Download Report of Select Committee on Income-Tax Bill, 2025

LOK SABHA

Report of the Select Committee on the Income-Tax Bill, 2025

Eighteenth Lok Sabha

INTRODUCTION

I, the Chairperson of the Select Committee on the Income-Tax Bill, 2025 to which “The Income-Tax Bill, 2025” was referred, having been authorized by the Committee to submit the Report on their behalf, present this Report with the Bill as reported by the Select Committee annexed thereto.

2. The Income-Tax Bill, 2025 was introduced in Lok Sabha on the 13^th February, 2025. The Motion for reference of the Bill to a Select Committee of the House was moved in Lok Sabha on the same day by the Minister of Finance and Corporate Affairs. (Appendix-I)

3. As per the motion moved in the House, the Select Committee was to make a Report by the first day of the next session (i.e. Monsoon Session, 2025).

4. The statement of objects and reasons of the Bill clearly states that as a result of amendments, the basic structure of the Income-tax Act, 1961 has been overburdened and language has become complex, increasing cost of compliance for taxpayers and hampering efficiency of direct-tax administration. Therefore, the Income-Tax Bill, 2025 has been prepared to make the law concise, lucid and easy to read and understand. The mandated function of a Select Committee on a Bill is to go through the text of the Bill, clause-by-clause, in order to see that the provisions of the Bill bring out clearly the intention behind the measure, that there will be no procedural defect in its working, that the Bill does not offend provisions of the existing law and that the object proposed to be achieved is adequately brought out.

5. Keeping in view the importance of the Bill and its wide ranging implications, the Committee decided to invite memoranda to obtain the views from experts/industry associations/organizations/stakeholders on the provisions of the aforesaid Bill. With a view to give the widest publicity in receiving stakeholders’ suggestions, the Select Committee had publicized its advertisement through various modes. Firstly, it was publicized through a scrolling ticker display on Sansad TV for inviting suggestions/memoranda from various stakeholders. A letter addressed to all the Chartered Accountants’ Associations from all States/Union Territories was also sent through email on 09.04.2025 calling for the suggestions. Further, a press communiqué inviting memoranda was also issued on electronic media on 17.04.2025 for two weeks through the Press and Public Relations Wing, Lok Sabha Secretariat which was also disseminated through Social Media Platforms of Lok Sabha viz. LSS Facebook page and LSS “X” handle. The same was published in several prominent English language newspapers including The Economic Times, Financial Express, Asian News International (ANI), Deccan Herald, Hindustan Times and The Print. It was also published in Hindi newspapers including Dainik Bhaskar, Dainik Jagran and Hindustan Delhi. Further, it was uploaded on the Committee homepage on Digital Sansad website.

The Committee received 334 memoranda/suggestions/notes in total (including 02 received after adoption), through both physical and digital mode (Appendix-II). All the memoranda were circulated to the Members of the Committee. The same were also sent to the nodal Ministry i.e. Ministry of Finance (Department of Revenue) and their comments were obtained. Important points raised/suggestions made by the experts/stakeholders and the replies thereon from the nodal Ministry were examined, discussed, considered and suitably incorporated in the Report.

6. The Committee held 36 Sittings wherein, they heard the views/suggestions of the representatives from various experts/stakeholders, Ministry of Finance (Department of Revenue), Ministry of Law and Justice and held detailed internal discussions.

7. The Committee also undertook a Study Visit to Bengaluru and Mumbai from 13^th to 17^th May, 2025 wherein discussions with 28 experts /stakeholders/other concerned organizations were held to obtain their views on the provisions of the aforesaid Bill.

8. The Committee held detailed internal deliberations and completed consideration of Clause-by-Clause of the Bill at their 35^th Sitting held on 07^th July, 2025. The Bill, as reported by the Select Committee, is appended after the Report as Annexure.

9. The Committee, in their 36^th Sitting held on 16^th July, 2025 considered and adopted the draft Report and authorized the Chairperson to present the Report on their behalf. The Committee also decided that one copy of the proceedings of the sittings of the Committee and two copies each of the memoranda received by the Committee on the Bill from various quarters may be placed in the Parliament Library after the Report has been presented to Parliament, for reference of the Members of Parliament.

