New Delhi, August 2025 – In a significant shift in India’s fiscal reform trajectory, the Income-Tax Bill, 2025—originally tabled in the Lok Sabha on February 13, 2025—has been officially withdrawn by the Union government. The move, led by Finance Minister Nirmala Sitharaman, comes after intense scrutiny from a Select Committee and broad stakeholder feedback. The government plans to present a revised version in Parliament on Monday, August 11, 2025, incorporating the majority of the committee’s suggestions and aiming to simplify and modernize the country’s tax framework.
Background: Genesis of the Bill
India’s current Income-Tax Act dates back to 1961 and has accumulated thousands of amendments over the decades, making it unwieldy and complex for citizens, MSMEs, and professionals alike. Recognizing the pressing need for structural reform, the government introduced the Income-Tax Bill, 2025 as a replacement designed to overhaul and streamline direct tax law for the digital age.
Key motivations included:
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Simplifying and modernizing legal language
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Reducing redundancies and obsolete provisions
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Incorporating digital compliance mechanisms
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Decriminalizing certain minor non-compliances
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Replacing the Assessment Year concept with a more intuitive “Tax Year” model
However, after its introduction, the Bill was referred to a 31-member Select Committee, chaired by BJP MP Baijayant Panda, which conducted extensive stakeholder consultations before submitting its recommendations.
Select Committee: Reasons for Withdrawal
Why withdraw the Bill?
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Consolidation of changes: Multiple versions of the Bill existed—original drafts, stakeholder revisions, and committee suggestions. Rather than create confusion, the government chose to withdraw the initial version and introduce a consolidated, cleaner draft.
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Incorporating committee feedback: The Select Committee’s report includes over 285 recommendations, covering everything from drafting corrections to substantive policy clarifications. Key areas addressed included:
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Clarity in property deductions (e.g., deductions after municipal taxes, treatment of vacant properties)
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Salary deduction rules (including pension-related deductions)
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Classification of commercial vs. house properties to prevent misclassification
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Improving taxpayer convenience: Suggestions aim to reduce friction in tax compliance:
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Allowing TDS refunds after the ITR due date without penalty
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Retaining anonymous donation exemptions for purely religious trusts, while imposing tax on such donations received by trusts involved in broader charitable activities such as hospitals and schools
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What’s in the Revised Bill? Major Features
Though the revised Bill is yet to be tabled (scheduled on August 11), preliminary reports reveal several key improvements:
1. Simplification and Precision
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Significant drafting corrections
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Enhanced alignment of phrasing
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Better cross-referencing and terminology—aimed at improving readability and legal coherence
2. Tax Relief Provisions
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Anonymous donation exemption sustained for legitimate religious trusts
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TDS refund flexibility extended post-due date to encourage compliance without punitive penalties
3. Structural Clarifications
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Clearer treatment of house property deductions
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Defined differentiation between used vs. potentially occupied commercial property
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Specificity in salary-related deductions, including pension classifications
4. Digital and Administrative Enhancements
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Empowering CBDT (Central Board of Direct Taxes) with rule-making authority
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Introduction of “Tax Year” concept replacing legacy assessment year terminology
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Removal of obsolete provisions, potentially reducing litigation and enhancing clarity
Implications for Taxpayers and Fiscal Landscape
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Clarity and Compliance Improvement
By simplifying legal language and definitions, the revised Bill is poised to reduce taxpayer confusion, disputes, and the compliance burden—especially for MSMEs and individual taxpayers. -
Increased Taxpayer Confidence
More flexible refund rules and fair treatment for religious-charitable entities enhance public trust in the tax system, signaling a shift toward a more citizen-centric approach. -
Legislative Coherence
Consolidating amendments into a single, improved version avoids legal ambiguities that could arise from multiple drafts in circulation. -
Modernized Tax Administration
The shift to digital-first administration, along with empowering agencies like CBDT, reflects India’s move toward efficient, transparent tax governance.
Road Ahead: The Path to Law
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Parliamentary Debut: The revised Income-Tax Bill, 2025 is slated to be presented on Monday, August 11, 2025.
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Debate and Deliberation: Members of Parliament will likely engage in deliberations and may propose further amendments based on committee feedback and stakeholder consultations.
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Enactment Timeline: If passed, the Bill is expected to come into force from April 1, 2026, aligning with the new financial year and replacing the 1961 Act.
Conclusion: A Bold Fiscal Reform
The withdrawal and re-introduction of the Income-Tax Bill, 2025 mark a pivotal moment for Indian tax reform. The government’s responsive approach—incorporating Select Committee feedback into a refined, consolidated legislation—reflects a commitment to clarity, fairness, and modern governance. As the revised Bill heads back to Parliament on August 11, all eyes will be on how Indian tax law evolves for the digital age, balancing simplification with compliance and equity.
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