The Lok Sabha Select Committee has submitted its report on the Income Tax Bill, 2025, proposing several significant changes to streamline and clarify India’s direct tax laws. The report, presented to the House on Monday, July 21, 2025, outlines key recommendations to simplify the tax code, ensure consistency with existing legislation, and enhance ease of compliance.
Thank you for reading this post, don't forget to subscribe!Here are the highlights of the committee’s proposed revisions:
- Aligning Definitions: The committee advocates for harmonizing the definition of ‘capital asset’ with the latest Finance Act, particularly concerning securities held by foreign investors and funds. It also calls for a comprehensive definition of ‘infrastructure capital company’ within the new Bill, moving away from references to the repealed 1961 Act.
- Clarifying House Property Income: Recommendations include explicitly outlining how the 30% standard deduction for house property income is calculated, specifically by deducting municipal taxes first. The committee also supports extending the pre-construction interest benefit to properties that are let out.
- Scientific Research & MSMEs: The report suggests redrafting provisions related to scientific research spending to ensure clear approvals and consistent benefits. Furthermore, it urges updating the definitions of ‘micro’ and ‘small’ businesses to align with the MSME Development Act, 2006.
- Capital Gains & Small Taxpayers: The committee seeks to restore missing cross-references for capital gains to ensure accurate income calculation. Notably, it proposes to eliminate the mandatory filing requirement for small taxpayers who only need to claim a refund and whose income falls below the taxable limit.
- Provisions for Non-Profits: The report emphasizes the need for clearer rules for non-profit organizations. It recommends retaining the ‘deemed application’ rule, using ‘income’ instead of ‘receipts,’ and ensuring that religious-cum-charitable trusts do not lose exemptions for anonymous donations.
- TDS and Penalties: Other key recommendations include clarifying TDS (Tax Deducted at Source) for provident funds, providing a clear option for ‘Nil’ tax deduction certificates, and granting more discretion to tax officers to waive penalties in cases of non-deliberate non-compliance.
- Transitional Clauses & Inter-Corporate Dividends: The committee also stresses the importance of strengthening transitional clauses to ensure all valid rules, circulars, and approvals from the 1961 Act are carried forward. Additionally, it has recommended reinstating the deduction under Section 80M for inter-corporate dividends, which was reportedly omitted in the initial draft.
The new Income Tax Bill, 2025, aims to replace the existing Income Tax Act, 1961, with a simplified and rationalized direct tax framework. The government’s objective is to create a concise, lucid, and easily understandable tax law, with an anticipated implementation date of April 1, 2026. The finance ministry will now review these recommendations before finalizing the legislation for parliamentary approval.
