The Lok Sabha on Monday passed the Income-Tax (No. 2) Bill, 2025, a revised and expanded draft aimed at overhauling India’s six-decade-old tax law. The bill, introduced earlier in the day by Finance Minister Nirmala Sitharaman, will replace the Income-Tax Act, 1961 with a modernised and simplified framework.
The government had formally withdrawn the original Income-Tax Bill, 2025 last Friday, which was first tabled on February 13 this year. Officials said the withdrawal was intended to consolidate all approved changes into a single version, avoiding confusion from multiple drafts.
Focus on Simplification and Digital Integration
The new legislation seeks to streamline tax structures, introduce provisions for digital taxation, improve dispute resolution systems, and expand revenue collection using technology and data analytics.
“Almost all of the recommendations of the Select Committee have been accepted by the government,” the Bill’s objectives and reasoning state. It adds that changes were also made based on stakeholder feedback to ensure greater legal precision, with corrections in drafting, phrase alignment, and cross-referencing.
Committee Review and Recommendations
The Parliamentary Select Committee, chaired by BJP MP Baijayant Panda, examined the initial draft and submitted a 4,575-page report last month, containing 285 recommendations — 32 of them significant. Most of these have been incorporated into the revised bill.
Key proposals adopted include:
- Revised definition of “beneficial owner” to allow individuals to carry forward losses when receiving direct or indirect share benefits in a tax year.
- Restoration of the inter-corporate dividend deduction absent from the initial draft.
- A standard 30% deduction (after municipal tax deduction) and an extension of pre-construction interest deductions to let-out properties.
For individual taxpayers, the bill provides for:
- Issuance of ‘Nil’ tax deduction certificates
- Discretionary waiver of penalties for unintentional non-compliance
- Refunds for delayed ITR filings by small taxpayers
- Clearer definition of non-performing assets (NPAs) to reduce litigation between tax authorities and banks.
Special Provisions for Non-Profits and Charitable Trusts
The bill proposes clearer definitions of “parent company,” updated rules for non-profit and charitable trusts, and ensures anonymous contributions will not automatically affect their tax-exempt status.
Additionally, all residual references to the 1961 Act will be removed to create a self-contained, dispute-resistant code.
The bill will now move to the Rajya Sabha for consideration.
