In a significant move, the Government of India has officially withdrawn the Income Tax Bill, 2025, which was initially tabled in the Lok Sabha on February 13. The decision to revoke the Bill comes in light of substantial feedback and suggestions received from stakeholders, including the Select Committee chaired by Shri Baijayant Panda.

A fresh version of the Income Tax Bill, 2025, incorporating most of the committee's recommendations, is set to be introduced in Parliament on Monday, August 11. This revised version aims to offer a more refined, comprehensive, and clearer framework for India’s direct tax system, effectively replacing the long-standing Income Tax Act of 1961.

Why Was the Income Tax Bill Withdrawn?

Explaining the rationale behind the withdrawal in Parliament, Finance Minister Nirmala Sitharaman stated that the original version of the Bill required several improvements to align with legislative intent and accuracy.

She emphasized that the drafting language, phrase alignment, cross-referencing, and certain key provisions needed refinement. These changes were necessary to ensure legal clarity and to eliminate any ambiguity that could lead to future misinterpretations.

Furthermore, the Finance Minister noted that several errors in the draft had been identified by legal experts, chartered accountants, and the Select Committee, prompting the government to take corrective action before proceeding with the legislative process.

What to Expect in the Revised Income Tax Bill?

The original version of the Income Tax Bill, 2025 was seen as a landmark overhaul of India’s direct tax code—marking the most significant structural change in over six decades. The bill aimed to streamline tax compliance, simplify legal language, and make the law more taxpayer-friendly.

The following were the core proposals in the earlier version, most of which are expected to be retained and refined in the updated version:

Key Proposals of the Income Tax Bill, 2025

• Simplified Legal Structure:
  The proposed bill was nearly 50% shorter than the Income Tax Act, 1961. It aimed to reduce the number of provisions and explanations, merge similar deductions, and use simpler terminology for better understanding.

• Reduced Penalties:
  Penalties for several tax-related offences were to be reduced, creating a less intimidating and more taxpayer-friendly legal environment.

• No New Taxes:
  The bill did not propose any new taxes. Existing tax slabs, capital gains provisions, filing deadlines, and income categories were to remain unchanged.

• Minimized Litigation:
  The proposed bill introduced a “trust-first, verify-later” approach, promoting a less adversarial tax environment. Over 300 outdated provisions were proposed to be removed to reduce complexity and disputes.

• Modernized Tax Administration:
  The bill proposed giving greater authority to the Central Board of Direct Taxes (CBDT) for rule-making. A digital compliance and monitoring system was also proposed. Notably, the bill introduced the concept of a “Tax Year”, replacing the existing confusion between the financial and assessment year.

What’s Next?

The government is set to table the updated version of the Income Tax Bill, 2025 on August 11 in the Lok Sabha. This move is intended to provide a clear, unified draft that reflects stakeholder feedback and removes earlier inconsistencies. If passed, the new law will lay the foundation for a more streamlined, efficient, and transparent tax regime in India.

Taxpayers, legal professionals, and policy experts are eagerly awaiting the revised draft, which promises to modernize India's tax system while maintaining fairness and ease of compliance.