Parliament Passes New Income Tax Bill 2025: Key Changes and Benefits for Taxpayers
MAS Team | 13 August 2025
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The government has introduced and passed a new Income Tax Bill in Parliament, replacing the six-decade-old Income Tax Act of 1961. The primary goal of this new legislation is to simplify the direct tax administration and make it easier for taxpayers to understand and comply with the law. The bill was passed after a 1.5-hour debate in both houses of the Parliament's Business Advisory Committee.
The Finance Minister, Nirmala Sitharaman, said the changes are not just cosmetic but represent a significant shift towards a more simplified and taxpayer-friendly approach. The Central Board of Direct Taxes (CBDT) will soon release standard operating procedures to protect taxpayers' privacy when handling data from virtual assets, social media accounts, and emails during search operations.
The revised bill addresses several drafting oversights from an earlier version, restoring crucial taxpayer rights and aligning the law with long-standing practices.
Simplification and Structural Changes
A central feature of the new bill is the drastic simplification of the tax code. It cuts the number of effective sections and chapters, halving the word count to make the law more accessible and easier to interpret. It also removes the confusing terms "assessment year" and "previous year," replacing them with a single, clear term: "tax year." The bill maintains existing individual and corporate tax rates and does not alter penalties. It also grants the Central Board of Direct Taxes (CBDT) enhanced authority to leverage technology for "faceless assessments" and better resource management.
Benefits for Individual Taxpayers
The new bill includes several key updates that directly benefit individual taxpayers:
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Easier TDS Refunds: The revised bill fixes a drafting error in the previous version, ensuring that taxpayers can claim a refund on Tax Deducted at Source (TDS) even if they file a belated or revised tax return. This change protects taxpayers who miss deadlines for genuine reasons from losing their refunds.
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Clarity on Nil TDS Certificates: The bill clarifies that taxpayers with no tax liability can apply for a "Nil" TDS certificate, not just a "lower" one. This is particularly helpful for senior citizens with non-taxable interest income and non-residents selling property, as it prevents unnecessary tax deductions at the source.
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Education Remittances: For remittances under the Liberalised Remittance Scheme (LRS) for education purposes, the bill provides for a nil Tax Collected at Source (TCS) if the remittance is financed by a financial institution. This will reduce costs for students studying overseas.
- Property Income Deductions: The bill restores clarity on how the 30% standard deduction for income from house property is calculated, confirming it applies to the net annual value (after municipal taxes have been paid). It also explicitly confirms that pre-construction interest deductions for rental properties remain available.
Changes for Businesses
For corporate taxpayers, the bill reintroduces certain deductions related to inter-corporate dividends for companies that opt for a concessional tax rate. This aligns the new legislation with the existing provisions of the 1961 Act. The new law also amends the rules for carrying forward and setting off losses to align with Section 79 of the current Act and removes references to the "beneficial owner" to reduce ambiguity.
Privacy and Search Provisions
Despite the move towards simplification, the bill retains certain search and seizure powers for tax authorities. While the term "digital space" was removed from some clauses in the final version, the definition of "computer systems" now includes digital platforms like emails and social media. This means that officials can still access electronic records during investigations, which continues to raise privacy concerns among tax experts. The bill allows authorized officers to override access codes to computers or digital devices if there's suspicion of undeclared income.
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