📅 Date: August 11, 2025
📰 Source: Parliament of India – Lok Sabha Proceedings
Introduction
The Lok Sabha has passed the much-awaited Income-Tax (No. 2) Bill, 2025, replacing the old Income-Tax Act of 1961 after more than six decades.
The aim is to make tax laws easier, faster, and more transparent — giving major relief to middle-class taxpayers and simplifying compliance for businesses.
If cleared by the Rajya Sabha and signed by the President, this bill will come into effect from April 1, 2026.
Why This New Bill Was Needed
- The 1961 Income-Tax Act had over 800 sections filled with complex legal jargon.
- Frequent amendments over the years made it confusing and time-consuming.
- The government’s goal was to reduce paperwork, minimize disputes, and make the process digital-first.
Journey of the Bill
- February 13, 2025 – First draft introduced.
- Sent to a Select Committee headed by Baijayant Panda.
- 285 recommendations received to improve the bill.
- August 8, 2025 – First draft withdrawn.
- August 11, 2025 – New Income-Tax (No. 2) Bill, 2025 passed in Lok Sabha.
Key Highlights of the New Income-Tax Bill 2025
1️⃣ Simpler Structure
- Sections reduced from 800+ to 536.
- Divided into 23 chapters and 16 schedules.
- Replaces “Assessment Year” with “Tax Year”.
- Faceless and fully digital assessments to reduce corruption.
2️⃣ ₹12 Lakh Tax Exemption
- Individuals earning up to ₹12 lakh/year will pay zero income tax.
- Big relief for middle-class households and low-income earners.
3️⃣ Refunds Even for Late Returns
- Taxpayers will now get refunds even if they file returns late.
- Removes an old restriction that caused many to lose refunds.
4️⃣ Pension & Retirement Benefits
- Unified Pension Scheme (UPS) aligned with National Pension System (NPS).
- Lump-sum withdrawals after retirement will be tax-free.
- Clear rules for premature withdrawals.
5️⃣ Business-Friendly Provisions
- Clearer deduction rules for inter-corporate dividends.
- Capped anonymous donations to religious trusts to avoid misuse.
- Simplified calculation for capital gains tax.
6️⃣ Global Investment Push
- Special tax exemption for the Public Investment Fund of Saudi Arabia and subsidiaries.
7️⃣ No Change in Advance Tax Interest
- Confusion over increase in penal interest from 1% to 3% cleared — remains at 1% per month.
Benefits for Taxpayers
✅ Easier language — you don’t need a tax expert to understand it.
✅ More take-home income due to ₹12 lakh exemption.
✅ Faster refunds through digital filing.
✅ Less harassment via faceless assessments.
Impact on the Economy
- Encourages honest tax filing.
- Reduces legal disputes between citizens and the tax department.
- Boosts foreign investment confidence.
Timeline at a Glance
| Date | Event |
|---|---|
| Feb 13, 2025 | First draft of Income-Tax Bill introduced |
| July 21, 2025 | Select Committee submits 285 recommendations |
| Aug 8, 2025 | First draft withdrawn |
| Aug 11, 2025 | New bill passed in Lok Sabha |
| April 1, 2026 | New law to take effect |
What’s Next?
The bill will now go to the Rajya Sabha. Once approved and signed by the President, it will be implemented from FY 2026-27.
💬 Final Take:
The Income-Tax (No. 2) Bill, 2025 marks the beginning of a simpler, fairer, and tech-driven tax system in India. With a higher exemption limit, easier filing, and quicker refunds, it’s a welcome change for both taxpayers and businesses.
