In a major overhaul of India’s tax system, Parliament has passed the Income Tax (No. 2) Bill, 2025, which will replace the Income Tax Act of 1961. The new legislation, introduced by Finance Minister Nirmala Sitharaman, is designed to simplify tax laws and modernize administration.
Key Changes in the New Bill
Based on recommendations from a select parliamentary committee chaired by Baijayant Panda, the bill includes several significant updates:
- Simplified Language: The new law uses clearer, more straightforward language, making it easier for taxpayers to understand their obligations.
- Property and Deductions: Clause 21 introduces a “deemed rent” for vacant properties, and Clause 22 clarifies that the 30% standard deduction is applied after municipal taxes are subtracted. It also extends pre-construction interest deductions to let-out properties.
- Modern Administration: The bill enhances the powers of the Central Board of Direct Taxes (CBDT) and mandates digital monitoring to improve tax collection.
- “Trust First” Approach: To reduce litigation, the new law adopts a “trust first, scrutinise later” strategy and eases penalties for certain offenses.
- No Changes to Rates: The legislation maintains the current tax slabs, capital gains rules, and income categories.
- Tax Year: The concept of a “tax year” will replace the current “financial year” and “assessment year” to reduce confusion.
This landmark legislation, which required extensive corrections and refinements after an initial draft was withdrawn, is a crucial step toward modernizing India’s tax framework. It aims to create a more efficient and taxpayer-friendly system for the future.