Nirmala Sitharaman tables new Income Tax Bill in Lok Sabha
What's the story
Finance Minister Nirmala Sitharaman has introduced the new Income Tax Bill, 2025, in the Lok Sabha. The proposed legislation aims to replace the existing Income Tax Act of 1961. It incorporates most of the recommendations made by a select committee led by BJP MP Baijayant Panda. The main objective is to simplify processes and address long-standing issues in tax management.
Simplification efforts
Key objectives of the new Income Tax Bill
The new Income Tax Bill, 2025, seeks to simplify tax procedures and address long-standing issues in tax management. The old act had become difficult to decipher due to its archaic language and over 4,000 amendments. The new draft is expected to include most of the 285 recommendations made by the select committee.
Major changes
Major proposals in the new bill
The new Income Tax Bill proposes several key changes. These include limiting anonymous donations to purely religious trusts, permitting taxpayers to claim TDS refunds after ITR filing deadline sans penalties, and requiring tax officials to issue notices and consider responses before taking action. The bill also aims to modernize the system through a digital-first, faceless assessment framework for compliance ease and corruption risk reduction.
Legislative overhaul
New bill to replace 1961 Act if passed
If passed, the new Income Tax Bill will replace the 63-year-old Income Tax Act with a modern, simplified, and litigation-resistant direct tax code. This is being touted as one of the most ambitious tax reforms in recent decades. The legal language of the 1961 Act will be replaced with clearer terms for public understanding.
Withdrawal explanation
Government withdrew the bill recently
The government recently withdrew the Income Tax Bill, 2025, introduced on February 13. Sitharaman explained in Parliament that suggestions were received which needed to be incorporated for correct legislative meaning. She said the earlier Bill was pulled back to avoid confusion and that this fresh draft will serve as the basis for replacing the 1961 Act.
Suggestions
A look at Select Committee's recommendations
The Select Committee had flagged several drafting errors and suggested amendments to reduce ambiguity. These include removing "in normal course" from Clause 21 and adding a clear comparison between actual rent and deemed rent for vacant properties. Specifying that the 30% standard deduction applies after deducting municipal taxes in Clause 22, and allowing commuted pension deductions for non-employees receiving pensions from a fund in Clause 19, are also included.