New Income Tax Bill that cuts down number of IT sections from 819 to 536 passed in LS

New Delhi 12th August 2025: The Income Tax (No 2) Bill, aiming to replace the decade-old Income Tax Act, 1961, has been passed in the Lok Sabha on Monday without debate, and it will be tabled in the Upper House (Rajya Sabha) on Tuesday. The objective of the new bill is to simplify the direct tax law and procedures, making them more user-friendly for taxpayers.

Income Tax Act, 1961, though comprehensive, had undergone more than 4000 amendments and consisted of over 5 lakh words with a few outdated definitions, laws, and deductions, thereby making compliance quite complex for individuals and small businesses.

The new bill is based on the SIMPLE acronym, standing for Streamlined (structure and language), Integrated and concise, Minimised litigation, Practical and transparent, Learn and adapt, and Efficient tax reforms.

The first draft of the bill was recommended to an expert committee that suggested 285 changes, which have been accepted. The objective of the recommendations was to simplify the direct tax structure and avoid any unnecessary litigation on MSMEs and individuals.

The revised bill clarifies definitions for key terms, including ‘capital asset‘, ‘micro and small enterprises’, and ‘beneficial owner‘. It also aligns tax treatment for pension contributions and scientific research, while scrapping some outdated deductions and provisions.

Here is a summary of key changes in the new draft:

1. Relief on tax refunds and no penalty on late TDS filing: Taxpayers will be able to claim refunds on delayed returns, and no financial penalties are proposed for late TDS filing.
2. Commuted Pensions Treatment: The revised bill provides an explicit tax deduction for commuted, lump-sum pension payments for a category of taxpayers, including those receiving the pension from specific funds such as the LIC pension fund.
3. Reinstatement of Intercorporate Dividend Deductions: Any dividend received by a company from shareholding in another company shall be subject to deduction under Section 80M.
4. House Property Income Clarification: When calculating income under the head of house property, a standard deduction of 30% is applied, and deductions are allowed for interest payable on borrowed capital used for buying, building, repairing, etc.
5. Aligning Definitions of Micro and Small Enterprises: The revised bill provides a clear definition of micro (investment less than Rs. 1 crore and turnover of less than Rs. 5 crore) and small enterprise (investment less than Rs. 10 crore and turnover of less than Rs. 50 crore).

Besides these changes, the new bill proposes changes in the usage of ‘tax year’ to eliminate confusion regarding the usage of assessment and the previous year. The second bill also eliminates various redundant sections, such as ‘fringe benefits tax’, and proper tables have been inserted for provisions related to TDS rates, presumptive income, salaries, and deduction for bad debts.

However, there are no changes proposed for tax rates and existing slabs.

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Source : Lok Sabha