By In a landmark move, the Lok Sabha on Monday passed the Revised Income Tax Bill, 2025, replacing the six-decade-old Income Tax Act of 1961. The new legislation, presented by Finance Minister Nirmala Sitharaman, promises to simplify India’s taxation framework, modernize compliance, and significantly reduce litigation, in line with the government’s commitment to reforms.
The bill, officially reintroduced as the Income-Tax (No. 2) Bill, 2025, was passed amid protests from the Opposition and without any debate, highlighting the government’s determination to push through the reform agenda.
A Long-Awaited Overhaul
India’s Income Tax Act, 1961, has governed the taxation regime for more than 60 years. Over the decades, successive governments have added hundreds of amendments, making the system complex and often confusing for both taxpayers and professionals. The new Income Tax Bill, 2025, seeks to address these challenges by consolidating provisions into a streamlined framework of 536 sections and 16 schedules, compared to the voluminous 1961 law.
The government has also accepted nearly all of the 285 recommendations made by the Select Committee, which reviewed the earlier draft over a four-month period. The Committee’s detailed report, spanning more than 4,500 pages, offered clarity on simplifying tax provisions and making the law more accessible.
Principles Behind the Reform: S.I.M.P.L.E.
While presenting the bill earlier this year, Sitharaman explained its guiding philosophy using the acronym S.I.M.P.L.E.
- S – Streamlined structure and language: Removing redundant clauses and simplifying terminology.
- I – Integration and conciseness: Consolidating scattered provisions into a uniform framework.
- M – Minimisation of litigation: Eliminating ambiguities that previously triggered disputes.
- P – Practicality and transparency: Ensuring rules are easy to follow for both individuals and businesses.
- L – Learning and adaptive approach: Creating scope for future improvements in sync with evolving needs.
- E – Efficient tax reforms: Building a tax system suited for India’s digital economy.
These principles underline the government’s aim to build a modern and transparent taxation system.
Major Changes in the Income Tax Bill 2025
The bill introduces several taxpayer-friendly reforms that will impact both individuals and corporations. Among the notable changes are:
1. Introduction of “Tax Year”
The new law replaces the long-standing concepts of “Previous Year” and “Assessment Year” with a single “Tax Year.” This reform is expected to simplify filing and compliance, reducing confusion among taxpayers.
2. Flexibility in Tax Refunds
For the first time, late filers will be allowed to claim tax refunds. Earlier, missing deadlines meant forfeiting refunds, often creating hardships for genuine taxpayers.
3. Dividend Relief
The government has reintroduced the ₹80 million deduction on inter-corporate dividends, providing much-needed relief to companies and reducing the burden of double taxation.
4. NIL-TDS Certificates
Taxpayers with no tax liability can now obtain advance NIL-TDS certificates, ensuring that unnecessary deductions at source are avoided.
5. Tax Relief on Vacant Properties
One of the most significant reforms is the removal of the provision for taxing notional rent on vacant properties. This change directly benefits property owners who earlier had to pay taxes on the “assumed rental income” of unoccupied homes.
6. Simplified Compliance Rules
The bill brings in clear guidelines on TDS for provident fund withdrawals and simplifies procedures for advance ruling fees. These measures aim to make compliance less burdensome and reduce the scope for disputes.
Digital Era Taxation
The Central Board of Direct Taxes (CBDT) has been empowered with greater flexibility to frame regulations that keep pace with the rapidly evolving digital economy. This includes provisions for electronic assessments, digital record-keeping, and technology-driven compliance checks, ensuring that India’s taxation regime remains future-ready.
Significance for Taxpayers
Experts believe that the revised legislation will make India’s taxation framework more predictable, transparent, and taxpayer-friendly. By addressing issues such as notional rent taxation and refund eligibility, the government is signaling its intent to support both the middle class and businesses.
The move is also expected to reduce the massive backlog of tax-related litigation that has clogged courts for decades. With clearer definitions and fewer ambiguities, taxpayers may face fewer disputes with tax authorities.
Opposition Reaction
The Opposition criticised the government for pushing the bill through without debate, arguing that a legislation of such magnitude warranted detailed discussion. However, the government maintained that the bill had already undergone a thorough review by the Select Committee and incorporated most of its recommendations.
Looking Ahead
The passage of the Income Tax Bill, 2025, represents a historic turning point in India’s tax landscape. As the new law replaces a statute that has stood for more than six decades, its real test will lie in how smoothly taxpayers adapt to the revised system and how effectively it reduces disputes.
For millions of Indian taxpayers, the bill promises simpler rules, faster compliance, and fairer treatment. For businesses, especially in the digital era, it offers clarity and consistency.
As Finance Minister Sitharaman stated earlier, the ultimate goal of the reform is to ensure that India’s taxation regime is not just simplified, but also adaptive to the future.
