Background & Legislative Journey
The original Income-tax Bill, 2025 was introduced on 13 February 2025 and referred to a Select Committee chaired by MP Baijayant Panda. By 21 July 2025, the committee submitted 285 recommendations, 32 of which were considered key.
To address drafting issues and integrate the suggestions, the government withdrew the February version on 8 August 2025 and tabled a revised version—Income-tax (No. 2) Bill, 2025—on 11 August 2025, which was swiftly passed by the Lok Sabha.
Parliamentary Affairs Minister Kiren Rijiju emphasized that the new bill preserves the original intent while incorporating committee feedback.
Key Highlights & Reforms
Simplification & Structural Overhaul
The bill radically simplifies the tax law by slashing the number of sections from over 800 to 536, and reorganising content into 23 chapters, down from 29.
A “SIMPLE” guiding principle is central—standing for Streamlined, Integrated, Minimized litigation, Practical & transparent, Learn & adapt, Efficient reforms.
Digital-first, Transparency-driven Tax Administration
Key Procedural & Deduction Clarifications
Tax Year replaces the old “Assessment Year” terminology, making tax timelines clearer for all.
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Clause 22 clarifies standard deductions and pre-construction interest on house property:
Taxpayer Relief & Coverage Expansion
No penalties for late TDS filing; refunds can be claimed even after return deadlines, offering relief to taxpayers.
Introduction of nil-TDS certificates for those without tax liability, including NRIs.
The bill brings in clear deductions for lump-sum (commuted) pension from specific approved schemes—previous drafts lacked clarity here.
Removal of Alternate Minimum Tax (AMT) on LLPs, and rollback of stringent provisions on charitable trusts.
Extended Reach into Digital Domains
The bill grants authorities the power to access a taxpayer’s electronic records—including emails, trading, banking, investment, and social media accounts—during a search, defining this as “virtual digital space.”
Undisclosed income now includes virtual digital assets, such as cryptocurrencies or tokens.
Dispute Resolution & Treaty Clarity
Dispute resolution panels must now include points of determination and reasoning in decisions, boosting transparency.
The interpretation of undefined terms in tax treaties can now be decided by broader legal frameworks beyond government notifications.
Implementation, Outlook & Implications
The new Income-tax Act—replacing the Income-tax Act, 1961—is set to come into effect from 1 April 2026.
Taxpayers will continue evaluating between tax regimes—the bill retains the tax structure announced in the 2025 Budget without altering rates or slabs.
As part of modernization, the bill streamlines compliance, reduces litigation prospects, and improves taxpayer services—though concerns around data privacy and digital intrusion linger.
Summary Table
| Focus Area |
Reform Highlights |
| Structure & Language |
Sections trimmed to 536; chapters simplified; built around “SIMPLE” principles |
| Digital & Administrative |
Faceless assessments; refunds & notices digital-first |
| Deductions & Clarity |
Defined tax year; clarified property and pension deductions |
| Taxpayer Relief |
No late TDS penalty; post-deadline refunds; nil-TDS eligibility |
| Broader Powers |
Access to virtual digital space, including social and cloud platforms; inclusion of VDA in undisclosed income |
| Governance Mechanisms |
Transparent dispute resolution; definitional alignment with broader legal framework |
| Timeline |
Legislation effective from April 2026; replaces 1961 law |
Summary
The Income-tax Bill, 2025, passed in the Lok Sabha, replaces the 1961 Act and takes effect from 1 April 2026. It aims to simplify tax law, modernise administration, and improve taxpayer experience while retaining the Budget 2025 tax slabs. Overall, it’s a streamlined, tech-driven, compliance-friendly overhaul—but with privacy concerns due to expanded digital access powers.
