The Lok Sabha has passed the revised Income Tax (No. 2) Bill, 2025, marking the most significant overhaul of India’s direct tax laws in over six decades. This new legislation will replace the Income Tax Act, 1961, aiming to simplify tax provisions, reduce complexity, and address modern-day financial realities.
A Leaner, Clearer Law
The new Income Tax Bill has been rewritten in a cleaner, more organized format. The aim is to make it easier for taxpayers to read, understand, and comply with, without having to wade through complex legal jargon. This means quicker clarity on rules, fewer grey areas, and less dependence on technical interpretations.
According to experts, this simplified drafting will make it easier for individuals to understand their tax obligations without deep legal expertise. The government has incorporated most of the 566 recommendations made by a Parliamentary Select Committee led by Baijayant Panda, as well as inputs from industry stakeholders.
Key Provisions Impacting Taxpayers
- No Change in Tax Rates
The Bill retains the new tax regime announced in Budget 2025. Taxpayers will still have the option to choose between the old and new regimes based on their financial planning needs. - Clear Tax Exemption on Commuted Pension
Lump-sum pension payments from specific approved funds (like the LIC Pension Fund) now have a clear tax deduction. This ensures parity in tax treatment between employees and certain non-employee pension recipients. - Refunds for Late Filers
The earlier provision that denied income tax refunds if the return was filed after the due date has been removed. This change is expected to benefit taxpayers who miss deadlines due to genuine reasons. - Relief for LLPs, Charitable Trusts & Transfer Pricing
- The Alternate Minimum Tax for Limited Liability Partnerships (LLPs) has been removed.
- Restrictions on charitable trusts have been rolled back, allowing reinvestment of capital gains and spending of funds in the following year.
- Transfer Pricing rules have been eased by narrowing the definition of “Associated Enterprises” to remove subjectivity and reduce litigation.
- The Alternate Minimum Tax for Limited Liability Partnerships (LLPs) has been removed.
- Clarity on Deductions for House Property Income
The Bill clarifies how standard deduction is calculated after municipal tax payments and how pre-construction interest is treated for let-out properties.
Expanded Powers for Tax Officials
The revised Bill increases the powers of income tax officers during search and seizure operations. Here’s what it means in practice:
- Access to digital data – Officials can ask for passwords or access codes to your phone, laptop, or online accounts.
- Bypassing security – If you don’t share them, they can override the security to access your data.
- Scope of search – This can include emails, social media messages, chats, and other stored information.
The government says this will help catch tax evasion hidden in emails, chats, or other digital records. However, some experts and MPs have raised concerns about privacy and the possibility of misuse.
Why It Matters for You
For most taxpayers, the immediate effects will be in clearer rules, fewer ambiguities, and some welcome reliefs—particularly in pension taxation, refund eligibility, and property income deductions. However, the expanded enforcement powers mean individuals and businesses should be even more mindful about record-keeping and compliance.
Bottom Line
The Income Tax Bill 2025 is not just a legal rewrite—it’s an attempt to make India’s tax laws simpler, clearer, and more aligned. While it offers several taxpayer-friendly changes, it also comes with enhanced scrutiny powers for authorities. Staying compliant, organised, and aware of your rights will be key in this new tax landscape.
