On August 11, 2025, the Lok Sabha cleared the Income Tax (No. 2) Bill, 2025, marking a landmark step in overhauling India’s six-decade-old Income Tax Act of 1961. What makes this reform stand out is its guiding philosophy of being S.I.M.P.L.E—an acronym for Streamlined structure and language, Integrated and concise, Minimised litigation, Practical and transparent, Learn and adapt, and Efficient tax reforms.
Why Now? The Call for Simplicity
The original 1961 law had grown unwieldy, ballooning to over five lakh words and 4,000+ amendments, making it notoriously complex—even for seasoned professionals. With mounting calls for clarity, the government launched a comprehensive simplification effort.
Key Features of the New Bill
1. Far Leaner and Easier to Understand
The revamped legislation reduces the total number of sections from over 800 to just 536, trimmed across 23 chapters and 16 schedules. It integrates plain language, fewer provisos, and enhanced cross-referencing to ease navigation and comprehension.
2. Clearer Definitions & Provisions
The Bill introduces explicit definitions for terms such as capital asset. Micro and small enterprises, and beneficial owner. It also clarifies tax treatments for aspects like pensions and scientific research expenses.
3. Resolving Property Tax Ambiguities
A consistent 30% standard deduction now applies to income from house property, complemented by deductions for loan interest and simplified valuation for vacant properties. The higher of actual or expected rent is now used for taxation purposes.
4. Taxpayer-Friendly Measures
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Late Filing Relief: Refunds can be claimed even after the ITR deadline.
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No TDS Penalties: Late TDS filings won’t attract fines.
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Nil-TDS Certificates: Tax-free individuals (resident or not) can obtain certificates proactively.
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Explicit Commuted Pension Deduction: Previously implicit, now clearly stated for select pension schemes.
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Inter-Corporate Dividend Clarity: Section 80M deductions reinstated, easing concerns over potential double taxation.
5. United ‘Tax Year’ Concept
The Bill replaces the confusing dual-year system (financial year and assessment year) with a single tax year, Aligning taxation in the same year income is earned—a major simplification.
Governance & Timeline
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February 13, 2025: The initial Bill was tabled in Lok Sabha and sent to a Select Committee chaired by MP Baijayant Panda.
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July 2025: The Committee submitted 285 recommendations—32 major ones—which were largely accepted.
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August 8–11, 2025: The original draft was withdrawn and replaced with the updated version, which passed in the Lok Sabha with minimal debate amid protests.
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Effective Date: Provisions are set to kick in from April 1, 2026.
What’s Not Changing
Critically, tax slabs remain unchanged, preserving continuity for taxpayers. Additionally, well-established legal terms and definitions remain valid, ensuring stability amid change.
Why It Matters: Benefits for Taxpayers
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Greater Transparency: Clearer language and structure reduce confusion and errors.
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Lower Litigation: Better cross-references and simplicity limit disputes.
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Speed & Certainty: Readily reclaim refunds and simpler processes ease financial stress.
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Support for MSMEs: Streamlined definitions and tech-driven systems favor smaller businesses.
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Modern Tax Administration: Larger use of faceless digital mechanisms reduces human bias and inefficiency.
Final Takeaway
The Income Tax (No. 2) Bill, 2025 is more than a law—it’s a modern pathway to a citizen-friendly, transparent, and efficient tax system. Its S.I.M.P.L.E framework aims to retain core tax policies while cutting through red tape. Aligning India’s tax laws with contemporary governance.