Lok Sabha Passes New Income Tax Bill 2025: Key Changes Every Taxpayer Should Know

Why the Bill Was Revised

The first Income Tax Bill, 2025 was introduced in February. It had 819 sections and 28 chapters. Many experts said it was too lengthy and complex. The Select Committee, led by Baijayant Panda, reviewed the draft. It suggested simplifying the structure, fixing drafting errors, and removing impractical provisions.

On August 8, the government withdrew the original Bill. This was done to include these changes. Just three days later, the new version was tabled in Parliament.

Simplification of the Law

The revised Bill now has 536 sections in 23 chapters. This is a big cut from the earlier 819 sections. The Finance Minister said the aim is to make tax rules easier to read and understand.

The Bill follows the SIMPLE principle. This stands for:

• Streamlined
• Integrated
• Minimised litigation
• Practical and transparent
• Learn-and-adapt
• Efficient reforms

This approach is meant to reduce disputes and make compliance faster.

Key Benefits for Taxpayers

One of the most important changes is the retention of the ₹12 lakh annual income tax exemption. This was first announced in the Union Budget 2025. It continues in the revised Bill.

The Bill also introduces faceless assessment for most cases. This means taxpayers will deal with the tax department online instead of in person. The aim is to reduce corruption and speed up processes.

Tax refunds will now be allowed even if the return is filed late. This is a relief for those who miss the deadline but are eligible for a refund.

Penalties for late filing of TDS returns have been removed. Taxpayers can now get a “nil certificate” in advance if they have no tax liability.

Specific Clarifications and Reliefs

The revised Bill brings back Alternate Minimum Tax (AMT) relief for LLPs. This was missing from the earlier draft.

Charitable trusts can now reinvest capital gains and spend the amount in the following year.

Clear rules have been added for deductions on commuted lump-sum pensions from certain funds, such as LIC Pension Fund.

The Bill also clarifies rules for pre-construction interest and house property income. This should help in avoiding disputes over these deductions.

There is also improvement in the treatment of inter-corporate dividends under Section 80M.

Correction on Penal Interest

The February draft had a mistake. It appeared that the penal interest on shortfall of advance tax was being increased from 1% to 3% per month. This was only a drafting error. The revised Bill confirms that the rate remains 1% per month.

Changes for Retirement and Savings Schemes

The Taxation Laws (Amendment) Bill, 2025, introduced alongside, makes changes to UPS and NPS. It equalises tax treatment for these pension schemes. It also updates rules for lump-sum and premature withdrawals.

What Happens Next

The Bill now moves to the Rajya Sabha. If approved, it will be sent to the President for final assent. After that, it will replace the existing Income Tax Act, 1961.

For a detailed breakdown of tax changes and personal finance tips, you can visit moneyphobia.in. The site regularly publishes easy-to-read guides on taxes, budgeting, and investments.