Lok Sabha Passes New Income Tax Bill, Replacing 64-Year-Old Law

Aug 12, 2025 – Yesterday, August 11, the Lok Sabha passed the revised Income Tax Bill 2025, which will replace the 64-year-old Income Tax Act, 1961 once it becomes law. The Bill was introduced and passed the same day under supplementary business in the House.

Introducing the Income Tax (No.2) Bill, 2025, Finance Minister Sitharaman said the Bill seeks to consolidate and amend the law relating to Income Tax and will replace the Income Tax Act, 1961. She said the original Bill was withdrawn to avoid confusion.

The guiding principle of the new Bill was S.I.M.P.L.E. - as had been explained by FM Sitharaman - which is 'Streamlined structure and language; Integrated and concise; Minimised litigation; Practical and transparent; Learn and adapt, and Efficient tax reforms'.

The original Bill was presented during the Budget Session in February and referred to a Standing Committee of 31 members chaired by BJP MP Baijayant Panda. Last month, the committee submitted a comprehensive 4,500-page report to Parliament, including 285 recommendations for improvements.

The revised Bill incorporates all recommendations made by the Parliamentary Standing Committee, including the significant suggestion to allow tax refunds even if the return is filed late. It contains 2.6 lakh words and 536 sections, compared to the old Act's 5.12 lakh words and 619 sections. The new Bill is shorter, simpler, and more transparent, removing contradictory clauses.According to the new provisions, no penalty will be imposed for filing Income Tax Returns after the due date. However, the core objectives of the original Bill remain unchanged.

Key Highlights of New Income Tax Bill 2025

• Late ITR filers will be eligible for refunds.
• 1,200 provisions and 900 explanations from the old law have been removed.
• Individuals with no tax liability can obtain a zero TDS certificate in advance.
• Interest on home loans for rented properties will also qualify for deductions.
• All deductions and refund provisions are listed in tabular format to avoid confusion.
• Anonymous donations received by non-profit and religious trusts will continue to be tax-exempt.

Unified “Tax Year” Introduced

A key change is the replacement of the traditional system of Assessment Year and Financial Year. The new Bill introduces the concept of a single "Tax Year" — meaning income earned in a year will be taxed in the same year, unlike the current system where income is assessed in the following year.

The Income Tax Bill will now be tabled in the upper house of Parliament before it goes for the President’s signature. According to sources, the Bill may be placed before Rajya Sabha on Tuesday.

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