Proposed Income Tax Bill 2025: Key Changes

Summary: A tax reform committee has recommended several significant amendments in the proposed Income Tax Bill, 2025, intended to replace the Income Tax Act of 1961. One major change involves the removal of Clause 263(1)(ix), which previously barred refunds for belated filings—reinstating the existing refund entitlement and helping minimise litigation. For corporate taxpayers opting under Section 115BAA, the group proposes reinstating the inter-corporate dividend deduction under Section 80M, supporting efficient tax planning and aligning with the lower-tax regime. Additionally, the committee has suggested introducing NIL‑TDS certificates, extending the facility beyond low-deduction certificates. This would benefit loss-making entities and charitable organisations by preventing unnecessary cash flow disruptions. The new legislation is expected to take effect from April 1, 2026, following the tabling of the committee’s report in Parliament on July 21, with a Cabinet review preceding the Bill’s introduction in the Lok Sabha. These provisional proposals mark early steps to simplify and modernise India’s direct tax regime, though further revisions may follow before final approval. Taxpayers and advisors should follow developments closely and prepare for the transition once the Bill is enacted.

Arjuna (Fictional Character): Krishna, I heard that the committee has recently suggested many changes in the new Income Tax Bill, 2025.

Krishna (Fictional Character): Yes Arjuna, the committee, has taken a step towards the Income Tax Bill, 2025. The new Bill, proposed to be replace the decades-old Income Tax Act of 1961, and is aimed at simplifying the direct tax laws.

Arjuna (Fictional Character): Krishna, what are the most significant changes proposed in the Bill?

Krishna (Fictional Character): Arjuna, among the proposed changes, the most welcome change is the removal of the ‘no-refund for late filers’ clause. Earlier, Clause 263(1)(ix) proposed that to deny refunds if the Income Tax Return (ITR) were not filed within the due date.

This contrasted with the existing system, which allowed taxpayers to claim refunds even when filing belated returns. The committee has proposed deleting this clause to maintain consistency with current practice and to reduce the risk of litigation.

Arjuna (Fictional Character): Krishna, is there any change put forward for companies opting for tax regime under Section 115BAA in the new Income Tax Bill 2025?

Krishna (Fictional Character): Arjuna, the Committee has recommended the reinstatement of the inter-corporate dividend deduction under section 80M, which had been omitted in the original draft of the new Income Tax Bill, 2025.

This is specifically important for companies availing the benefit of lower tax rate under Section 115BAA, as they will be eligible for deduction under section 80M after this change.

Arjuna (Fictional Character): Krishna, is there any changes for taxpayers who aren’t liable to pay tax at all?

Krishna (Fictional Character): Arjuna, earlier, clause 395 only low deduction Tax Deducted at Source (TDS) certificate was available to the taxpayers, but now the Committee has proposed allowing even a NIL deduction certificate as well.

This will be immensely helpful for businesses that incur losses or for entities like charitable organizations, where no tax liability arises but TDS would otherwise block funds unnecessarily.

Arjuna (Fictional Character): Krishna, when will this new law take effect?

Krishna (Fictional Character): Arjuna, the new Income Tax law expected to be applicable from April 1, 2026. Following the tabling of the Committee’s report in Parliament on July 21, the Cabinet will review the recommended changes. Once approved, the revised Bill will be presented for final discussion and passage in the Lok Sabha. These changes have been proposed by the Committee; moreover, other updates will be specified soon by the committee.

Arjuna (Fictional Character): So, Krishna, what should one take away from all this?

Krishna (Fictional Character): Arjuna, change is the only constant, especially in taxation. Just like cutting a tree helps it grow better, refining the Income Tax Bill is important before it becomes the law of the land. A wise taxpayer prepares early, adapts smoothly, and complies faithfully.