Finance Minister Nirmala Sitharaman introduced a revised version of the Income Tax Bill in the Lok Sabha on Monday, incorporating the majority of the Select Committee's recommendations, which were led by Baijayant Panda.
The move comes after the government's decision last week to withdraw the Income-Tax Bill, 2025, which was introduced on February 13 to replace the six-decade-old Income-Tax Act of 1961. The new draft, which was tabled on August 11, seeks to provide lawmakers with a single, updated version that incorporates all proposed changes.
Key Highlights
- Sitharaman tables simplified Income Tax Bill, cutting sections to 536 and introducing 'tax year' concept.
- New bill enhances clarity—average word count halved and faceless digital assessments enabled.
Sitharaman explained the withdrawal in Parliament, saying, "Suggestions have been received and must be incorporated to convey the correct legislative meaning." Corrections include drafting, phrase alignment, consequential changes, and cross-referencing." She added that the previous Bill was withdrawn to avoid confusion, and that the new draft will serve as the foundation for replacing the 1961 Act.
Key recommendations from the Select Committee
The parliamentary panel had identified numerous drafting errors and proposed amendments to reduce ambiguity:
- Clause 21 (Annual value of property): Remove the phrase "in normal course" and provide a clear comparison of actual rent and "deemed rent" for vacant properties.
- Clause 22 (Deductions from house property income): State that the 30% standard deduction applies after deducting municipal taxes; expand the pre-construction interest deduction to let-out properties.
- Clause 19 (Salary deductions - Schedule VII): Non-employees receiving pensions from a fund may use commuted pension deductions.
- Clause 20 (Commercial property): Change the wording to prevent taxing temporarily unused business properties as "house property" income.
The Committee stated that these changes would enhance fairness and clarity while aligning the law with existing provisions.
Also Read: Revised Income Tax Bill to Be Introduced in Parliament on Monday
Provisions of the withdrawn Bill
The February draft was described as the most significant reform to India's direct tax code in over 60 years. The key features were:
- To make compliance easier, language has been simplified, deductions have been consolidated, and provisions have been reduced in length.
- Reduce penalties for specific offenses to make the system more taxpayer-friendly.
- There is no change in tax brackets, capital gains rules, or income categories.
- Litigation can be reduced by taking a "trust first, scrutinise later" approach.
- Modern administration includes increased CBDT powers, digital monitoring, and the implementation of the "tax year" concept.
The previous draft had 23 chapters, 536 sections, and 16 schedules, with tables and formulas for easier interpretation. It also proposed streamlined TDS rules, simplified depreciation provisions, and the preservation of residency requirements and fiscal year timelines.
