms
Simplification & Structural Overhaul
- The bill radically simplifies the tax law by slashing the number of sections from over 800 to 536, and reorganising content into 23 chapters, down from 29.
- A “SIMPLE” guiding principle is central—standing for Streamlined, Integrated, Minimized litigation, Practical & transparent, Learn & adapt, Efficient reforms.
Digital-first, Transparency-driven Tax Administration
- The bill ushers in faceless, digital assessments, minimizing manual contact and increasing transparency. It also permits the digital submission of returns and return-based digital refunds.
Key Procedural & Deduction Clarifications
- Tax Year replaces the old “Assessment Year” terminology, making tax timelines clearer for all.
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Clause 22 clarifies standard deductions and pre-construction interest on house property:
- Standard deduction of 30% applies after municipal taxes.
- Pre-construction interest deductions now apply to both self-occupied and rented properties.
Taxpayer Relief & Coverage Expansion
- No penalties for late TDS filing, refunds can be claimed even after return deadlines, offering relief to taxpayers.
- Introduction of nil-TDS certificates for those without tax liability, including NRIs.
- The bill brings in clear deductions for lump-sum (commuted) pension from specific approved schemes—previous drafts lacked clarity here.
- Removal of Alternate Minimum Tax (AMT) on LLPs, and rollback of stringent provisions on charitable trusts.
Extended Reach into Digital Domains
- The bill grants authorities the power to access a taxpayer’s electronic records—including emails, trading, banking, investment, and social media accounts—during a search, defining this as “virtual digital space.”
- Undisclosed income now includes virtual digital assets, such as cryptocurrencies or tokens.
Dispute Resolution & Treaty Clarity
- Dispute resolution panels must now include points of determination and reasoning in decisions, boosting transparency.
- The interpretation of undefined terms in tax treaties can now be decided by broader legal frameworks beyond government notifications.
Implementation, Outlook & Implications
- The new Income-tax Act—replacing the Income-tax Act, 1961—is set to come into effect from 1 April 2026.
- Taxpayers will continue evaluating between tax regimes—the bill retains the tax structure announced in the 2025 Budget without altering rates or slabs.
- As part of modernization, the bill streamlines compliance, reduces litigation prospects, and improves taxpayer services—though concerns around data privacy and digital intrusion linger.
Summary Table
| Focus Area |
Reform Highlights |
| Structure & Language |
Sections trimmed to 536; chapters simplified; built around “SIMPLE” principles |
| Digital & Administrative |
Faceless assessments; refunds & notices digital-first |
| Deductions & Clarity |
Defined tax year; clarified property and pension deductions |
| Taxpayer Relief |
No late TDS penalty; post-deadline refunds; nil-TDS eligibility |
| Broader Powers |
Access to virtual digital space, including social and cloud platforms; inclusion of VDA in undisclosed income |
| Governance Mechanisms |
Transparent dispute resolution; definitional alignment with broader legal framework |
| Timeline |
Legislation effective from April 2026; replaces 1961 law |
Summary
The Income-tax Bill, 2025, passed in the Lok Sabha, replaces the 1961 Act and takes effect from 1 April 2026. It aims to simplify tax law, modernise administration, and improve taxpayer experience while retaining the Budget 2025 tax slabs. Overall, it’s a streamlined, tech-driven, compliance-friendly overhaul—but with privacy concerns due to expanded digital access powers.
