Revised Income Tax Bill, 2025: New Income Tax (No. 2) Bill, 2025,

On August 11, 2025, India’s Parliament received a fresh draft of the Income Tax Bill, just three days after the earlier version was withdrawn on August 8. The withdrawal followed a detailed review by a parliamentary select committee, which recommended over 200 amendments to the original proposal.

The Union Finance Minister introduced the revised bill in the Lok Sabha, incorporating most of the 285 suggestions arising from the committee’s assessment and public consultations. Officially titled The Income-tax (No. 2) Bill, 2025, the draft seeks to modernise and consolidate India’s tax framework, replacing the six-decade-old Income Tax Act of 1961.

Why a Revised Income Tax Bill Was Introduced

The earlier version of the Income Tax Bill, 2025—the first draft—contained several gaps, unclear provisions, and points of concern raised by lawmakers, tax experts, and the public.

Timeline of events:

• First draft introduced: The government tabled the original Income Tax Bill, 2025, in Parliament earlier this year.
• Select Committee review: A 31-member committee of MPs prepared a 4,500-page report with over 200 recommendations, including technical corrections, clearer language, additional exemptions, and relief measures.
• Bill withdrawn: On August 8, 2025, the government withdrew the original bill, as making so many amendments during the parliamentary process would have been cumbersome.
• Revised bill introduced: On August 11, 2025, a fresh version was presented, incorporating most of the 285 total recommendations from the committee and extensive stakeholder feedback.
• Bottom line: The revised bill is not an entirely new proposal—it is a refined, corrected, and more comprehensive version of the original draft, aimed at smoother passage and better implementation.

Top Features of the Revised Income Tax (No. 2) Amendment Bill, 2025

The following are 13 top features of the revised Income Tax Bill:

• Simplified TDS and Compliance – Streamlines tax deduction at source (TDS), exemptions, and other compliance-heavy provisions.
• Penalty-Free Refunds for Late Filers – Individuals can now claim TDS refunds even if they file returns after the statutory deadline, without incurring penalties.
• Religious Trust Exemptions Retained – Maintains tax exemptions for anonymous donations to religious-cum-charitable trusts, consistent with existing laws.
• Lean and Concise Tax Code – Significantly reduces the size and complexity of the Income Tax Act by cutting sections, chapters, and nearly halving its word count.
• Adoption of Select Committee Suggestions – Incorporates nearly all recommendations from the parliamentary select committee, alongside additional stakeholder input.
• Simpler Tax Period Terminology – Replaces the terms “assessment year” and “previous year” with the more straightforward “tax year.”
• Nil TCS on Certain LRS RemittancesLiberalised Remittance– Removes tax collected at source on LRS remittances for education funded through financial institutions
• Dividend Deduction Reintroduced – Restores deductions for certain inter-corporate dividends for companies opting for concessional tax rates, in line with the 1961 Act.
•  Updated Loss Carry Forward Rules – Amends provisions on carry forward and set-off of losses, removing references to “beneficial owner” for alignment with Section 79 of the 1961 Act.
•  No Major Changes in Search & Seizure Rules for Digital Assets – Contentious provisions on virtual digital asset searches remain largely unchanged. 
• Expanded Authority for Tax Searches – Authorizes tax officials to forcibly open locked premises or override access codes to computer systems if access is unavailable; “digital space” is not mentioned in the clause but remains covered under the definition of “computer systems.”
• Language Precision Improvements – Revises certain clauses to ensure the legal meaning is conveyed more clearly.
• Stakeholder-Driven Refinements – Reflects feedback from industry and public consultations for better clarity and practical application.

Starting April 1, 2026, when the new income tax law takes effect, tax authorities are expected to gain the power to access individuals’ digital accounts, including emails, social media profiles, bank accounts, trading platforms, and online investment portals, if they suspect tax evasion.

Income Tax Bill, 2025: Key Provisions

The bill’s statement of objectives confirms that the central government has accepted nearly all of the Select Committee’s recommendations. It also reflects feedback from various stakeholders, refining language to ensure that each provision communicates its intended legal meaning with greater clarity.

Introduction of New Tax Regime – Clause 202(1)

The revised bill sets out the framework for a simplified tax regime under Clause 202(1), applicable to individuals, Hindu Undivided Families (HUFs), and other taxpayers. This regime, based on the income tax rates and slabs announced in the Union Budget 2025, aims to streamline tax calculations and make compliance easier.

