The revised Income Tax Bill — which seeks to simplify the law’s language, reduce bulk, eliminate redundancies, and enhance clarity through improved drafting, aligned phrasing, and updated cross-references — was passed in the Lok Sabha on Monday
The Income Tax (No. 2) Bill, 2025, was passed without debate amid protests by opposition parties over the revision of electoral rolls in Bihar.
The bill corrects provisions related to late return refunds, clarifies the standard deduction computation for house property, expands pre-construction interest deductions to include let-out properties, introduces commuted pension deductions under section 93(1)(g), and consolidates “financial year” and “assessment year” into a single “tax year”— aiming for a more taxpayer-friendly and streamlined taxation framework.
The modified bill, which will replace the over six-decade-old Income Tax Act, 1961, was introduced by finance minister Nirmala Sitharaman, incorporating the changes suggested by the Select Committee of the Lok Sabha.
Taxpayer benefits
The updated bill deletes a clause that blocked refunds if returns were filed late, in line with the recommendation of the select committee, which had observed that the mandatory requirement to file a return solely to claim a refund could inadvertently lead to prosecution, particularly for small taxpayers whose income falls below the taxable threshold but from whom tax has been deducted at source.
The revised bill now explicitly states that the 30 per cent standard deduction is to be computed on the annual value as determined under clause 21, i.e. after deducting municipal taxes from the annual value.
The original draft of the bill allowed a 30 per cent
deduction from the annual value but did not specifically provide whether this deduction was to be applied before or after deducting municipal taxes.
In the original draft of the bill, the deduction of pre-construction interest was available only in respect of self-occupied property, with no corresponding provision for let-out or deemed to be let-out properties.
The revised bill now aligns with the existing legal framework by allowing such a deduction across both self-occupied and let-out property categories.
Under the new bill, section 93(1)(g) is now incorporated, which grants a deduction for the entire amount of commuted pension to recipients not covered under clause 19, primarily non-employees and private individuals receiving pension payouts from approved pension funds such as LIC pension fund or similar notified funds.
“The clarification on standard deduction in computing income from house property after deducting municipal taxes and the deduction of pre-construction interest to let-out properties is welcome,” said Dinesh Kanabar, CEO, Dhruva Advisors.
“By enabling refunds for belated returns and harmonising definitions of micro
and small enterprise with allied statutes, the Bill reflects a balanced, pragmatic, and taxpayer-oriented approach,” said Nangia Andersen LLP partner Sandeep Jhunjhunwala
Among the proposed changes and amendments is the concept of a ‘tax year’, which will replace the simultaneous use of financial year and assessment year.