Lok Sabha passes Income Tax Bill 2025, replacing six-decade-old tax code

THEBUSINESSBYTES BUREAU
NEW DELHI, AUGUST 11, 2025
In a landmark legislative move, the Lok Sabha on Monday passed the Income Tax Bill, 2025, paving the way for the replacement of India’s 63-year-old direct tax framework. The new law seeks to balance investor confidence, taxpayer relief, and administrative efficiency, aligning the country’s tax regime with contemporary economic realities.
The legislation, once enacted, will formally supersede the Income Tax Act, 1961, which has been in force since April 1, 1962. The new framework is set to come into effect from April 1, 2026.
Finance Minister Nirmala Sitharaman tabled the revised bill in the House after the government withdrew an earlier draft presented on February 13, 2025. That version, reviewed by a Parliamentary Select Committee chaired by BJP MP Baijayant Panda, was withdrawn on August 8 to avoid confusion over multiple drafts. The latest version consolidates all approved changes into a single, updated text.
The Select Committee submitted its report on July 21 after an extensive review, making 285 recommendations aimed at simplifying language, removing redundancies, improving procedural clarity, and correcting cross-references. Most of these recommendations have been incorporated in the final bill.
Among the key provisions, deductions under Section 80M of the 1961 Act (Clause 148 of the new Bill) will now be available to companies opting for the new regime. Deductions for commuted pension and gratuity for family members have been specified under Clause 93. The provisions of Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) have been separated into distinct sub-sections, with AMT applying only to non-corporates claiming deductions. LLPs with only capital gains income will be exempt from AMT if no deduction is claimed.
The bill also adds “profession” alongside “business” in Clause 187, enabling professionals with annual receipts above ₹50 crore to use prescribed electronic payment modes. It provides greater flexibility for refund claims by removing restrictions under Clause 263(1)(ix) and revises the rules for carry forward and set-off of losses for improved clarity.
For non-profit organisations, capital gains reinvested in new assets will continue to be treated as income application. Shortfalls in the mandatory 85% income application due to delayed receipts can be carried forward, and exemptions for anonymous donations have been extended to mixed object registered entities, which have now been clearly defined. The requirement for mandatory investment of 15% accumulated income in specified modes has been removed.
In another procedural reform, the time limit for filing TDS correction statements has been reduced from six years to two years, a step expected to significantly cut grievances among taxpayers. The bill also integrates amendments from the Finance Act, 2025, and the Taxation Laws (Amendment) Bill, 2025.
The government has positioned the Income Tax Bill, 2025 as a cornerstone reform, aiming to simplify compliance, modernise tax administration, and ensure the law remains responsive to India’s fast-changing economic landscape.