Revised Income Tax Bill 2025 passes Lok Sabha, integrates 285 Select Committee recommendations

India's Lok Sabha passed the Income Tax (No. 2) Bill, 2025, on August 11, marking a critical overhaul of the tax system after the previously introduced version was withdrawn due to public and expert feedback.

Finance Minister Nirmala Sitharaman moved the revised legislation, stressing that it retains the original bill’s spirit while incorporating extensive clarifications drawn from Parliament’s 31-member Select Committee.

The committee delivered a 4,584-page report containing 566 recommendations—285 of which have now been embedded in the new law.

Key improvements now featured in the bill include:

Flexible tax refund process: Taxpayers filing late can still claim refunds, mitigating severe timeline-related penalties.

Property income fairness: It reaffirms a standard 30% deduction on annual value and allows pre-construction interest to be spread over five years.

Pensioner relief: Commuted pension from government-recognized schemes (like LIC or NPS Schedule VII) is now fully deductible.

SME conformity: Definitions for Indian micro and small enterprises are aligned with the MSME Act, making compliance smoother.

Non-profit equity: Amendments bring clarity between “income” and “receipts,” improper anonymous donations, and remove “deemed application” rules for charities.

Additional reforms: The bill also simplifies procedures for nil TDS certificates, advance ruling fees, PF TDS, and penalty regimes.

The updated bill also modernizes the archaic Income Tax Act of 1961, aiming to reduce lengthy litigation and make taxation transparent and taxpayer-friendly. It complements the government's Budget 2025 strategy of raising the income threshold for zero-tax status to ₹12 lakh and streamlining compliance.

Defending the revised bill, Parliamentary Affairs Minister Kiren Rijiju affirmed that while the bill reflects extensive panel feedback, it remains fundamentally rooted in the original envisioned reform.

Passing this bill reflects a key juncture in India’s tax reform journey—balancing modernization with backlash avoidance. With widespread applicability—from retirees to SME owners and non-profits—the overhaul addresses longstanding taxpayer pain points while signaling bold governance renewal.