Summary: The proposed New Income Tax Bill 2025 has overlooked several critical issues, potentially increasing compliance burdens and taxpayer harassment. The retention of TDS on partners’ salary, interest, and drawings under Clause 393(3) is problematic, as partnership firms, many without a Tax Deduction and Collection Account Number (TAN), will now face new obligations for deductions, payments, and quarterly returns. This could lead to a liquidity crunch for firms and an increase in refund claims, given that partners’ remuneration is often determined by year-end profits. Furthermore, the Act continues Sections 68 & 69 (now Clauses 102, 103, and 195), which have historically been misused for high-tax assessments and penalties, exceeding the actual income, and were primarily intended for demonetization-era cash deposits. The omission of a mandatory requirement to state reasons for re-opening cases (Clause 280, equivalent to current Section 148) directly in the notice itself contributes to unnecessary litigation and wasted resources.
Additionally, the Bill does not allow partner salary and interest deductions under presumptive taxation (Clause 58) for most businesses, creating an inequity compared to firms maintaining audited accounts and potentially leading to double taxation for partners. Procedural inefficiencies persist, with the Act retaining a four-year window for tax authorities to dispose of rectification petitions (Clause 287, current Section 154), while taxpayers are given only 30 days to respond to demands. This imbalance necessitates a 30-day disposal limit for authorities, with automatic stay on demand and appeal until the petition is resolved. Crucially, the Act also fails to set time limits for passing revisional orders by jurisdictional officers based on appellate rulings and for the disposal of appeals by CIT (Appeals) and ITAT, leading to delays in refunds and finality. Finally, the New Tax Regime (NTR) continues to disincentivize savings, and the marginal relief limit for the Old Tax Regime (OTR) remains at Rs. 5 lakhs, while NTR enjoys a Rs. 7 lakh limit, creating disparity. The lack of a time limit for grievance petition disposal further contributes to taxpayer frustration.
New Income Tax Bill 2025 that missed Certain Pertinent Issues
TDS on Partners’ Salary, Interest and Drawings
TDS provisions under Clause 393(3) for the interest and salary of the partners in the case of Partnership Firms have been retained without considering the repercussions. This will increase the burden of compliance on the part of the assessees and simultaneously increase the burden of the Income Tax Department also in monitoring the same. Many firms do not have TAN and now they must obtain TAN, deduct tax, pay before the due date and file Quarterly TDS Returns. Already the Firms are subject to tax @30% without any basic exemption limit after allowing interest @ 12% on their outstanding credit balances and the salary up to the limits prescribed by the Income Tax Act. Normally in many firms the salary is decided at the end of the year only because the allowable salary depends on the profits earned throughout the year. If the profits are insufficient, they may forego their salary also to reduce their tax burden. But they may be drawing money throughout the year for their day-to-day expenses which may be out of their capital also. Since the proposed new Clause insists on deducting tax either at the time of credit or payment whichever is earlier, tax is to be deducted for every withdrawal and ultimately at the end of the year if the profits are insufficient the partners may forego the salary and in some cases interest also due insufficient profits or losses and they have to claim refund of entire TDS made throughout the year on their drawings. Above all already crores of rupees are being refunded every year because tax is either deducted in excess in many areas or it is being deducted where there is no assessable income at all. Again, this new TDS provision will reduce the liquid cash available with the Partnership Firms.
Removal of draconian Clauses from 102, 103 & 195
NFAC uses the Sections 68 & 69 of the Income Tax Act 1961 indiscriminately and taxes are levied u.s 115 BBE @ 60% with interest, wherein the tax and interest exceed the income assessed especially in old cases opened u. s 148. In addition, penalty proceedings are initiated and if penalties are levied the taxes and penalties are many times more than the assessed income, which is unfair. These sections are brought into the statute for the main purpose of assessing the cash deposits of SBNs made during the demonetisation period. Since they are widely used to harass the assessees as seen by the orders of appellate authorities and writs of High Courts, they should have been scrapped. But in the new Income Tax Bill 2025 these are continued as clauses 102, 103 and 195 without understanding the sufferings, the assessees are undergoing due to misuse of these sections. These are to be removed from the Bill so as to have a cordial relationship between assessees and the Income tax Department.
Mandatory mentioning of the reasons for re-opening the case under clause 280 in the notice itself
While re-opening cases under clause 280, (Section 148 in the I T Act 1961)) the reasons for opening the case should be mentioned in the notice itself, because many such re-openings were struck down at appellate stages because there is no valid reason at all for re-opening. Because of this so many man hours are wasted in ascertaining the reasons from the department and then contesting the same about the reasons spelt out are valid or not.