10. The Committee have in the process of examination of the Bill come across all sorts of views for and against the Bill and to synthesize and harmonize them to a standard acceptable to a majority, if not all, has undoubtedly been a daunting task which it could perform with the active cooperation, sustained support and untiring efforts of one and all involved in the process, especially the Members of the Select Committee, for which they truly deserve special commendation. I extend my sincere thanks to all the Members of the Select Committee.

11. The Committee take this opportunity to express our deep appreciation to the officials of the Ministry of Finance (Department of Revenue) and also the officials of the Ministry of Law and Justice for providing their valuable inputs during the deliberations of the Select Committee in connection with examination of the Bill. The Committee also wish to express their sincere thanks to the representatives of experts/stakeholders who appeared before the Committee and candidly presented and submitted their free and frank views about the impact of various provisions of the Bill.

12. The Committee have been able to accomplish their stated mandate within the stipulated time. During the course of extensive hearings, a large number of suggestions were received by the Committee. All such suggestions, which were within the scope of mandate of the Committee, were discussed and analysed in detail while finalizing Recommendations of the Committee. There were many suggestions, which were beyond the scope of the mandate of the Committee. All such suggestions may later be evaluated and considered on merits in appropriate forums.

13. The Secretarial assistance to the Committee was provided by the Lok Sabha Secretariat and a special Cell had been created for this purpose. The Committee would also like to acknowledge and place on record the appreciation of the Committee to the sincere and devoted efforts made by the Officers of Lok Sabha Secretariat in facilitating smooth conduct of all the Sittings of the Select Committee and for preparing the draft Report of the Committee within the stipulated time.

NEW DELHI
16th July, 2025
25 Ashadha, 1947(Saka)

BAIJAYANT PANDA
CHAIRPERSON,
SELECT COMMITTEE OF LOK SABHA TO
EXAMINE THE INCOME-TAX BILL, 2025

REPORT
CHAPTER-I

GENESIS OF THE INCOME-TAX BILL, 2025 AND HIGHLIGHTS OF EXAMINATION  BY THE SELECT COMMITTEE OF LOK SABHA

Introduction

1.1 The Income-Tax Bill, 2025 (Bill No. 24 of 2025) was introduced in Lok Sabha on the Thursday, 13^th February, 2025. The Motion for reference of the Bill to a Select Committee of the Lok Sabha was moved in Lok Sabha by Smt. Nirmala Sitharaman, the Minister of Finance and Corporate Affairs. The motion was adopted in Lok Sabha on the same day with the instructions to make a report by the first day of the next Session (i.e. Monsoon Session, 2025). Accordingly, the Select Committee of Lok Sabha consisting of 31 Members from Lok Sabha under the Chairpersonship of Shri Baijayant Panda was constituted to examine the Bill and make a report.

1.2 The Income-Tax Bill, 2025 seeks to consolidate and make the law relating to income tax, concise, lucid, easy to read and understand. According to the Statement of Objects and Reasons of the Bill as introduced in Lok Sabha, the Income-tax Act passed in 1961 has been subjected to numerous amendments since its passage more than sixty years ago. As a result of these amendments, the basic structure of the Income-tax Act has been overburdened and language has become complex, increasing cost of compliance for taxpayers and hampering efficiency of direct-tax administration. Tax administrators, practitioners and taxpayers have also raised concerns about the complicated provisions and structure of the Income-tax Act.

Therefore, the Government in the Budget Speech dated the 23^rd July, 2024 announced that a time bound comprehensive review of the Income-tax Act, 1961 would be undertaken to make the Act concise, lucid, easy to read and understand. Accordingly, the Income-Tax Bill, 2025 has been prepared which proposes to repeal and replace the Income-tax Act, 1961.

Background of the Bill

1.3 The Income-tax Act, 1961 replaced the Income Tax Act of 1922 following the recommendations of the Law Commission in 1958 and the Direct Tax Administration Enquiry Committee. Historically, the tax policy in India has not been just about raising revenue but also about achieving other socio-economic objectives, viz. augmenting savings, promoting exports, ensuring a balanced economy, achieving social justice etc. Following this philosophy, over the decades, several exemptions/ deductions were introduced by amending the Act, such as deductions for export income, industries in specified areas/specified sectors, expenditure made for rural development and so on.

