- Parliament passed the New Income Tax Bill 2025 to replace the Income Tax Act, 1961, making tax laws simpler and reducing sections from 819 to 536.
- Key changes include removing outdated clauses, clearer rules on return filing, TCS on LRS remittances, and corporate tax updates.
- Taxation Laws (Amendment) Bill 2025 gives tax exemptions to Saudi Arabia’s Public Investment Fund and improves pension scheme benefits.
New Income Tax Bill 2025 is a major update to India’s tax system, replacing the old Income Tax Act of 1961. This bill aims to make tax rules easier to understand, clarify filing procedures, and add modern rules for digital transactions. If you want to know the main features and recent changes, this article covers everything about the Income Tax Act Replacement Bill 2025.
Key Features of the New Income Tax Bill 2025
Find out the main changes and simplifications introduced by the new Income Tax Bill replacing the 1961 Act.
Simplified Tax Provisions and Filing Rules
The new bill removes outdated clauses that made tax filing complicated. For example, an earlier draft had a rule that refunds could only be claimed if returns were filed on time. This has now been removed, so taxpayers can claim refunds even if they file late, avoiding unnecessary problems.
Also, the bill clarifies that there will be no Tax Collected at Source (TCS) on Liberalised Remittance Scheme (LRS) remittances for education purposes funded by financial institutions. This was missing before but is now included to make education-related foreign remittances easier.
Corporate Taxpayer Reforms and Clarifications
Several fixes have been made to corporate tax rules. The bill corrects errors related to inter-corporate dividend deductions for companies with concessional tax rates.
The Alternate Minimum Tax (AMT) for Limited Liability Partnerships (LLPs) has been aligned with current laws by removing an expanded scope that would have charged a higher 18.5% rate on LLPs not claiming specific tax benefits. Now, the lower 12.5% rate applies correctly.
Taxpayers with no income tax liability can now get a nil-TDS certificate, making compliance easier.
Confusion around transfer pricing rules and loss carry-forward/set-off has been cleared up. The bill removes the term “beneficial owner” to match Section 79 of the 1961 Act and clarifies that a 30% standard deduction applies after municipal taxes are deducted when calculating house property income.
Non-profit organisations (NPOs) now get an exemption on 5% of total donations, not just anonymous donations, following the Select Committee’s suggestion.
Introduction of Tax Year and Digital Space Regulations
The bill introduces the idea of a tax year as the 12-month period starting April 1. This matches tax calculations with the financial year.
It also cuts the number of sections from 819 to 536 and chapters from 47 to 23, reducing the word count from 5.12 lakh to 2.6 lakh. The bill adds 39 new tables and 40 formulas to improve clarity.
Importantly, the bill keeps the definition of “virtual digital space,” allowing tax authorities to access information during surveys, searches, and seizures from digital sources like email servers, social media, online trading accounts, cloud servers, and digital platforms. The government will issue a standard operating procedure (SOP) to protect personal digital data during these operations.
Taxation Laws (Amendment) Bill 2025 Highlights
This amendment bill brings important updates to the Finance Act, 2025, including tax exemptions and pension benefits.
Exemptions for Foreign Investment Funds
The amendment gives income tax exemptions to the Public Investment Fund of the Government of the Kingdom of Saudi Arabia and its fully owned subsidiaries investing in India. This includes income from dividends, interest, long-term capital gains, and other investment incomes.
Saudi’s Public Investment Fund, managing over $925 billion in assets, faced restrictive rules earlier. This amendment clearly names the fund in the Act, like the Abu Dhabi Investment Authority (ADIA), ensuring full tax exemption.
Improved Benefits for Pension Schemes
The amendment extends income tax benefits under the market-linked National Pension System (NPS) to the guaranteed unified pension scheme (UPS). It allows tax-free withdrawal of lump sum payments or up to 60% of the accumulated UPS corpus at retirement, giving pensioners more flexibility and benefits.
These changes show the government’s effort to modernize tax laws, make compliance easier, and encourage investment and savings. If you are a taxpayer, business, or investor, staying updated on these changes will help you handle the new tax system better.