Parliamentary Select Committee Presents Comprehensive Report on Income Tax Bill 2025 to Lok Sabha

New Delhi: The Parliamentary Select Committee, chaired by BJP leader Baijayant Panda, presented its extensive 4,575-page report on the Income Tax Bill 2025 to the Lok Sabha on July 21, 2025. The report, a significant step toward modernizing India’s tax framework, retains most provisions of the proposed bill while recommending 285 amendments to enhance fairness, transparency, and clarity. The bill, introduced by Union Finance Minister Nirmala Sitharaman on February 13, 2025, aims to overhaul the six-decade-old Income Tax Act, 1961, by simplifying its language, removing redundancies, and aligning it with contemporary economic needs.

Overview of the Income Tax Bill 2025

The Income Tax Bill 2025 seeks to replace the Income Tax Act, 1961, which has undergone numerous amendments over the years, making it complex and cumbersome. The new bill focuses on:

• Reducing Volume: The bill eliminates 283 sections and 24 chapters from the 1961 Act, reducing the total word count from 512,535 to 259,676. The number of chapters has been slashed from 47 to 23, and sections from 819 to 536, making the legislation more concise.
• Language Simplification: The bill introduces the term “tax year” to replace outdated terminologies like “financial year” and “assessment year,” aiming to make the law more accessible and easier to understand.
• Virtual Digital Assets: The bill defines “virtual digital asset” and “electronic mode”, introducing provisions for their taxation to reflect the growing digital economy.
• Preserving Predictability: The bill avoids major tax policy changes or modifications to tax rates, ensuring stability for taxpayers while consolidating amendments for clarity.

The bill’s straightforward drafting style eliminates redundancies and cross-referencing between sections and chapters, enhancing readability. To provide greater clarity, it incorporates 57 tables (up from 18) and 46 formulae (up from 6), ensuring precise interpretation of provisions.

Controversial Provisions: Expanded Powers for Tax Officials

One of the most debated aspects of the Income Tax Bill 2025 is the expanded authority granted to tax officials during search and seizure operations. The bill allows officials to access, forcibly if necessary, social media accounts, private emails, and other digital records stored on computers, cloud servers, or virtual digital spaces. These spaces include online investment accounts, trading accounts, bank accounts, and digital application platforms.

Key Provisions for Search and Seizure

• Access to Digital Records: If a person possesses digitally maintained books of account or other documents, they must provide “reasonable technical and other assistance”, including access codes, to enable tax officers to inspect electronic records, communications, or data.
• Overriding Access Codes: If access codes are unavailable, the bill permits officers to override access to computer systems or virtual digital spaces, raising concerns about privacy and potential misuse.

Stakeholder Concerns and Committee Response

Stakeholders consulted by the Select Committee raised significant concerns about these provisions, suggesting:

1. Excluding social media accounts from the scope of search and seizure.
2. Limiting the use of accessed personal emails and systems to purposes strictly relevant to the Income Tax Act.
3. Requiring tangible reasons to be recorded in writing before accessing digital records.

However, the Committee deemed these suggestions “not feasible”, arguing that the provisions are essential for uncovering incriminating evidence in electronic records, such as WhatsApp communications and emails. The report noted that taxpayers often withhold passwords or login credentials, using encrypted communication modes to discuss unaccounted transactions. The Committee emphasized that these powers are necessary to rationalize provisions and prevent tax evasion, dismissing concerns about privacy safeguards to avoid abuse of power by revenue officials.

Key Amendments Recommended by the Select Committee

The Select Committee proposed 285 amendments to refine the bill, addressing concerns from taxpayers, businesses, and non-profit organizations. These recommendations aim to align the bill with existing frameworks, reduce disputes, and enhance clarity. Below are the key amendments:

1. House Property Income Taxation

The Committee identified gaps in Clause 22 related to income from house property and recommended two significant amendments to align with the Income Tax Act, 1961:

• Standard Deduction: Under Clause 22(1)(a), the Committee clarified that the 30% standard deduction should be computed on the annual value after deducting municipal taxes, ensuring fairness for property owners.
• Home Loan Interest Deduction: Under Clause 22(2), the Committee recommended allowing deductions for pre-construction interest for let-out properties (rented properties), in addition to self-occupied ones, aligning with existing provisions.

