Income Tax Bill 2025 Select Committee Recommendations
The Lok Sabha Select Committee has submitted its report on the Income Tax Bill, 2025. The bill aims to replace the Income Tax Act, 1961, with effect from April 1, 2026. The committee suggested 285 changes focused mainly on simplifying the bill’s language and removing contentious clauses. Key reforms include dropping a no-refund clause for late filers and reinstating deductions for inter-corporate dividends.
Background and Context
The Income Tax Bill, 2025, was introduced to modernise and consolidate tax laws. It replaces the decades-old Income Tax Act, 1961, which has undergone over 4,000 amendments. The government plans to implement the new law from April 2026 to streamline tax administration and compliance.
Removal of No-Refund Clause
One major recommendation was to remove the provision denying refunds if returns are filed after the due date. This clause created confusion and potential litigation. The committee agreed that taxpayers should not be unfairly penalised for late filing when refunds are due. This aligns the new bill with current practices and reduces disputes.
Reinstatement of Inter-Corporate Dividend Deduction
The bill initially omitted the deduction under section 80M for inter-corporate dividends. This deduction benefits companies taxed under the special rate of section 115BAA. The committee recommended restoring this provision to maintain continuity and avoid unintended tax burdens on businesses.
Enhancement of TDS Certificate Provisions
The bill limited Tax Deducted at Source (TDS) certificates to low deduction certificates only. The committee proposed adding NIL TDS certificates. This change helps taxpayers, especially loss-making businesses and charitable entities, by preventing unnecessary fund blockage when no tax is due.
Language Simplification and Clarity
Most of the 285 suggestions focused on simplifying the bill’s language. Clearer wording aims to reduce ambiguity and improve ease of understanding for taxpayers and tax officials. This step is intended to lower compliance costs and disputes.
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