New tax bill to replace the 1961 Act from April 2026, simplifying rules, clarifying deductions, and reducing litigation.
Bill Clears Lok Sabha Amid Political Protests
The Income Tax (No. 2) Bill, 2025, aimed at replacing the six-decade-old Income Tax Act, 1961, was passed in the Lok Sabha on Monday.
The approval came without an opposition debate, as INDIA bloc MPs protested over voter list revisions in poll-bound Bihar.
What Does S.I.M.P.L.E Mean?
Finance Minister Nirmala Sitharaman described the bill’s guiding principles using the acronym S.I.M.P.L.E:
- Streamlined structure and language
- Integrated and concise
- Minimised litigation
- Practical and transparent
- Learn and adapt
- Efficient tax reforms
The bill has been reviewed by a Select Committee led by Baijayant Panda, which made 285 recommendations, most of which were accepted.
Key Highlights of the New Law
The new legislation:
- Simplifies the existing tax structure by nearly 50% compared to the 1961 Act.
- Reduces complexity caused by over 4,000 amendments and 5 lakh words in the old law.
- Clarifies deductions and strengthens cross-referencing across provisions.
- Provides clear definitions for terms like capital asset, micro and small enterprises, and beneficial owner.
- Aligns tax treatment for pension contributions and scientific research expenses.
Major Proposed Changes
- Tax Refund Relief – Refund claims allowed even with late filing of returns.
- No Penalty on Late TDS Filing – Late submission will not attract financial penalties.
- Nil-TDS Certificates – Available for Indian and non-resident taxpayers with no tax liability.
- Commuted Pension Deduction – Clear tax deduction for lump-sum pension payments from specified funds.
- Inter-Corporate Dividend Deduction – Reinstated under Section 80M to avoid double taxation.
- Property Tax Clarifications – Standard deduction fixed at 30%, with clearer rules on rental property valuation.
MSME Definition Alignment
The bill aligns MSME definitions with the MSME Act (2020 revision):
- Micro enterprises – Investment below ₹1 crore; turnover under ₹5 crore.
- Small enterprises – Investment below ₹10 crore; turnover under ₹50 crore.
New ‘Tax Year’ Concept
The current dual usage of financial year (FY) and assessment year (AY) will be replaced with a tax year — income earned in a year will be taxed in the same year.
What Stays the Same
- No change in existing income tax slabs.
- Court-defined keywords and phrases remain unchanged.
Additional Legislation Passed
Alongside the Income Tax (No. 2) Bill, the Taxation Laws (Amendment) Bill, 2025 was also passed, granting direct tax relief to Saudi Arabia’s sovereign wealth fund and its subsidiaries investing in India.
Also Read : Income Tax Bill 2025 Withdrawn; New Version to Be Tabled in Lok Sabha on August 11