1.4 Over time, these exemptions not only led to a significant erosion of the tax base, but also generated litigation, increased administrative costs and compliance burdens. Such sector-specific, region-specific incentives, profit-based incentives etc. introduced from time to time, have themselves been subject of revisions. The sheer number of amendments speaks for itself. The Act has undergone nearly 4000 amendments, in the form of changes through the annual Finance Act for more than sixty years and 19 specific Taxation Laws Amendment Bills. While constant evolution has preserved the vitality of the Act, it has also rendered it rather voluminous and intricate. Besides, it was written in traditional legal language, which maybe challenging for a common person to comprehend. It uses long-winded sentences with several provisos, explanations etc. For instance, Section 9 (Income deemed to accrue or arise in India) has 21 explanations and 17 provisos; Section 10 (Incomes not included in total income) has 90 explanations and 134 provisos; and Section 10(23C), which provides for tax exemptions for certain educational and medical institutions, alone has more than 20 provisos and 20 explanations. Over time, amendments and additions have resulted in a structure that is fragmented and difficult to navigate. The difficulty is compounded by the existence of several redundant provisions that are no longer operational.

1.5 In this backdrop, tax administrators, taxpayers and Industry set up and professional Associations alike have expressed concerns about the multi-layered statutory framework of the Income Tax Act. Therefore, simplifying its language and format has become essential for the tax system to effectively serve as a reliable, equitable and efficient foundation of India’s fiscal framework.

1.6 Since 2014, the direct tax administration and the Income-tax Act have undergone a series of sequential and incremental changes, resulting in changes in tax administration, provisions for incentives and exemptions and tax rates. In 2015, while presenting the Budget, the Finance Minister laid down the plan for the gradual reduction in corporate tax rate with the phasing out of deductions/exemptions. Subsequently, new tax regimes were introduced, faceless assessment and appeals became operative and in several cases of tax exemptions, the sunset clauses were provided. Further reforms related to rationalizing of TDS provisions, plugging of specific loopholes, introduction of general anti-avoidance rules, promoting digital economy, improving provisions for charitable entities, nudging voluntary compliance were brought in.

1.7 The series of reforms introduced in the Income Tax over the last several years have laid the foundations of a simple and stable tax policy. These sequential reforms rendered unnecessary, the requirement of any fundamental reform in the content of the existing tax policy and set the context for the final stage of reforms in the statute aimed at simplifying the language and structure of the law, eliminating redundancies and providing certainty to taxpayers. This was announced by the Finance Minister in her Budget speech in July 2024:

“I am now announcing a comprehensive review of the Income-tax Act, 1961.

The purpose is to make the Act concise, lucid, easy to read and understand. This will reduce disputes and litigation, thereby providing tax certainty to the taxpayers. It will also bring down the demand embroiled in litigation. It is proposed to be completed in six months.”

1.8 Following this announcement, a comprehensive review was undertaken by the Central Board of Direct Taxes (CBDT) and as a result, the Bill was introduced in Parliament.

Objectives of the Bill

1.9 The present exercise of simplification of the law, through the Income-Tax Bill, 2025, has been undertaken, with the following broad objectives:

a) Simplifying the language of the Act, that is easy to read and understand;

b) Reducing the volume of the Act;

c) Consolidating existing law, as amended to date, into a concise document;

d) Creating easy to understand formulae and tabular structures where feasible, for computation of tax for income of various natures, eliminating the complexities that have crept in regarding certain areas over the years due to multiple provisos and explanations;

e) Elimination of redundancies in sections and chapters;

f) Maintaining continuity in taxation principles with no major tax policy changes or tax rate changes; and

g) Introducing tax reforms through –

i) Bringing clarity in the Act, without any structural or policy change. The long-settled principles of taxation was not being disturbed, however, the latest amendments to be incorporated in the new Bill;

ii) Comparing and learning from global best practices to create a tax statute that balances need for clarity with certainty; and

iii) Laying down a clear path for phasing out deductions.

Methodology followed by the Ministry of Finance (Department of Revenue) while drafting the Income-Tax Bill, 2025

1.10 For a comprehensive review of the Act, a Core Committee at the apex level, headed by an Officer of the rank of Chief Commissioner of Income Tax, was constituted. Various Sub-Committees (initially 14 but eventually expanded to 26) consisting of around 150 Officers across the hierarchy were constituted to identify gaps in the existing Act and to bring in better understanding of various aspects of the functioning of the existing framework.

