The new Income Tax Bill, 2025, has been passed in the Lok Sabha. Now, after passing the Rajya Sabha, the bill will become law after receiving the President’s assent and replace the Income Tax Act, 1961. Finance Minister Nirmala Sitharaman, while introducing the Income Tax (No. 2) Bill, 2025, said that the bill seeks to consolidate and amend the law relating to income tax and will replace the Income Tax Act, 1961.
Previously, the government formally withdrew the earlier draft of the Income Tax Bill, 2025, introduced in Parliament on August 8. This was the same bill that was introduced during the Budget session in February and immediately referred to a Select Committee of Parliament.
Key Differences Between the Income Tax Act, 1961, and the Income Tax Bill, 2025
It is crucial to understand the significant and unprecedented differences between the old and new laws. The Income Tax Act has been in force since 1961, but its language and structure have often proven confusing to the common man, so the new bill aims to completely overhaul it. The new Income Tax Act will have 536 sections and 16 schedules, which are organized more systematically.
The most significant change is that there will now be a single concept of “tax year” instead of “previous year” and “assessment year.” The new Income Tax Act removes redundant and contradictory provisions to reduce litigation. The CBDT (Central Board of Direct Taxes), the agency responsible for income tax matters in India, has been given greater power to formulate rules in line with the digital age.
Select Committee’s excellent suggestions in the new bill
The recommendations of the Select Committee have been incorporated into the new bill, which will bring many major benefits to taxpayers. In the case of tax refunds, late filers will also be entitled to a refund, ensuring that no honest taxpayer is deprived of their money. Under the NIL-TDS option, individuals with no tax liability will be able to obtain an advance zero-TDS certificate. The provision for taxing only notional rent has been removed, providing tax relief for vacant houses, a major relief for property owners.
Clarification has also been brought to house property deductions, with a standard deduction of 30% after municipal taxes being deducted, and interest deduction on rental property also being available. Compliance rules have been simplified, and provisions related to TDS, advance ruling fees, and penalties on PF withdrawals have been clarified. Pension benefits have been expanded, allowing non-employees to benefit from the revised pension deduction.
Simplicity and Honesty
Deepak Kumar Jain, founder of TaxManager.in, said that the new Income Tax Bill 2025 introduced by Finance Minister Nirmala Sitharaman aims to simplify tax laws so that they are easier to understand and comply with for the common man. He also pointed out that it takes appropriate measures to reduce penalties for mistakes made by honest taxpayers.
Deepak Kumar Jain further stated that several other measures have been taken to increase clarity on deductions, which have provided relief to the middle-income group, increasing their take-home pay. This step is a strong initiative towards promoting transparency and tax compliance.