New Tax Slabs (Effective April 1, 2026)

Income Tax Rebate under Section 87A – Revised Provisions

The updated Income Tax Bill, 2025, retains the rebate provisions from Section 87A of the Income Tax Act, 1961, now embedded across various clauses in Chapter IX. These outline how the rebate is applied when calculating tax liability.

Key Conditions:

• Available only to resident individuals in India.
• Calculated on the income tax payable before any deductions.
• Subject to specified income limits.

Rebate Limits

Important: In all cases, the rebate cannot exceed the income tax payable as computed under the slab rates in Clause 202(1).

Eligibility for Section 87A Rebate

The Section 87A rebate is available only to resident individuals in India. It does not apply to:

• Partnership firms 
• Companies
• Non-resident individuals

Income Types Excluded from the Rebate

Certain incomes are ineligible for the Section 87A rebate:

• Long-Term Capital Gains (LTCG) from the sale of listed equity shares
• LTCG from equity-oriented mutual funds taxed under Section 112A of the Income Tax Act, 1961
• These capital gains are taxed at a fixed rate of 12.5%, and the rebate cannot be applied to this portion of the tax liability. 

Other Tax Reliefs and Compliance Easing

The revised Income Tax Bill, 2025, introduces several relief measures and clarifications:

Clearer Pension Exemption Rules – Explicitly allows tax deductions on commuted (lump-sum) pensions received from approved funds listed in Schedule VII (e.g., LIC Pension Fund). This clarification, missing in the earlier draft, follows a recommendation from the Parliamentary Select Committee.

• No Alternate Minimum Tax (AMT) on LLPs – Removes the AMT levy for limited liability partnerships.
• Charitable Trust Flexibility – Eases certain restrictions on charitable trusts to simplify compliance.
• Simplified Transfer Pricing Rules – Relaxes provisions related to transfer pricing, including a refined definition of “Associated Enterprise” to clarify applicability. 

Select Committee’s Recommendations on the Income Tax Bill, 2025

In July 2025, the 31-member Parliamentary Select Committee submitted a detailed 4,500-page report proposing extensive refinements to the draft Income Tax Bill.

Key Recommendations:

• Greater Flexibility for Tax Refunds – Allow refunds even when returns are filed after the due date.
• Reinstatement of Section 80M Deduction – Restore the deduction for inter-corporate dividends to reduce double taxation for companies.
• Advance NIL-TDS Certificates – Permit taxpayers with no liability to obtain a NIL-TDS certificate in advance, addressing current issues such as the INR 200 per day late-filing fee under Section 234E.
• Vacant Property Relief – Remove the notional rent tax on unoccupied properties.
• Clearer Property Income Calculations – Apply the 30% standard deduction after municipal tax payments; extend home loan interest deductions to rented properties.
• Procedural Simplifications – Revise advance ruling fees, clarify TDS on provident fund withdrawals, and refine the scope of penal provisions.
• MSME Definition Alignment – Adopt the MSME Act’s definition for consistency, using investment and turnover criteria.
• Technical & Linguistic Corrections – Fix numbering errors, incorrect cross-references, and unclear terminology.
• Property Classification Clarity – Redefine “occupied” to prevent confusion between residential and commercial usage.
• Expanded Pension Deductions – Extend commuted pension benefits to recipients who are not former employees.

Income Tax Act, 1961 vs. Income Tax Bill, 2025 – Key Differences

The Income Tax Act, 1961 has been the foundation of India’s tax system for more than 60 years. While it has evolved through frequent amendments, these piecemeal changes have made the law increasingly complex and difficult for ordinary taxpayers to understand. 

The Income Tax Bill, 2025 aims to replace this legacy framework with a modern, simplified structure. Key changes include:

• Compact Framework – 536 sections and 16 schedules, with redundant and contradictory provisions removed.
• Unified “Tax Year” Concept – Replaces the older “Previous Year” and “Assessment Year” terminology for easier understanding.
• Greater Clarity and Reduced Disputes – Streamlined drafting to avoid ambiguity and overlapping provisions.
• CBDT Empowerment – Grants the Central Board of Direct Taxes more flexibility to issue rules aligned with a digital economy, enabling faster adaptation to emerging business and compliance needs.

Summary

The Income Tax Bill, 2025 marks a significant step toward modernizing India’s tax system. It incorporates broad parliamentary and public feedback, introduces a simplified tax regime, refines rebate provisions, and eliminates outdated clauses. The bill’s primary goal is to make compliance easier while promoting fairness and clarity for taxpayers nationwide.