1.11 A comprehensive consultative process was undertaken for the simplification exercise. A total of 20,976 online suggestions for simplification and removal of redundancies were received, analysed and relevant suggestions were categorized into policy-related, language simplification, removal of redundant or obsolete provisions, etc. Meetings with industry and professional associations were held and field-level brainstorming sessions were held within the Income Tax Department, towards this exercise.

1.12 At the international level, consultations were held with some of the taxation authorities that had undertaken similar exercise in the recent past, viz. the Australian Tax Office and Treasury and the United Kingdom’s Office of Tax Simplification. Several Video Conferences (VCs) were held with these tax authorities to understand the quantum of volumes they started with and where they are now in terms of the number and size of volumes. Also, inputs from the relevant verticals within the Department, administering different aspects and areas of taxation, were received and analysed.

1.13 The documents prepared in 2009 and 2019 were also referred, while undertaking the exercise. International and national guidance material such as ‘Drafting Guide for Simplification of Laws’ issued by Legislative Department, Ministry of Law and Justice, was studied for simplification of legal language.

1.14 A three-pronged strategy was adopted for simplification:-

(i) Minimizing intricate words or phrases to enhance clarity;

(ii) Eliminating redundant and repetitive provisions to improve readability; and

(iii) Structuring provisions logically through tabular forms to ensure ease of reference.

1.15 A meticulous process was followed in drafting the new Income-Tax Bill, 2025. The process began with the preparation of individual Chapter-wise drafts. These drafts were then rigorously reviewed by a dedicated Sub-Committee, focusing on both the accuracy of the content and the completeness of the provisions presented. Following this review, the corrected drafts were thoroughly examined by the Tax Policy and Legislation (TPL) wing of CBDT (Central Board of Direct Taxes), which had its capacity augmented in December 2024 to handle this significant undertaking. The next stage involved the vetting of Bill by the Department of Legal Affairs (DOLA) in close coordination with the Drafting Committee to ensure legal soundness and consistency. Finally, based on the feedback received during the vetting process, all necessary corrections and revisions were incorporated into the final draft of the Bill. The Bill was introduced by the Finance Minister in Lok Sabha on 13^th February, 2025.

Simplification and rationalization achieved through the Income-Tax Bill, 2025

1.16 The following has been the qualitative and quantitative outcome of this simplification exercise.

a) Quantitative outcome: The exercise resulted in a substantial reduction in the volume of the Act. The reduction achieved in terms of number of words, chapters, sections and through the use of tabular formats and formulae is summarized below:-

b) Qualitative outcome: The language has been simplified making the document easy to read and understand. The existing law, as amended to date, has been consolidated in a concise document. The drafting style of the new Bill is straightforward and clear, making the provisions easier to understand. Redundancies and need for cross-referencing between Sections and Chapters have been eliminated. Greater clarity has been brought in the Act without any structural or policy changes and without disturbing the long-settled taxation principles. A significant aspect of the Bill is the introduction of the concept of ‘tax year’ (as unit period of taxation), replacing ‘previous year’ and ‘assessment year’. The timelines and computation in the Bill are now with reference to the tax Year for which the income is liable to be taxed. All provisos (about 1200) and explanations (about 900) have been removed. Sub-sections and Clauses have been used, instead of relying on provisos and explanations for exceptions and carve-outs. Structural rationalization has been carried out by consolidation of provisions into self-contained Chapters and using table and formula format, where feasible, thereby improving readability and enhancing clarity for the taxpayers and stakeholders. Continuity in taxation principles has been ensured by simplifying the law without disturbing settled principles and jurisprudence.

