Lok Sabha Panel Calls for Fixes in Draft Income Tax Bill, Supports Simplification

By Author / July 22, 2025
Income Tax Recent News – 2025 | New Income Tax Act

India’s most significant direct tax overhaul in over six decades moved closer to becoming law on Monday. The Lok Sabha’s Select Committee submitted its report on the draft Income Tax Bill, 2025, broadly backing the government’s plan to simplify the tax code. However, it also urged several changes to fix ambiguities, protect taxpayer rights, and ensure regulatory continuity.

Panel Recommendations and Concerns

Committee chairperson Baijayant Panda, a BJP MP, tabled the report a few months after Finance Minister Nirmala Sitharaman introduced the bill in Parliament. The bill aims to replace the Income Tax Act of 1961, the foundation of India’s direct tax system for more than sixty years.

While supporting the bill’s intent to streamline tax administration, the 32-member panel pointed out multiple technical flaws and inconsistencies. These, it said, could weaken taxpayer protections or raise compliance burdens if not addressed.

Clarifying Key Definitions

The panel urged revisions to several definitions, including:

• Capital asset
• Infrastructure capital company
• Parent company

It called for aligning these with current laws and eliminating outdated references. The Committee also pushed to harmonize definitions for micro and small enterprises with the MSMED Act.

In addition, it recommended clearer rules around deductions, especially for:

• House property income
• Scientific research
• Pension contributions

Fixing Specific Clauses

A rebate clause for individuals earning above ₹12 lakh contained a drafting anomaly. The Committee advised correcting the wording to prevent misinterpretation.

To ensure fair application of the General Anti-Avoidance Rules (GAAR), the panel suggested restoring the phrase “in the circumstances of the case.” It noted that this wording previously helped prevent excessive tax enforcement.

The Committee opposed a blanket ban on deductions for late filers. It also advocated keeping flexibilities like “deemed application” for non-profits and asked for clearer taxation rules for religious and charitable trusts.

Carrying Forward Valid Provisions

To avoid disruptions, the Committee said valid circulars, approvals, and exemptions from the current tax law must carry over into the new regime. It also recommended easing compliance for non-residents and standardizing rules for valuers’ qualifications and jurisdictions.

Relief Measures for Small Taxpayers and Non-Residents

The report raised concerns about the risk of prosecution for small taxpayers who fall below the taxable limit but must file returns to claim refunds.

“The Committee observed that the current mandatory requirement to file a return solely for the purpose of claiming a refund could inadvertently lead to prosecution,” it said.

It urged the government to allow refund claims even when returns are filed late, especially for those below the taxable threshold.

For non-resident liaison offices, the panel suggested extending the compliance filing deadline from 60 days to eight months, citing practical difficulties faced by overseas entities.

Smoother Legal Transition Urged

The Committee emphasized the need for a smooth shift from the old law to the new one. It recommended changes to Clause 536, which repeals the Income Tax Act, 1961. This would ensure continuity by explicitly retaining all valid rules, circulars, and approvals.

Other technical improvements included:

• Restoring the term “Nil” in lower tax deduction certificate clauses
• Clearly stating qualifications for registered valuers
• Correcting ambiguous phrases around deductions and refunds

Finance Ministry to Examine Proposals

With the Committee’s report now submitted, the Finance Ministry will review the recommendations before finalizing the bill. Given the scope of changes, revisions are likely.

Committee chairperson Panda emphasized the bill’s purpose:

“The statement of objects and reasons of the Bill clearly states that…the basic structure of the Income-tax Act, 1961 has been overburdened and language has become complex.”

He added that the Income-Tax Bill, 2025 aims to make the law “concise, lucid, and easy to understand.”

“The Committee’s mandate is to examine each clause to ensure the bill reflects its intent, avoids procedural defects, and complies with existing laws,” Panda conclude