New Income-Tax Bill 2005: Bill separates MAT, AMT; LLPs with only capital gains exempt from AMT

In a landmark legislative development, the Lok Sabha on Monday approved the revised Income-Tax (No. 2) Bill, 2025, paving the way for the repeal of the six-decade-old Income-Tax Act, 1961. The Bill is aimed at simplifying India’s direct tax framework, cutting down the number of statutory sections, and introducing a unified “tax year” system to replace the existing assessment-year concept.

The updated legislation incorporates a host of structural and procedural reforms, reflecting the government’s push for a modernised, taxpayer-friendly regime. According to Central Board of Direct Taxes (CBDT) sources, companies under the new concessional tax regime will now be eligible for the Section 80M deduction—a move that aligns benefits across corporate tax regimes. Deductions for pension and gratuity payments to family members of deceased employees will continue unchanged, safeguarding key social security protections.

MAT and AMT separated

The Bill draws a clear distinction between Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) by placing them in separate sub-sections. MAT will remain applicable exclusively to companies, while AMT will apply only to non-corporate entities claiming specified deductions. Limited Liability Partnerships (LLPs) that earn income solely from capital gains will be exempt from AMT, easing compliance for investment-focused partnerships.

Expanded e-payment mandate

In a significant compliance expansion, the term “profession” has been added to the ₹50 crore threshold for mandatory electronic payments. This will bring high-revenue professional practices—such as legal, medical, and consultancy firms—under the same digital transaction requirements as large businesses, strengthening transparency and traceability in high-value dealings.

Refund flexibility and simplified loss rules

The omission of Clause 263 in the revised Bill allows taxpayers greater flexibility to file refund claims beyond the previously rigid timelines. This reform is seen as a pro-taxpayer measure, accommodating genuine delays and preventing legitimate claims from being disqualified due to procedural technicalities.

Meanwhile, rules governing the carry forward and set-off of losses have been fully redrafted. While the substantive provisions remain the same, the restructuring removes ambiguities that have often been the subject of litigation, making them easier to interpret and apply.

Refined definitions

Another notable change is the replacement of the term “receipt” with “income” in the Bill’s definitions. This brings the law in line with core taxability principles, ensuring that only taxable income—not all inflows—is considered when calculating obligations.

Dinkar Sharma, Company Secretary at Jotwani Associates, said the provisions collectively indicate “a strong push towards simplification, certainty, and fairness, while retaining key taxpayer protections.” He highlighted the expansion of the Section 80M deduction to companies under the new regime as a critical step in encouraging adoption without penalising dividend distribution structures.

By retaining deductions for family pensions and gratuities, Sharma noted, the Bill “balances fiscal reforms with sensitivity to social security needs.” Similarly, separating MAT and AMT “addresses long-standing clarity issues,” and the LLP exemption from AMT “reduces unnecessary compliance burdens on investment entities.”

With its combination of legal simplification, technological compliance expansion, and preservation of taxpayer safeguards, the Income-Tax (No. 2) Bill, 2025 represents one of the most comprehensive overhauls of India’s tax laws in recent decades. The legislation will now move to the Rajya Sabha for consideration before it can receive Presidential assent.