Revised Income Tax Bill 2025: Key Changes and Benefits for Taxpayers

Just a week after withdrawing the earlier draft, the government has passed a revised version of the Income Tax Bill 2025 in the Lok Sabha. Presented by Finance Minister Nirmala Sitharaman on August 11, the updated Bill incorporates most recommendations from the Select Committee and promises simpler language, fairer provisions, and several key corrections. This reform is set to replace the Income Tax Act, 1961, marking the biggest overhaul in India’s direct tax laws in more than six decades.

1. Simpler Language for Easier Understanding

One of the standout features of the revised Bill is its simplified language. Experts note that it is now much easier for the common taxpayer to read and understand compared to the complex legal language of the old Act.

2. Recommendations from the Select Committee Included

The government has accepted most of the recommendations made by the Select Committee. This move addresses concerns raised by stakeholders and experts after the first draft was introduced in February 2025.

3. No Change in Tax Rates

The revised Bill retains the tax rates announced in Budget 2025. Taxpayers will still have the option to choose between the old and new regimes, depending on which is more beneficial for them.

4. Clear Deduction for Commuted Pension

A major clarification in the new Bill is the explicit tax deduction for commuted pensions (lump sum pension payments) for certain taxpayers. This applies to pensions from approved funds listed in Schedule VII, such as the LIC Pension Fund, ensuring non-employees get the same fair treatment as employees.

5. Removal of Alternate Minimum Tax on LLPs

The earlier draft proposed an Alternate Minimum Tax on Limited Liability Partnerships (LLPs). This provision has now been completely removed, with experts calling it a correction of a drafting error in the previous version.

6. Relaxation for Charitable Trusts

Provisions that had restricted charitable trusts in the earlier draft have been rolled back. The revised Bill restores the ability to reinvest capital gains and spend funds in the following year, offering much-needed flexibility for these organisations.

7. Changes in Transfer Pricing Rules

The definition of Associated Enterprises under transfer pricing laws has been refined. Instead of considering management or control at any point during the year, the test will now be applied as of the end of the financial year, reducing subjectivity and potential disputes.

8. Clarifications for House Property Income

The Bill provides clearer rules on how the standard deduction is calculated for income from house property. It also explains the treatment of pre-construction interest for let-out properties, ensuring fewer disputes during assessments.

9. Addressing Subjective Challenges in Definitions

By narrowing the definition of “common management and control,” the revised Bill removes ambiguity that could have led to unnecessary litigation. This change is expected to make compliance smoother for companies and partnerships.

10. A Step Toward Modern Tax Administration

Overall, the revised Income Tax Bill 2025 reflects the government’s intent to create a transparent, fair, and taxpayer-friendly system. With clearer provisions, simpler language, and corrections to earlier oversights, it is seen as a major step toward modernising India’s tax framework.

Final Word

The revised Income Tax Bill 2025 not only simplifies tax law for the average citizen but also addresses concerns raised by businesses, trusts, and professionals. While it keeps the tax rates unchanged, its emphasis on clarity, fairness, and compliance could make tax filing less of a burden and more of a straightforward process in the years to come.