Impact for Homeowners: These amendments benefit homeowners with rented properties by allowing deductions for municipal taxes, a 30% standard deduction, and interest on home loans, including pre-construction interest. According to Chartered Accountant Abhishek Soni, co-founder of Tax2Win, the taxable income from a let-out property is calculated as follows:

• Gross Annual Value (GAV): The rental income received.
• Less Municipal Taxes: Taxes paid to local authorities.
• Net Annual Value (NAV): GAV minus municipal taxes.
• Less Deductions: 30% standard deduction and home loan interest.
• Final Income: Taxable at the applicable slab rate.

Ashish Agrawal, Partner at Dhruva Advisors LLP, noted that the bill initially lacked clarity on these deductions, and the Committee’s recommendations ensure alignment with the 1961 Act, reducing confusion for taxpayers.

2. Charitable and Not-for-Profit Entities

The Committee addressed concerns from non-profit organizations (NPOs), particularly those with mixed charitable and religious objectives, to prevent unintended tax liabilities and litigation risks:

• Clarity in Definitions: The Committee recommended replacing “receipts” with “income” for tax purposes and restoring the concept of “deemed application” to clarify tax obligations for NPOs.
• Clause 133(2): Rephrasing gross total income to adjusted gross total income to rectify an omission causing higher tax liability.
• Clause 332: Redrafting to resolve ambiguity in the phrase “wholly for charitable or religious purposes”, which could affect trusts established post-1961.
• Clause 337: Reintroducing provisions similar to Section 115BBC of the 1961 Act to exempt religious-cum-charitable trusts from the 30% tax on anonymous donations, preventing undue burden on India’s hybrid NPO sector.

3. Support for Small Taxpayers

The Committee proposed removing Clause 263(1)(ix), which mandates filing a return to claim refunds, even for taxpayers with income below the taxable threshold. This change prevents prosecution risks for small taxpayers with tax deducted at source (TDS), offering flexibility for refund claims.

4. Corporate Tax Relief

The Committee reinstated deductions for inter-corporate dividends under Clause 200 (corresponding to Section 115BAA of the 1961 Act), reducing the tax cost of distributing profits to shareholders. Rohinton Sidhwa, Partner at Deloitte India, described this as a “beneficial change” for corporate India.

Additionally, the Committee clarified the definition of “beneficial owner” for carry-forward of corporate losses, including individuals deriving benefits directly or indirectly from shares. This new definition may pose administrative challenges for companies with complex shareholder structures, such as funds.

5. Business and Startup Support

The Committee recommended:

• Updating definitions of “capital asset”, “infrastructure capital company”, and “micro and small enterprises” to align with the Finance Act, 2025 and the MSME Act.
• Clearer rules for R&D deductions, tax breaks for biodegradable waste handling businesses, and definitions for “parent company” and “status” in tax appeals.

6. Transition to a Self-Contained Code

To make the Income Tax Bill 2025 litigation-resistant, the Committee urged the Finance Ministry to eliminate residual references to the Income Tax Act, 1961, ensuring the new code is self-contained and robust.

Implications and Next Steps

The Income Tax Bill 2025 represents a monumental effort to modernize India’s tax regime. The Select Committee’s recommendations aim to balance simplification with fairness, addressing concerns from homeowners, businesses, and NPOs while retaining controversial provisions for tax officials’ powers. Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP, highlighted the legislative intent to create a cohesive, efficient, and jurisprudentially robust tax regime.

The Finance Ministry will now review the Committee’s recommendations, with amendments likely to be tabled in the ongoing Monsoon Session. The bill could be passed by both Houses of Parliament soon, marking a significant milestone in India’s tax reform journey.

Expert Opinions

• Prabhakar K S, Founder & CEO of Shree Tax Chambers, emphasized that the amendments enhance clarity and fairness, reducing disputes and aiding tax administration.
• Tax experts have cautiously praised the report but called for further clarity on provisions like advance ruling fees, TDS on provident funds, low-tax certificates, and penalty powers.

Conclusion

The Income Tax Bill 2025 is poised to transform India’s tax landscape by simplifying legislation, enhancing clarity, and supporting taxpayers and businesses. While the retention of expansive powers for tax officials has sparked debate, the Select Committee’s 285 amendments address critical gaps, ensuring fairness and transparency. As the Lok Sabha debates the report, taxpayers and stakeholders await the final shape of this landmark legislation, which promises to streamline India’s tax code for the digital age.

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