Lok Sabha Passes Landmark Revised Income Tax Bill 2025: A New Era for India’s Taxation System

On August 11, 2025, the Lok Sabha passed the revised version of the Income Tax Bill, 2025, marking a historic milestone in Indian taxation. This new legislation aims to replace the nearly six-decade-old Income Tax Act, 1961, with a modernized, simpler, and more streamlined tax code.

The revised bill was presented by Finance Minister Nirmala Sitharaman just days after the government withdrew the earlier draft to incorporate extensive recommendations from the Lok Sabha Select Committee. The Select Committee, led by BJP MP Baijayant Panda, submitted around 285 recommendations which have significantly shaped the current version.

Key features of the new Income Tax Bill include:

• Simplified Framework: The length of the legislation is substantially reduced—from approximately 5.12 lakh words and 819 sections in the 1961 Act to about 2.6 lakh words and 536 sections. This effort removes outdated provisions and aligns definitions with other statutes such as the MSME Act, 2006.
• Easier Compliance: The bill is drafted in simpler language to allow the common taxpayer to better understand tax obligations with lesser effort, thereby promoting voluntary compliance and reducing litigation risks.
• Unified Tax Year Concept: The traditional distinction between "previous year" and "assessment year" is replaced with a single "tax year," ensuring that income is taxed in the year it is earned, simplifying accounting and filing processes.
• Tax Benefits and Clarifications: Clear tax deductions for commuted pensions from specific funds have been introduced. Additionally, Alternate Minimum Tax (AMT) on Limited Liability Partnerships (LLPs) has been removed, and provisions for charitable trusts have been eased.
• Digital-First Approach: The law emphasizes faceless assessments, paperless documentation, and faster dispute resolution mechanisms, underscoring India's commitment to leveraging technology for tax administration.
• Maintained Tax Rates: The tax rate structure announced in Budget 2025 remains unchanged, continuing the new tax regime that allows taxpayers to choose the most beneficial taxation scheme.

The bill is expected to come into effect from April 1, 2026, subject to Rajya Sabha approval and presidential assent. Experts like Preeti Sharma, Partner at BDO India, highlight that the new bill's clarity and incorporation of Select Committee suggestions represent a monumental step forward, potentially making tax filing less cumbersome for millions of Indians.

The passage of the revised Income Tax Bill signals a transformative moment for direct taxation in India, aiming to foster economic growth through simplified rules, enhanced transparency, and taxpayer convenience.