New Income Tax Bill 2025 passed in Parliament: key features, what changes

Here are the key features of the new Bill.

Rules about return filing, TCS on LRS

The first draft of the Bill, introduced in February, had included a provision — Clause 263(1)(a)(ix) — that implied that taxpayers could only claim a refund if they had filed tax returns on or before the due date. The new version has removed this provision.

“The provision represented a significant departure from the established legal position, where refunds could be claimed even for belatedly filed returns. Recognising the potential for this to cause undue hardship and create ambiguity, the newly introduced Bill has completely omitted this restrictive clause,” Amit Maheshwari, Tax Partner, AKM Global, said.

The new Bill also clarified that there will be nil TCS on Liberalised Remittance Scheme (LRS) remittances for education purposes financed by any financial institution, a provision that had gone missing in the earlier version.

Changes for corporate taxpayers

The Bill has corrected other drafting errors such as those related to inter-corporate dividend deductions for companies availing concessional tax rates. The applicability of the Alternate Minimum Tax (AMT) for Limited Liability Partnerships (LLPs) has been aligned with the existing provisions of the I-T Act, by removing the expanded scope that would have included LLPs not claiming specific tax benefits and attracted a higher rate of 18.5 per cent as against the preferential rate of 12.5 per cent.

The Bill has also allowed taxpayers who do not have any I-T liability to obtain a nil-TDS certificate.

Additionally, the Bill has been tweaked to remove ambiguities related to transfer pricing provisions along with changes relating to the carry-forward and set-off of losses. The reference to the beneficial owner has been omitted to align with Section 79 of the Income-tax Act, 1961, along with a clarification of applicability of 30 per cent standard deduction after deduction of municipal taxes while calculating house property income.

The government has corrected the anomaly regarding donations linked to non-profit organisations in line with the recommendation of the Select Committee. Exemption has been allowed to NPOs for 5 per cent of the ‘total’ donation instead of just 5 per cent of ‘anonymous’ donations, as is the case in the existing Act.

Tax year, digital searches

The new Bill introduces the concept of “tax year”, which has been defined as the 12-month period beginning April 1. The concept was introduced in the first draft in February. The new Bill removes redundant provisions and archaic language and reduces the number of Sections from 819 in the Income Tax Act of 1961 to 536 and the number of chapters from 47 to 23. The number of words has been reduced from 5.12 lakh to 2.6 lakh in the new Income Tax Bill, and 39 new tables and 40 formulas have been introduced.

The government has, however, retained the contentious definition of “virtual digital space” — the powers to call for information by income tax authorities during surveys, searches and seizures, including email servers, social media accounts, online investment, trading and banking accounts, remote or cloud servers and digital application platforms. Sitharaman said the tax department will bring out standard operating procedure (SOP) for handling personal digital data seized during searches.

Taxation Laws (Amendment) Bill

Separately, the government also brought in the Taxation Laws (Amendment) Bill, 2025, which amends the Finance Act, 2025. It has exempted income from dividend, interest, long-term capital gains or other incomes from investments made by the ‘Public Investment Fund of the Government of the Kingdom of Saudi Arabia’ and its wholly-owned subsidiaries, which make investment, directly or indirectly, out of the Fund in India under clause (23FE) of the Income-tax Act.

Saudi’s Public Investment Fund has over $925 billion assets under management and was notified for I-T exemption in November 2022. However, the Fund had faced some restrictive norms related to investments through various subsidiaries. With this amendment, the government has granted complete income tax exemption to Saudi’s Fund by specifying its name explicitly in the Act as has been done earlier for the Abu Dhabi Investment Authority (ADIA).

The Taxation Laws (Amendment) Bill also extended income tax benefits under the market-linked national pension system (NPS) to the guaranteed unified pension scheme (UPS), by allowing tax-free withdrawal of lump sum payments or the accumulated UPS corpus, up to 60 per cent, at the time of retirement.