New Income Tax Bill, 2025 Passed in Lok Sabha: Big Changes Explained

On August 11, 2025, the Lok Sabha approved two significant pieces of legislation — the modified new Income Tax Bill, 2025 and the Taxation Laws (Amendment) Bill, 2025.
The Income Tax (No. 2) Bill, 2025 was passed shortly after Finance Minister Nirmala Sitharaman tabled its revised version in Parliament.

Following the passage, the House was adjourned for the day. The bill, which is designed to replace the six-decade-old Income Tax Act, 1961, will now move to the Rajya Sabha and then to the President of India for assent.

Incorporating Select Committee Recommendations

Finance Minister Nirmala Sitharaman introduced the updated draft after accepting “almost all of the recommendations of the Select Committee” headed by BJP MP Baijayant Panda.
According to the statement of objects and reasons, the government has also included “suggestions received from stakeholders about changes that would convey the proposed legal meaning more accurately.”

Key Highlights of the New Income Tax Bill, 2025

1. Major Structural Overhaul

• The new legislation replaces the Income-Tax Act, 1961, consolidating the law into 536 sections across 23 chapters, down from over 800 sections earlier.

• It incorporates 285 recommendations, including 32 major changes, to enhance clarity, correct drafting flaws, align language, and improve cross-referencing.

2. Digital-First & Faceless Procedures

• Assessment and compliance processes will be faceless and digital-first to reduce human interface.

• The move aims to increase transparency and curb corruption while making tax administration faster and more efficient.

3. Enhanced Taxpayer Protections & Compliance Ease

• Tax officials must issue prior notice before initiating action and must consider taxpayer responses before proceeding.

• The law allows TDS refunds even after ITR deadlines without penalties.

• Non-liable taxpayers can apply for advance NIL-TDS certificates to avoid unnecessary deductions.

4. Simplification & Clarification of Deductions

• House Property Income: 30% standard deduction applies after deducting municipal taxes; pre-construction interest for let-out properties will be allowed over five years.

• Commuted Pension: Lump-sum payouts from schemes like LIC Pension Fund or NPS will now be fully tax-deductible, eliminating earlier ambiguities.

5. Other Notable Provisions

• Maintains the ₹12 lakh annual tax exemption announced in the Union Budget 2025.

• Restricts anonymous donations to religious trusts not engaged in social service.

• Empowers the CBDT to draft updated rules fit for the digital era.

6. Effective Date

• Once enacted, the law will be effective from April 1, 2026.

Taxation Laws (Amendment) Bill, 2025 — Key Takeaways

Passed alongside the Income Tax Bill, this legislation aims to:

• Provide tax exemptions for Unified Pension Scheme (UPS) subscribers, bringing them at par with NPS benefits.

• Offer investment relief to the Public Investment Fund of Saudi Arabia and its subsidiaries for investments in India.

• Streamline block assessment rules in income-tax search cases for faster resolution.

Impact & Significance

The new Income Tax Bill, 2025 marks the largest overhaul of India’s direct tax laws in decades.
By reducing complexity, embracing digital-first governance, and safeguarding taxpayer rights, the legislation aims to:

• Simplify compliance for individuals and businesses.

• Reduce litigation and disputes.

• Encourage transparency and trust between taxpayers and authorities.

If approved by the Rajya Sabha and signed by the President, the bill will modernize India’s tax system to meet the needs of a digital and global economy.

Conclusion
The passage of the new Income Tax Bill, 2025, along with the Taxation Laws (Amendment) Bill, 2025, represents one of the most significant reforms in India’s direct tax regime in over sixty years.

By replacing the outdated Income Tax Act, 1961, the legislation aims to streamline tax laws, reduce procedural complexities, and create a more transparent, taxpayer-friendly system.

The emphasis on faceless, digital-first processes is a decisive step towards curbing corruption and increasing efficiency, while measures such as simplified deductions, clear provisions, and greater taxpayer protections address long-standing compliance issues.

Additionally, retaining key exemptions and aligning pension tax benefits reflect a balanced approach that supports both individuals and businesses. If ratified by the Rajya Sabha and approved by the President, the reforms will come into effect from April 1, 2026 — setting the stage for a modern, technology-driven, and globally competitive taxation framework for India’s evolving economy.