Income-Tax (No. 2) Bill 2025: Key Changes, Benefits & Digital-First Tax Reforms in India -

The Lok Sabha has passed the Income-Tax (No. 2) Bill, 2025, setting in motion a historic replacement of the six-decade-old Income-Tax Act, 1961. Branded under the acronym S.I.M.P.L.E, the bill aims to deliver a tax framework that is Streamlined, Integrated, Minimized in litigation, Practical, Learnable, and Efficient. While simplification and digitisation are the guiding principles, the bill also introduces several substantive changes impacting individuals, businesses, and tax administration.

1. Structural Simplification

Reduced sections: The old Income-Tax Act had over 800 sections, many of which were scattered, repetitive, or outdated. The new bill consolidates these into 536 sections across 23 chapters, making the law easier to navigate.
Clearer definitions: Ambiguities in terms like capital asset, beneficial owner, MSME, charitable trust, and scientific research have been addressed through precise definitions.
Merged provisions: Similar or overlapping provisions have been combined to avoid cross-referencing confusion, reducing the scope for interpretation disputes.

2. Taxpayer-Friendly Provisions

Higher exemption limit retained: The much-publicised ₹12 lakh basic exemption limit (announced in the Union Budget 2025) remains intact. This ensures a substantial tax relief for the middle class and salaried taxpayers.
Late return refunds allowed: Taxpayers who file returns after the due date will still be eligible for refunds, removing a previous deterrent for delayed compliance.
No penalty for delayed TDS filings: Employers or deductors who submit Tax Deducted at Source (TDS) returns late will not face penalties, provided taxes are deposited on time.
Nil TDS certificates expanded: Individuals, including NRIs, with no taxable income can obtain nil-TDS certificates to prevent unnecessary deductions.

3. Digital-First Assessment and Dispute Reduction

Faceless assessments: Building on earlier initiatives, the bill mandates that most tax assessments will be faceless, eliminating physical interface between taxpayers and officials to reduce scope for harassment or corruption.
Mandatory notice before action: Before any enforcement measure (like property attachment or penalty), tax officials must issue a formal notice and allow the taxpayer to respond.
Simplified appeal and dispute mechanism: Procedural timelines have been streamlined, and appeals will increasingly be handled through online platforms to cut down on delays.
Focus on minimising litigation: Clearer drafting and removal of ambiguous clauses aim to reduce tax disputes, which currently clog tribunals and courts.

4. Reforms for Businesses and Charitable Institutions

Simplified tax treatment for MSMEs: Compliance requirements have been reduced for Micro, Small, and Medium Enterprises, with clearer depreciation norms and deduction rules.
Charitable trust clarity: Definitions of charitable activities and the scope of permissible income have been clarified, with more transparency in approval processes.
Streamlined corporate provisions: Several overlapping corporate tax clauses have been consolidated, making compliance less burdensome for companies.

5. Changes to Deductions and Incentives

Scientific research incentives clarified: Provisions relating to deductions for in-house research and development have been consolidated and clarified to encourage innovation.
House property and interest deduction rules rewritten: Language has been simplified, and eligibility rules are more clearly spelt out to help taxpayers claim benefits without legal ambiguity.

6. Legislative Process and Background

The original Income-Tax Bill, 2025 introduced in February was withdrawn on August 8 after the Parliamentary Select Committee, led by Baijayant Panda, suggested 285 amendments.
The revised draft retains the spirit of the original but incorporates almost all committee recommendations to strengthen clarity, reduce compliance costs, and modernise tax administration.
The bill was passed without debate in the Lok Sabha due to disruptions on unrelated issues and now moves to the Rajya Sabha for approval, followed by Presidential assent.

7. Broader Significance

The bill represents more than a legislative update it is a re-engineering of India’s direct tax framework:

For individuals, higher exemptions, simplified deductions, and a user-friendly structure promise easier compliance.
For businesses, predictable rules and reduced procedural burdens can free up resources for growth.
For tax authorities, digital systems and clear laws reduce administrative strain and improve enforcement efficiency.

Conclusion

The Income-Tax (No. 2) Bill, 2025 is not just a renumbered statute it is a systemic reboot of India’s tax regime. By merging simplification with strong taxpayer safeguards, retaining generous exemptions, and mandating a digital-first approach, the bill seeks to balance revenue collection with fairness and ease of compliance. If implemented effectively, it could become a cornerstone reform in India’s economic governance.

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