The Lok Sabha on Monday passed the Income Tax (No. 2) Bill, aimed at replacing the six-decade-old Income Tax Act, 1961, with a simpler and more streamlined framework. The bill was cleared without an opposition debate, amid protests by INDIA bloc MPs over voter list revisions in poll-bound Bihar.
Finance Minister Nirmala Sitharaman said the legislation was guided by the acronym S.I.M.P.L.E—Streamlined structure and language; Integrated and concise; Minimised litigation; Practical and transparent; Learn and adapt; and Efficient tax reforms.
The first draft, tabled in February, was examined by a select committee led by BJP MP Baijayant Panda, which made 285 recommendations—most of which have been incorporated. “The 1961 Income Tax Act has undergone over 4,000 amendments and contains more than five lakh words. The new bill cuts that complexity by nearly 50%,” Mr. Panda said, adding that the reforms will help individual taxpayers and MSMEs avoid unnecessary litigation.
Key Features of the New Income Tax Bill
- Simplified language and structure: Clearer definitions for terms like ‘capital asset’, ‘micro and small enterprises’, and ‘beneficial owner’.
- Refund relief: Taxpayers can claim refunds even for late return filings.
- No penalty on late TDS filing: Financial penalties for late filing of TDS will be removed.
- Nil-TDS certificates: Available in advance to Indian and non-resident taxpayers without tax liabilities.
- Commuted pensions: Explicit tax deduction for lump sum pension payments from specified funds.
- Inter-corporate dividends: Section 80M deduction restored to prevent double taxation in multi-tiered company structures.
- Property tax rules: Standard deduction fixed at 30% for income from house property; revised method for valuing vacant rental properties.
- MSME definitions aligned: Matching the 2020 MSME Act thresholds.
- Tax year concept: Replaces ‘financial year’ and ‘assessment year’ to ensure tax is paid in the same year income is earned.
- Redundant provisions removed: Includes deletion of fringe benefit tax sections.
- Reference tables added: For TDS, presumptive taxation, salaries, and bad debt deductions.
The revised law, which comes into effect on April 1, 2026, will retain existing tax slabs and preserve judicially defined key terms and phrases.
Alongside this bill, the Lok Sabha also passed the Taxation Laws (Amendment) Bill, 2025, granting direct tax relief to Saudi Arabia’s sovereign wealth fund and its subsidiaries investing in India.
