Income-Tax (No. 2) Bill, 2025: Introduced In Lok Sabha on 11th August, 2025

Below is a brief overview of the highlights of the Bill:

Preliminary and Basis of Charge: The Bill starts with the definition of basic terms such as “tax year” and prescribes the charge of income-tax, extent of total income, and residence conditions in India. It further prescribes income that is to be taken to have been received or accrue/arise in India and includes special provisions regarding spouses governed by the Portuguese Civil Code.

Exempted Incomes: It enumerates types of incomes that do not constitute part of the total income, such as those of political parties and electoral trusts, laid down in different Schedules.

Computation of Total Income (Heads of Income): The Bill categorises income into five heads for computation: Salaries, Income from House Property, Profits and Gains of Business or Profession, Capital Gains, and Income from Other Sources.

Salaries: It identifies taxable items such as wages, pensions, perquisites, and profits in lieu of salary, as well as deductions admissible. Income from House Property: Includes annual value of property and details deductions admissible, including borrowed capital. It further provides for arrears of rent and property held by co-owners.

Profits and Gains of Business or Profession: This detailed section explains what is to be considered as income under this head, lists various deductions (e.g., rent, taxes, welfare of employees, bad debts, depreciation, scientific research, preliminary expenses, agricultural extension projects, Site Restoration Fund) and prescribes amounts not deductible. It also contains provisions for presumptive taxation of some residents and non-residents, and procedures for royalty and technical service fees of non-residents.

Capital Gains: Encompasses different kinds of capital gains, transactions not being considered as transfer, and the method of computation, including special provisions for depreciable assets, Market Linked Debentures, and slump sales. It also presents exemptions for investments in specific bonds or residential houses.

Income from Other Sources: Enumerates different incomes assessable under this head, like dividends, winnings from lotteries, and Keyman insurance policies, and prescribes deductions.

Income of Other Persons (Clubbing Provisions): Describes how income accruing to a spouse or minor child can be clubbed and included in the aggregate income of the individual.

Aggregation of Income: Deals with unexplained credits, investments, property, and expenses, which are taxed under special provisions.

Losses (Set Off and Carry Forward): Has elaborate provisions for setting off and carry forward of losses under the same and different heads of income, such as house property loss, capital gains loss, business loss, and losses from speculation or specified businesses. It also makes it clear that losses cannot be set off against undisclosed income found during search or survey.

Deductions in Computing Total Income: Enumerates various deductions from gross total income, including those for life insurance premia, pension payments, health insurance, medical treatment of dependents who are disabled, interest on borrowing for education or house property, buying electric vehicles, and other donations to charitable trusts or political parties. It further covers deductions for business profits of industrial undertakings, Special Economic Zones, eligible start-ups, bio-degradable waste processing, and income of co-operative societies.

Rebates and Reliefs: Outlines rebates permitted in computing income-tax and relief for income under retirement benefits and double taxation relief agreements.

Special Provisions Relating to Avoidance of Tax: Embraces international transactions and certain domestic transactions, such as concepts of arm’s length price, transfer pricing officers, safe harbour rules, and advance pricing agreements. It also comprises the General Anti-Avoidance Rule (GAAR), outlining impermissible avoidance arrangements and their implications.

Mode of Payment & Special Tax Cases: Imposes limitations on cash loans, deposits and specific transactions. It lays down tax rates on provident fund balances built up, search cases, Global Depository Receipts (GDRs), lotteries/online games/virtual digital assets winnings, and creates new tax regimes for manufacturing firms, individuals, HUF, and co-operative societies, and Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT).

Shipping Companies (Tonnage Tax Scheme): Inserts a special tonnage tax scheme for eligible shipping companies, describing calculation procedures, conditions of applicability, and depreciation and capital gains treatment.

Tax Administration: Provides for income-tax authorities, their appointment, control, and jurisdiction, along with provisions relating to faceless jurisdiction, search and seizure, requisition, survey, and power to collect information.