Income Tax Bill 2025 set to be tabled in Parliament on Aug 11: What taxpayers can expect

Union Finance Minister Nirmala Sitharaman is scheduled to table the much-awaited Income Tax Bill, 2025 in Parliament on August 11. This marks the next major step after she first introduced the Bill in the Lok Sabha on February 13, 2025, with the objective of replacing the existing Income Tax Act of 1961.

Designed to be a modern, streamlined law, the new Bill is scheduled to reduce complexity and aims to enhance tax certainty, minimise litigation, and improve compliance. The new legislation is significantly more concise—with a word count of 2.6 lakh, compared to the 5.12 lakh words in the current law. The number of sections has also dropped from 819 to 536, and chapters have been reduced from 47 to 23.

According to FAQs released by the Income Tax Department, the Income Tax Bill, 2025, has 57 tables, an increase from the 18 in the existing Act, but removes over 1,200 provisos and 900 explanations, simplifying the text for better clarity.

Key changes expected 

One of the most significant changes is the replacement of the concept of “previous year” and “assessment year” with a single “tax year”. Under the current system, income earned in a financial year (say 2023–24) is taxed in the following assessment year (2024–25). The new Bill proposes to eliminate this two-step terminology and align tax filing and income with a single year structure.

The aim is to modernise the tax system to match current economic realities and reduce ambiguities that often result in disputes and legal interpretation. The Bill also incorporates provisions for digital documentation, clearer compliance guidelines, dispute resolution frameworks, and international taxation standards.

Select Committee recommendations

On July 21, the Select Committee of the Lok Sabha, chaired by BJP MP Baijayant Panda, submitted its report on the draft Bill. The committee, comprising 31 MPs, reviewed the proposed legislation in depth and made 285 recommendations, all compiled in a detailed 4,500-page report.

Here are some of the notable suggestions made:

1. Updating definitions: To ensure consistency with other laws, the committee recommended revising definitions like “capital asset”, “infrastructure capital company”, and “micro and small enterprises”.

2. Relief for taxpayers and homeowners: The report suggests a more equitable formula for calculating deductions on house property income and allows loss carry-forwards despite temporary shareholding changes—benefitting small investors and entrepreneurs.

3. Support for startups and ESG-friendly businesses: The panel proposed clearer tax rules for R&D investments, tax relief for businesses managing biodegradable waste, and a clearer classification of terms like “parent company” in appeals.

Protecting taxpayer rights

The committee also recommended safeguards to reduce litigation, including reinstating phrases like “in the circumstances of the case” for tax avoidance rules. For religious and charitable organisations, the committee supported taxing anonymous donations at 30%, while exempting wholly religious trusts.

Additionally, they recommended that small taxpayers with incomes below the taxable limit—especially those with TDS already deducted—should not be forced to file returns just to claim refunds.

With the bill’s final tabling scheduled for August 11, taxpayers, businesses, and professionals await what could be the most significant tax reform in over six decades.