Following the passage of the Bills, the House was adjourned for the day. The new Income Tax Bill, meant to replace the existing 1961 Act, will now go to the Rajya Sabha before seeking the President’s assent.

The Lok Sabha on August 11 passed the modified new Income Tax Bill, 2025, and The Taxation Laws (Amendment) Bill, 2025. The Income Tax (No. 2) Bill, 2025 was cleared shortly after Finance Minister Nirmala Sitharaman tabled the revised version.

Following the passage of the Bills, the House was adjourned for the day. The new Income Tax Bill, meant to replace the existing 1961 Act, will now go to the Rajya Sabha before seeking the President’s assent.

Finance Minister Nirmala Sitharaman introduced the modified Income Tax Bill after incorporating “almost all of the recommendations of the Select Committee” headed by BJP MP Baijayant Panda. The legislation aims to consolidate and amend laws under the Income Tax Act, 1961.

The Taxation Laws (Amendment) Bill, 2025, also passed by the Lok Sabha, seeks to amend the Income-tax Act, 1961, and the Finance Act, 2025, to provide tax exemptions for subscribers of the Unified Pension Scheme.

“Almost all of the recommendations of the Select Committee have been accepted by the government. In addition, suggestions have been received from stakeholders about changes that would convey the proposed legal meaning more accurately,” the statement of objects and reasons noted.

What’s new in the Income-Tax Bill, 2025 

1. Major Structural Overhaul 

• The old Income-Tax Act, 1961 will be replaced, consolidating and simplifying the tax law with 536 sections across 23 chapters—a significant reduction from over 800 sections.  
• The legislation incorporates 285 recommendations (including 32 major changes) from the Select Committee to improve clarity, correct drafting, align phrasing, and enhance cross-referencing. 

2. Digital-first, faceless processes 

• Assessment and compliance procedures will be faceless and digital-first to minimize human interface, boost transparency, and curb corruption. 

3. Taxpayer protections & compliance ease 

• Tax officials must issue prior notice and consider responses before taking action. 
• Allows TDS refunds even after ITR deadlines without penalties, and provisions for advance NIL-TDS certificates for non-liable taxpayers. 

4. Simplification & clarification of deductions 

• House property income: Clauses now explicitly clarify that a 30% standard deduction applies after deducting municipal taxes, and pre-construction interest is allowed for let-out properties—with interest allowed over five years.  
• Commuted pension (lump-sum payouts from specified pension schemes like LIC Pension Fund or NPS): Now fully tax-deductible, resolving previous ambiguities. 

5. Other notable features 

• Retains the ₨ 12 lakh annual tax exemption introduced in the Union Budget earlier this year.  
• Restricts anonymous donations to religious trusts that don’t engage in social services.  
• Empowers the CBDT to frame updated rules suitable for the digital era.  

6. Effective Date 

What About the Taxation Laws (Amendment) Bill, 2025? 

Passed alongside the Income-Tax Bill, this act provides: 

• Tax exemptions for subscribers of the Unified Pension Scheme (UPS), aligning with NPS benefits.  
• Relief provisions for the Public Investment Fund of Saudi Arabia and its subsidiaries investing in India. 
• Streamlined block assessment rules in income-tax search cases to expedite resolution.