Lok Sabha Passes New Income Tax Bill: Biggest Overhaul in Over 60 Years

India’s tax system is set for its most significant reform in more than six decades. On August 11, 2025, the Lok Sabha passed the new Income Tax Bill, replacing the Income-tax Act of 1961. This reform aims to simplify the law, reduce disputes, and make tax administration more transparent and modern.

Why This Is a Big Deal?

The passage of this bill marks the biggest change to India’s tax code in decades. It updates outdated provisions from the 1961 Act to match today’s economic and digital environment.

Interestingly, the government first withdrew an earlier draft of the bill because it contained errors and unclear points. A Parliamentary panel reviewed the issues, and the updated version was presented and passed.

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Main Goals of the New Bill

The bill is designed to make the tax system:

• Simpler through easy-to-understand language
• Less confusing for taxpayers and officials
• Less dispute-prone, reducing legal battles
• More transparent and fair, fostering trust between taxpayers and the government

Key Changes Recommended

The Parliamentary panel made several key suggestions, which have been incorporated into the new law:

1. Clear rules for calculating rent on vacant properties
2. Standard 30% deduction after municipal taxes for property income
3. Pension deduction extended to non-employees, not just salaried workers
4. No tax on business property that is temporarily unused

These changes aim to remove ambiguity and ensure fair treatment for all taxpayers.

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What’s Staying the Same?

Despite the overhaul, some major aspects of the tax system remain unchanged:

• Tax slabs are not altered
• Capital gains rules remain the same
• Income categories stay as they are

The focus is on simplification, not restructuring the entire system.

Other Highlights

• Shorter, easier provisions for taxpayers
• Lower penalties for certain offences
• A “trust first, check later” compliance approach
• Increased digital monitoring and a modern administrative system for faster, more efficient tax processing

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Why This Matters to You?

This law will directly impact how your income is taxed every year.
Knowing the rules means less stress, more clarity, and fewer chances of making mistakes in your tax return.

For example:

• If you own a property that’s vacant, you’ll now have clearer rules on how to calculate rent for tax purposes.
• If you receive a pension but are not an employee, you can now claim deductions that were previously unavailable to you.
• If your business property is temporarily unused, you won’t have to pay tax on it during that period.

The New Income Tax Bill, 2025 modernizes India’s tax laws after 60+ years, simplifies compliance, and builds a more taxpayer-friendly system. While the core tax rates remain the same, the rules are now clearer, penalties are lighter in some cases, and digital oversight will make the process more efficient.