On Monday afternoon, the Lok Sabha gave the green light to the new Income Tax (No 2) Bill 2025. This bill is set to replace the old Income Tax Act of 1961, aiming to make India’s tax laws simpler and easier to understand. The bill sailed through without any opposition debate, even as INDIA bloc MPs protested separately over voter list changes in Bihar. The new law promises clearer language, fewer legal battles, and simpler rules for taxpayers and small businesses.
What Is S.I.M.P.L.E?
Finance Minister Nirmala Sitharaman first introduced the acronym S.I.M.P.L.E in February, defining the bill’s core principles: Streamlined structure and language; Integrated and concise; Minimized litigation; Practical and transparent; Learn and adapt; and Efficient tax reforms. The bill’s first draft was sent to a select committee headed by BJP’s Baijayant Panda. The committee suggested 285 changes, most of which were accepted to make the bill clearer and more efficient.
The Income-Tax Bill, 2025 has been introduced in the Lok Sabha today.
The Bill aims to simplify the tax system for all and is built on these core “SIMPLE” principles:⬇️ pic.twitter.com/bX4Zc1ImdR— Income Tax India (@IncomeTaxIndia) February 13, 2025
Read More: Zelensky Calls PM Modi as Trump’s Tariff Threats and Ukraine War Tensions Rise
Simplifying a Complex Tax System
The 1961 Income Tax Act has undergone over 4,000 amendments and runs over five lakh words. This complexity has burdened taxpayers and authorities alike and the new bill cuts the complexity by nearly 50 percent. It clarifies deductions and strengthens cross-referencing across different tax provisions and it addresses ambiguities regarding income from house property, including standard deductions and pre-construction interest on home loans. The bill also clearly defines terms like “capital asset,” “micro and small enterprises,” and “beneficial owner.” It aligns tax treatments for pension contributions and scientific research expenditures as well.
Key Changes in the New Bill
The bill offers many taxpayer-friendly reforms. Taxpayers can now claim refunds even if they file their returns late. There will be no penalties for late TDS filing. Taxpayers with no tax liability can get “nil-TDS certificates” in advance, benefiting both residents and non-residents. The bill explicitly allows tax deductions on commuted pensions, including lump-sum payments from funds like the LIC Pension Fund. It also reinstates deductions for inter-corporate dividends under Section 80M.
Property Tax and MSME Definitions Clarified
The new law makes it simpler to understand how taxes on property income work. It sets a standard deduction of 30% on earnings from house property and you can also deduct the interest paid on loans taken to buy, build, or fix up your home. For rental properties, taxes will be calculated on whichever amount is higher and the actual rent you get or the reasonable expected rent. On top of that, the bill updates the definitions of micro and small businesses to match the MSME Act from 2020.
Introducing the ‘Tax Year’ and Other Reforms
One of the biggest changes in the new bill is the introduction of a “tax year,” which replaces the current system that uses both the financial year and assessment year, and this means you’ll pay taxes on the income you earn in the same year. The bill also cleans up old rules that are no longer needed, like those about fringe benefit tax, and adds clear tables for things like TDS, presumptive taxation, salaries, and bad debt deductions.
— Income Tax India (@IncomeTaxIndia) February 13, 2025
Read More: Why Is Air India Suspending Delhi-Washington Nonstop Flights?
What Remains Unchanged?
One thing that hasn’t changed with the new bill is the existing tax slabs — they remain the same, so taxpayers won’t see any surprises there. The bill also keeps important legal terms and phrases, as defined by court rulings, to ensure consistency in how the laws are interpreted. On the same day, the Lok Sabha also approved the Taxation Laws (Amendment) Bill 2025, which gives direct tax benefits to Saudi Arabia’s sovereign wealth fund and its subsidiaries investing in India.