Release of Answers to Frequently Asked Questions (FAQs)

1.17 To keep the taxpayers and stakeholders informed and engaged about the scope of the Bill and the nature of simplification proposed for specific areas, exhaustive FAQs have been released by the Income Tax Department, along with Section-wise mapping. These FAQ documents attempt to address the general queries that the taxpayers and stakeholders may have on the scope, nature and impact of the changes proposed to be brought about through the Income-Tax Bill, 2025. These answers, inter alia, includes the compelling reasons for simplification efforts to bring about not only linguistic simplifications but structural rationalization in the Income-Tax Bill, 2025 to make it ‘concise, lucid, easy to read and understand’ based on international experience. The ground rules are set for the simplification exercise by improving the readability and enhanced clarity of the Bill; following the principles of Tax Certainty with a view to minimize the scope of litigation; embedding the transition mechanism in Clause 536 to preserve the legitimacy of pending disputes, protect taxpayer entitlements, and provide a structured pathway for tax enforcement, etc.

Some specific examples of simplification and rationalization in the Income-Tax Bill, 2025 vis-à-vis the provisions of Income-tax Act, 1961

1.18 TDS/TCS Provisions: The Income-Tax Bill, 2025 significantly simplifies the TDS/TCS provisions. The number of sections has been drastically reduced from 69 in the Income-tax Act, 1961 to just 13 in the Bill. Readability and comprehension have been enhanced through the use of clear and concise tables. Specifically, 43 sections of TDS provisions have been consolidated into three tables, categorizing them by “residents,” “non-residents,” and “any person.” Furthermore, the conditions for no tax deduction have been consolidated into a single, easy-to-reference table. The revised provisions also incorporate proposals from the Finance Bill, 2025, resulting in rationalized rates and thresholds.

1.19 Provisions related to Salaried Taxpayers: The revised Act provides a self-contained code for salaried employees. While chargeability remains within the Act, the valuation of perquisites, along with their conditions and exceptions, has been moved to the Rules. Deductions for gratuity, commutation of pension, leave encashment and retrenchment/Voluntary Retirement Scheme (VRS) compensation are now conveniently located within the Salary chapter, presented in a tabular format. The salary limit for non-taxability of perquisites will be prescribed by the rules.

1.20 Removal of Redundant Provisions: A comprehensive review of the Income Tax Act identified and eliminated approximately 90 redundant sections and sub­sections. Three entire chapters, along with numerous sections and a schedule, were deemed outdated and removed. This included provisions related to Fringe Benefits, which ceased to apply from Assessment Year 2010-11; Section 10A – Special provision in respect of newly established undertakings in free trade zone, etc., no longer applicable from Assessment Year 2012-13; and Section 10(33) – an exemption for income arising from the transfer of a capital asset, specifically units of the Unit Scheme, 1964, a transitional provision for the scheme that became irrelevant after Assessment Year 2002-03.

1.21 Provisions related to Non-Profit Organizations (NPOs): In the Income-tax Act, 1961, the provisions related to NPOs were scattered at different places in the existing Act in Sections 11, 12, 12A, 12AA, 12AB, 13, 115BBC, 115BBI, 115TD, 115TE, 115TF and the provisions related to approval are under the first and second provisos to Section 80G(5). These have been simplified and consolidated into one Chapter. All the provisions related to registered Non-Profit Organisations (NPOs) have now been arranged in Part B of Chapter XVII titled “B.––Special Provisions for Registered Non-Profit Organization” of the new Bill.

1.22 The proposed Bill is a comprehensive legislative effort aimed at focusing on four primary pillars viz. simplification of language, litigation reduction, compliance reduction and elimination of redundant provisions.

Methodology adopted by the Select Committee of Lok Sabha to examine the  Income-Tax Bill, 2025

1.23 Taking cognizance of the fact that the Income-Tax Bill, 2025 (Bill No. 24 of 2025) spanning over 600 pages, 536 Clauses, XXIII Chapters and XVI Schedules envisages to repeal and replace the Income-tax Act, 1961, which would impact multiple stakeholders across multiple sectors, the Committee in their first Sitting with the representatives of the Ministry of Finance (Department of Revenue) held on 24^th February, 2025 decided to invite Memoranda containing views/suggestions from experts/industries/ associations/organizations/stakeholders on the provisions of the Bill through Sansad TV scroll. Subsequently, for a wider outreach, a letter dated 09^th April, 2025 addressed to all the Chartered Accountants’ Associations from all States/Union Territories was sent through email calling for Suggestions/Memoranda on the provisions of the Bill giving a time of two weeks.

