Income Tax Bill Lok Sabha – A Landmark Reform in India’s Tax Landscape
Introduction
On August 11, 2025, the Lok Sabha passed the Income-tax (No. 2) Bill, 2025, effectively replacing the archaic Income-tax Act, 1961. This move marks a pivotal shift toward simplifying India’s tax regime, streamlining compliance, and reducing litigation. Crafted after rigorous public consultations and parliamentary scrutiny, this legislation aims to make tax laws more accessible and efficient for individuals and businesses alike.
Origins & Legislative Journey
The first version of the Income-tax Bill, 2025 was introduced in February 2025 during the budget session. It was promptly referred to a Select Committee led by MP Baijayant Panda. After receiving a detailed report with over 285 recommendations, the government withdrew the initial draft in August and presented a revised version—Income-tax (No. 2) Bill, 2025—on August 11, which was passed the same day.
Despite opposition objections and disruptions, the bill was passed without debate via voice vote, raising concerns about the pace of parliamentary scrutiny.
Core Objectives & ‘SIMPLE’ Framework
The “SIMPLE” Pillars
The bill is rooted in the acronym SIMPLE, encapsulating its guiding principles:
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S – Streamlined structure and language
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I – Integrated and Concise
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M – Minimized Litigation
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P – Practical and Transparent
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L – Learn and Adapt
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E – Efficient Tax Reforms
Key Improvements
| Feature | Details |
|---|---|
| Sections & Chapters Reduction | Sections cut from 819 to 536; Chapters consolidated to 23 |
| Basic Exemption & Slabs | ₹12 lakh exemption retained; revised tax slabs under new regime |
| Faceless Digital Assessment | Emphasizes digital-first, faceless tax processes to curb corruption |
| TDS & Refund Clarity | Allows TDS refunds even if ITR is filed late; mandates prior notices before action |
| Anonymous Donation Restrictions | Limits tax benefits to religious trusts unless they engage in social services |
| Tax Year Standardization | Replaces “Assessment Year” with a single Tax Year concept |
| Digital Protections & Privacy | Empowers authorities to access digital data (email, cloud, social media) during searches—raising privacy concerns |
Stakeholder Impact & Reforms in Practice
The bill is designed to benefit multiple stakeholders—from individual taxpayers to corporates and LLPs. Key practical benefits include:
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Taxpayers: Easier comprehension with plain language; protection from penalties for honest mistakes; smoother refunds.
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LLPs: Alignment of Alternate Minimum Tax (AMT) provisions with existing laws to avoid punitive rates.
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Pension Savers: Tax exemption extended for Unified Pension Scheme (UPS) withdrawals, aligned with NPS rules.
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Digital Era: Streamlined, transparent digital processes with some concerns around taxpayer data safety.
Top 10 Highlights of the Income-tax (No. 2) Bill, 2025
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Replaces the six-decade-old Income-tax Act, 1961.
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536 sections, down from 819.
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Maintains ₹12 lakh basic exemption limit for individuals.
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Introduces faceless, digital-first assessments.
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Ensures TDS refund eligibility, even if ITR is filed after the deadline.
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Mandates prior notice before tax enforcement actions.
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Limits exemptions to anonymous charitable donations.
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Aligns AMT for LLPs with prevalent tax norms.
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Harmonizes UPS and NPS tax treatment on withdrawals.
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Introduces Tax Year concept for clarity in tax filing.
The Legislative Process & Next Steps
This is a Money Bill, meaning it originated in the Lok Sabha and does not require amendments from the Rajya Sabha; it simply goes back within 14 days—Lok Sabha may accept or reject suggestions. Once ratified, it will head to the President for assent, and come into force on April 1, 2026.
Final Thoughts
The Income-tax (No. 2) Bill, 2025 represents a milestone in India’s tax reform journey—offering clarity, efficiency, and modernity while responding to long-standing complexities of the 1961 Act. Though the rushed passage without debate raises concerns about democratic deliberation, the extensive incorporation of parliamentary and public feedback suggests robust policy formation.
