New Income Tax Bill 2025 passed in Parliament, set to replace 1961 IT Act: All you need to know

Parliament on Tuesday, August 12, passed the new Income Tax Bill, with the Rajya Sabha returning the legislation to the Lok Sabha. The revised Income Tax (No.2) Bill 2025 will replace the Income Tax Act, 1961.

The Rajya Sabha returned the legislation with a voice vote to the lower house. The bill was passed in the Lok Sabha in just three minutes, without any debate.

The new bill aims to simplify India's income tax framework without bringing any changes in tax rates. It will come into force on April 1, 2026.

Why was the bill needed?

Finance Minister Nirmala Sitharaman explained the reasons for bringing the new income tax law and said that some parts of the Income Tax Act, 1961, have become outdated, hence a new legislation was needed.

She stressed that the new income tax bill is aimed at making the language simple and does not introduce any new rate. FM Sitharaman also expressed gratitude to the Select Committee of Parliament, which scrutinised the bill.

A total of 75,000 person-hours have gone into the drafting of the Bill, FM said.

The bill will now be sent to the President of India, Droupadi Murmu, for approval. It will become a law once the President gives her assent, and will formally replace the original 1961 Act.

Key Features of the New Income Tax Bill 2025

• Simplified language and structure with 536 sections and 16 schedules
• No changes in existing individual and corporate tax rates
• Enhanced flexibility to claim tax deducted at source (TDS) refunds, even for delayed return filings without penalty
• Retention of existing offences and penalties
• Changes in definitions to include the classification of micro and small enterprises
• More authority for the Central Board of Direct Taxes (CBDT) to frame rules and schemes leveraging advanced technology
• Elimination of unnecessary provisions to reduce disputes