Draft Income Tax Bill 2025: Parliamentary Panel Flags 32 Issues, Calls for Clarity and Relief
By Author | July 22, 2025
Tags: New Income Tax Act, Income Tax News 2025
Select Panel Reviews Key Provisions of Income Tax Bill, 2025
In a significant move, the Lok Sabha Select Committee has submitted its detailed review of the Income Tax Bill, 2025, identifying 32 key issues for correction or clarification. The 4574-page report, tabled by Committee Chairperson Baijayant ‘Jay’ Panda, aims to improve the law’s clarity, coherence, and fairness.
The draft bill—introduced on February 13, 2025, by Finance Minister Nirmala Sitharaman—seeks to replace the Income-tax Act of 1961. However, the panel flagged several ambiguous definitions, drafting flaws, and compliance risks that could create burdens for both taxpayers and administrators.
Focus on Simplification: Clearer Definitions Needed
One of the report’s central themes is simplification. The panel called for updates to several key definitions:
- “Capital asset” (Clause 2(22)): Should reflect amendments in the Finance Act, 2025, especially for foreign-held securities.
- “Infrastructure capital company”: Currently relies on outdated references from the 1961 Act. The panel urged including the definition of “infrastructure facility” directly in the new bill.
- “Micro” and “small” enterprises, “parent company”, and “co-operative bank”: Require alignment with other applicable laws to avoid confusion.
Transparency in Deductions and Income Computation
To ensure fairness, the Committee proposed refinements to how income and deductions are calculated:
- Under Clause 22, the 30% standard deduction for house property income should apply after deducting municipal taxes.
- Interest on loans for let-out properties should be eligible for deduction, not just for self-occupied houses.
- Provisions for scientific research deductions need clear approval timelines.
- Clauses on pension contributions should include missing phrases like “by such individual” to avoid legal disputes.
- The term “adjusted gross total income” should be restored to prevent unintended excess tax relief for donations.
Safeguards for Small Taxpayers and Non-Profits
The panel strongly advocated protections for low-income taxpayers and non-profit organisations (NPOs):
- It criticized the rule requiring returns solely to claim TDS refunds, warning it could lead to prosecution for non-filing. The panel recommended removing this requirement.
- For NPOs, the panel proposed:
- Restoring the “religious-cum-charitable” category for anonymous donations
- Using “income” instead of “receipts” to determine taxability
- Retaining “deemed application” of income to account for delays in fund utilization
Legal Continuity and Avoiding Loopholes
Several clauses needed redrafting to preserve the original legislative intent, particularly those on:
- Capital gains (Clause 79)
- Carry-forward of losses (Clause 119)
- Refunds on clubbed income (Clause 432)
The panel objected to changing “shall” to “may” in Clause 441, warning that it could reduce enforcement consistency in penalty cases.
It also recommended restoring the phrase “in the circumstances of the case” in GAAR provisions to ensure fair and context-aware assessments.
Improving Administration and Efficiency
To enhance administrative functionality, the Committee made several modernisation suggestions:
- Extend the deadline for non-resident liaison offices to file compliance statements—from 60 days to 8 months.
- Eliminate fixed application fees for advance rulings, allowing fees to be set by rules.
- Clearly define qualifications for valuers under the new law.
Repeal and Transition: Ensuring Continuity
Clause 536, which repeals the Income-tax Act, 1961, received support with a request for stronger transitional safeguards. The panel urged consolidating legacy provisions through savings clauses, ensuring no disruption in administration or taxpayer rights.
What’s Next?
The government will now review the Committee’s recommendations before finalizing the Income Tax Bill, 2025. Whether it adopts these changes in full or selectively remains to be seen. Still, the panel’s suggestions offer a balanced path forward, combining simplification, modernization, and legal continuity—with potential benefits for individuals, businesses, and civil society alike.
