For over sixty years, the Income Tax Act of 1961 has been in place, directing the rules for filing taxes in India. Despite multiple amendments over the decades, the current law seems complex and outdated for the modern world.
Recognizing the need for a simplified and cleaner Act, the Government has taken a major step forward. The New Income Tax Bill was introduced by the Finance Minister Nirmala Sitharaman on 13 February 2025 to reform the long-standing Income Tax Act of 1961 to simplify it
Objectives of the Income Tax Bill 2025
- Simplify language and tax provisions
- Reduce Tax rates and increase the Rebate
- Reduce legal disputes by removing ambiguities
- Easier compliance
- Recognition of Virtual Digital Asset
On the day it was introduced, the Bill was provided to The Select Committee of the Lok Sabha to review the Bill and suggest recommendations. At the beginning of the Monsoon Session, on 21 July 2025, under the leadership of Baijayant Panda The Select Committee presented the bill in Lok Sabha with 285 changes.
Some Of The Key Recommendations By The Committee
1. Clearer Definitions
Terms like "capital asset", "infrastructure capital company", and "small enterprise" had overlapping or unclear definitions. The committee proposed to align them to avoid interpretation issues.
2. Refunds Shouldn’t Be Denied for Late Filers
Initially, the bill mentioned that a person intending to claim a refund shall be required to furnish a return of income on or before the due date. This implies late filers won't be eligible for refunds. The committee recommended that refunds should still be allowed in genuine cases, especially if the return is filed within a reasonable time.
3. Home Loan
The existing law allows taxpayers to claim a deduction on interest paid during the pre-construction period. If the loan is taken to buy or construct a property, and the possession happens in a later year. This interest can be claimed in five equal instalments starting from the year of possession. This applies to all properties, whether self-occupied, let-out, or even deemed let-out.
The initial draft had similar provisions, but limited the benefits only to self-occupied property. The committee suggested that the deduction for pre-construction interest should remain available for let-out properties too. Further, the committee added that the standard 30% deduction should be applied on the annual value after deducting municipal taxes, ensuring the final computation is fair and consistent.
4. Set-Off Losses
As per the initial draft of the Income Tax Bill 2025, if 51% of the company’s shares don’t stay with the same shareholders, the company loses the right to set off past losses. The Select Committee suggests that if the original shareholders regain 51% control in later years, the company should be allowed to carry forward those earlier losses.
5. TDS On Salary And Provident Fund
The new Bill merged TDS rules on salary and provident fund, but missed two key points
- How to convert the salary paid in foreign currency to INR for TDS.
- Clarity on the 10% TDS rate for PF withdrawals.
The Committee flagged both gaps, and the Ministry agreed to fix them.
While the new Income Tax Bill 2025 aims to simplify compliance, many still struggle with basic filing errors under the current law. If you file your taxes by yourself be cautious of these common mistakes.
Final Thoughts
On paper, with streamlined provisions and attention to modern elements like digital assets, the Bill sets the stage for a more accessible and less ambiguous tax system.The Select Committee’s role in refining its contents has been crucial, with over 285 suggestions aimed at addressing practical concerns.
However, it’s important to note that the Bill has not yet became a lawIt will come into effect only after it is passed by both Houses of Parliament. Whether these reforms will truly ease compliance and reduce disputes will depend on how effectively the provisions are implemented.
What’s your take ?
Does this new Bill actually fix the flaws of the old law and covers all the key aspects Indian taxpayers need today? Comment your thoughts below.
Frequently Asked Questions (FAQ)
1. Why was new Income Tax Bill 2025 introduced?
The new Income Tax Bill, 2025 was introduced to simplify and modernize India’s tax laws, replacing the outdated Income Tax Act of 1961.
2. When will the new Income Tax Bill 2025 be applicable?
The provisions are expected to commence from April 1, 2026, after passing through both houses of parliament and presidential assent
3. What is the “Tax Year” as per the Income Tax Bill, 2025?
The Income Tax Bill, 2025 replaces “Financial Year” and “Assessment Year” with “Tax Year.” It is a 12-month period from April 1 to March 31 of the following year. For new businesses or income sources, the Tax Year starts from the date they begin and ends on March 31.
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