parliament passes bill to streamline and modernize the 60-year-old income tax statute
New Income Tax Bill Approved in India: Major Reforms Announced
A significant overhaul of India's taxation system is on the horizon, with the approval of a new Income Tax Bill in August 2025. The new legislation, set to come into effect from April 1, 2026, aims to streamline compliance, reduce litigation, and foster greater transparency and fairness in tax administration.
Key Changes and Major Recommendations
- Digital Taxation: The Bill clarifies provisions related to digital taxation, such as eliminating TCS (Tax Collected at Source) on LRS remittances for educational purposes when financed by financial institutions, thus easing compliance in digital financial flows.
- TDS Refunds: A critical amendment removes a restrictive provision that required taxpayers to file returns by the due date to claim refunds. This change restores the established legal position allowing refunds even if returns are belatedly filed.
- Deductions from House Property Income: The Bill reinstates standard deductions from income under the head of house property, correcting earlier drafting errors that limited these deductions.
- Rebate of Income Tax for Certain Individuals: The Bill introduces taxpayer-friendly provisions such as the option to update income tax returns up to four years after the relevant assessment year without penalties or additional tax liability.
Additional Notable Reforms
- The Bill replaces the Previous Year and Assessment Year concept with a simpler single term Tax Year, aligning Indian tax terminology with international practices.
- The number of sections in the Income Tax Act has been reduced from 819 to 536, removing archaic language and redundant provisions to simplify the law.
- The provisions related to Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) have been separated into distinct sections for clarity.
- The new taxation system will replace legislation that has been in effect for over 60 years.
Other Highlights
- The mandatory investment and deposit of deemed accumulated income of 15% of regular income in specified modes has been eliminated.
- The utilisation of capital gains on the acquisition of a new capital asset will be treated as an application of income by a registered non-profit organization.
- The Lok Sabha approved a Bill designed to update and simplify India's taxation system.
- The Select Committee suggested that the government modify the provisions related to TDS claims for those who fail to file an ITR before the stipulated due date.
- Amendments in Clause 156 address drafting errors to ensure accurate computation of rebates for individuals with income below a specified threshold.
- If an assessee's regular income falls short of 85% due to non-receipt or late receipt during the tax year, they can opt for such income to be deemed as income for that tax year.
- The time period for filing TDS correction statements has been reduced to two years from six years, expected to substantially reduce grievances of deductees.
- The concept of "receipt" has been changed to the concept of "income" in the new Bill.
The reworked Income Tax Bill was introduced by Finance Minister Nirmala Sitharaman. The Bill includes a revised structure, provisions for digital taxation, systems for resolving disputes, and initiatives to expand tax collection through technological and data-driven methods.
This article was published on August 11, 2025. The new taxation system will replace the nearly six-decade-old Income Tax Act, 1961, and is intended to streamline compliance, reduce litigation, and foster greater transparency and fairness in tax administration.
[1] "Income Tax (India) Act, 1961: Amendments and Proposed Changes", Financial Express, 2025. [2] "Simplifying the Indian Income Tax Act: Key Provisions of the New Bill", The Hindu BusinessLine, 2025. [3] "New Income Tax Bill 2025: Key Changes and Impact on Taxpayers", Economic Times, 2025. [4] "The New Income Tax Bill 2025: A Comprehensive Overview", LiveMint, 2025. [5] "Finance Minister Nirmala Sitharaman Introduces New Income Tax Bill 2025", MoneyControl, 2025.
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