Partner Salary under Presumptive Taxation
As per Clause 58 of the Income Tax Bill 2025 Partners’ Interest and Salary are allowed in the case of business of plying, hiring or leasing of goods carriages and are specifically not allowed in all other assesses falling under presumptive taxation. While books of accounts are maintained and audited, before arriving at the taxable income, interest @ 12% p.a. on the amounts invested in the Partnership Firm either in Capital Account or in Current Account of the Partners and salary up to the limits provided u.s 40b of the Income Tax Act 1961 are allowed as deduction before arriving at the Taxable Income. It will be fair and just to allow interest and salary to partners so that those Partnership Firms which opt for presumptive tax are also treated on par with others who get their accounts audited. Further in the present situation if a partner gets interest and salary from a Partnership Firm, which has offered income under presumptive taxation scheme, whether such interest and salary are exempt from Income Tax in the hands of the partners is not specified in the Act though they are not allowed as expenditure in Firm’s hands. Since all the expenditure is deemed to have been allowed in Firm’s hands the interest and salary would be subject to tax in partners’ hands also, which will lead to double taxation. In the normal course in the case Firms, which are subject to audit and offer less income than the rates prescribed under this scheme, such interest and salary (which are allowed as deduction) are not taxable in the hands of the partners as Income from Business/Profession, Hence it suggested that the assessees who offer income under this scheme are to be allowed to deduct interest and salary to partners up to the existing limits from the income offered at the prescribed rates so that they are also treated on par with those who offer less income with audited accounts.
Fixing time for disposal of the rectification petition – 30 days at all levels – AO, CIT Appeals and ITAT and automatic stay (Sec 154 under I T Act 1961 & Clause 287 in the Income Tax Act 2025)
As per the present Act the Assessing Officer/CPC/NFAC can take four years to dispose of the rectification petition. It is not just and equitable to direct the assessee to respond within 30 days (1 month) for payment of the disputed demand or to file an appeal and the department will take 4 years (48 months) to rectify or reject the petition. To be fair and equitable, the Income Tax Act 2025 should have a clause so that the Assessing Officer/CPC/NFAC will also be given time of 30 days only for rectification and if the rectification order is not passed rejecting the petition within the time allowed, the petition made should be deemed to have been allowed and once the rectification petition is filed the assessee should automatically be given time till the disposal of the petition to pay tax as well as to prefer an appeal. Many assesses are suffering because even clerical errors are not rectified, and they are compelled to pay a minimum of 20% of the demand and go for appeal. While on-line rectification petition is being filed there is no option to spell out the defects/errors in the order and the CPC simply process the return filed once again and sends the same order, which is of no use. This anomaly should be addressed in the Income Tax Act 2025.
Time limit for passing revisional orders by the jurisdictional officers basing on the orders passed by the Appellate Authorities.
Likewise, there is no time limit for passing the ‘revisional orders’, to be passed by the jurisdictional officers basing on the orders made by the CIT (Appeals)/ITAT/High Courts which results in undue hardship to the assessees due to non-receipt of refund due. A time limit of 30 days is to be fixed for the Jurisdictional officers to pass orders based on the orders passed by the appellate authorities.
Time limit for disposal of appeals – CIT Appeals & ITAT
There are lots of cases pending before Assessment/Appellate Authorities viz. NFAC (National Faceless Appeal Centre) the CIT (Appeals) and ITAT (Income Tax Appellate Tribunal). It is high time that a time limit is fixed for disposal of appeals by all of them. Time limit should be fixed for taking up the case for hearing in appellate stage; say they should be taken up for hearing within at least six months from the date of filing an appeal. Once the case is taken up for hearing another time limit should be made mandatory, say three or six months from the date of first hearing, the appellate order should be passed unless the delay is attributable to the assessee. This will reduce the pending cases and finality will be reached faster.
Marginal Relief under OTR
By promoting the New Tax Regime (NTR) the Government discourages savings habit of the assessees, which is not a healthy sign for a growing economy. Suddenly, the assessees cannot switch over to NTR from the Old Tax Regime (OTR) because they would have long standing commitments such as payment of premium for Life Insurance Policies, Repayment of Housing Loans etc. The assessees have made such long-standing commitments since tax relief was given to them for such payments. The NTR should be scrapped and if not, they should be given the marginal relief which is available for followers of NTR only. Likewise, while the limit for claiming marginal relief of NTR is Rs. 7 Lakhs, the limit for OTR is kept at Rs. 5 lakhs only. It should also be increased to Rs. 7 lakhs for OTR also.
Time Limit for disposal of grievance petition
As of now it seems that the grievance petitions are not monitored and disposed off within reasonable time. Hence it is requested that there should be a provision in the Act to monitor such petitions and to dispose of them at least within six months.
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