Thereafter, a Press Communiqué inviting Memoranda was also issued on electronic media on the 17^th April, 2025 through the Press and Public Relations (PPR) Wing, Lok Sabha Secretariat which was also disseminated through Social Media Platforms of Lok Sabha viz. LSS Facebook page and LSS “X” handle giving a time of two weeks. The same was covered in several prominent English and Hindi language newspapers including The Economic Times, Financial Express, Asian News International (ANI), Deccan Herald, Hindustan Times, The Print, Dainik Bhaskar, Dainik Jagran and Hindustan Delhi.

In response to that, total 288 Memoranda were received by the Committee, which were tabulated and forwarded to the Ministry of Finance (Department of Revenue) in four Batches (i.e. Batch-I, II, III and IV containing 277, 93, 762 and 180 suggestions, respectively totaling to 1,312) to obtain their views. Out of which, 285 suggestions were accepted by the Ministry wherein 84 are substantive suggestions and remaining 201 are drafting corrections. A total of 68 Stakeholders appeared before the Select Committee for Oral Evidence.

1.24 From amongst the Stakeholders who have requested in their written Memoranda for deposition before the Select Committee and also those suggested by Members of the Committee, an exhaustive list of Representatives/Stakeholders/Domain Experts cutting across both National level and Mid level Industry Associations/individual tax practitioners; Related Ministries of Govt. of India; Commissioners of Income Tax (CITs); Retired Income Tax Officers; Non-Profit Organisations (NPOs), etc. was drawn up for taking oral evidences during which written submission and Power-Point Presentations (PPTs) in a prescribed format were presented before the Select Committee. Thereafter, after their depositions, Post-Evidence Replies on the queries posed by the Members of the Select Committee were also furnished which were circulated to the Members of the Select Committee. The Select Committee also sought written replies on specific issues from concerned Ministries/Departments for more clarity on the issues raised by the Domain Experts/Stakeholders during their deposition.

1.25 For seeking wider consultation, the Committee also undertook a Study Visit to Bengaluru and Mumbai from 13^th to 17^th May, 2025 wherein discussions with Domain Experts/Stakeholders/individual tax practitioners/ other concerned organizations were held to obtain their views on the provisions of the Bill.

1.26 The List of Stakeholders/Experts examined by the Select Committee during the 36 Sittings in New Delhi and hearings on tour totaling to 127 hours is reproduced as under:-

1.27 In the process of examination of the Bill, the Committee obtained Background Notes, Written Replies, Post-Evidence Replies, Information, Clarification, Detailed Notes and other requisite documents from the Ministry of Finance (Department of Revenue). The Committee took the Oral Evidences of the representatives of Ministry of Finance (Department of Revenue) and Ministry of Law and Justice (Legislative Department and Department of Legal Affairs) on the Suggestions/Memoranda received from various Stakeholders on the provisions of the Bill during eight (08) Sittings of the Select Committee held on 26.05.2025, 27.05.2025, 04.06.2025, 05.06.2025, 09.06.2025, 10.06.2025, 16.06.2025 and 17.06.2025. Detailed internal deliberations of the Select Committee were also held on 02.07.2025 and 07.07.2025 to discuss the provisions of the Bill. The Committee adopted the draft Report and the amended Bill during the 36^th Sitting held on 16.07.2025. The Committee received 334 memoranda/suggestions/notes in total (including 02 received after adoption), through both physical and digital mode (Appendix-II).

1.28 Thus, based on the written and oral depositions of both official and non-official Witnesses, inputs gathered during the Study Visits and from large number of Memoranda received from various Stakeholders and also from the Members of the Select Committee, the Committee have examined the Bill exhaustively and given their considered views as enumerated in the succeeding Chapter-II which deal with the Clause-by-Clause examination of the amendments proposed in the Bill.

1.29 The Committee have been able to accomplish their stated mandate within the stipulated time. During the course of extensive hearings, a large number of suggestions were received by the Committee. All such suggestions, which were within the scope of mandate of the Committee, were discussed and analysed in detail while finalizing Recommendations of the Committee. There were many suggestions, which were beyond the scope of the mandate of the Committee. All such suggestions may later be evaluated and considered on merits in appropriate forums.

1.30 The Bill as reported by the Select Committee is placed at Annexure to the Report.