By Khabar Rojana 
While not part of the final revised Bill, earlier drafts had proposed granting tax authorities powerful access to taxpayers’ digital footprints—emails, trading accounts, social media—to aid compliance.
India is on the cusp of a landmark tax reform wave. The Income-Tax (No. 2) Bill, 2025, passed by the Lok Sabha on August 11, 2025, builds on the earlier draft introduced in February. Following an in-depth review by a Parliamentary Select Committee, nearly all of the 285 recommendations – 32 deemed major – have been incorporated into the revised legislation. This comprehensive rewrite aims to modernise and simplify the six-decades-old Income-Tax Act, 1961
According to CA Ruchika Bhagat, MD, Neeraj Bhagat & Co, the number of sections has been slashed from around 819 to 536, and chapters from 47 to 23. “A defining change is the introduction of a unified ‘Tax Year’ replacing the erstwhile ‘Previous Year’ and ‘Assessment Year’ constructs,” Bhagat said.
Key Features and Immediate Benefits to Taxpayers
1. Retained Rs 12 Lakh Income Exemption
Concerns about losing the Rs 12 lakh basic exemption surfaced online, but the Finance Ministry confirmed the exemption remains intact under the revised bill.
2. Easier Refunds—Even After Deadlines
“The bill now allows taxpayers to receive refunds even if Income Tax Returns (ITR) are filed late—a departure from the rigid earlier regime that required strict adherence to deadlines,” Bhagat said.
3. Faceless, Digital-First Assessments
In line with India’s push toward digital governance, the bill empowers fully faceless tax assessments. It mandates prior notices before any enforcement, reducing personal interface and potential for corruption.
4. Clearer Deductions and Compliance Rules
The bill addresses several drafting errors and ambiguity issues in the earlier draft:
- Explicit inclusion of nil-TDS certificates, easing certification for taxpayers with no tax liability
- Clarified standard deductions on house property income and allowed pre-construction interest deductions for let-out properties
- Inclusion of non-employee categories under commuted pension deductions
- Refinement of rules around anonymous donation exemptions and vacant commercial property taxation
- The committee removed onerous proposals that would have increased tax liabilities on vacant residential properties, maintaining the status quo
5. Enhanced Transparency & Reduced Litigation
With clearer language, streamlined provisions, and structured chapters, the bill is designed to reduce interpretational ambiguities that previously led to disputes and litigation.
6. Wider Digital Oversight Powers
While not part of the final revised Bill, earlier drafts had proposed granting tax authorities powerful access to taxpayers’ digital footprints—emails, trading accounts, social media—to aid compliance. Bhagat said that the final version may include calibrated versions of these powers.
What This Means for Taxpayers
1. Greater Ease and Simplicity
With simplification baked into the structure (sections, chapters, language), taxpayers—especially individuals, freelancers, and small businesses—will find navigating the tax code more intuitive.
2. Reduced Compliance Stress
Digital-first assessments, better refund provisions, and clearer rules offer relief to those previously anxious about procedural delays or audits.
3. Protection of Rights
By mandating notices before enforcement, the bill ensures taxpayers have due opportunity to respond.
4. Confidence in Deductions
Clearer norms around property income, pension, and TDS give taxpayers more certainty in claiming benefits without legal grey areas.
The revised Income Tax (No. 2) Bill, 2025, is awaiting Rajya Sabha approval and Presidential assent, after which it’s expected to take effect from April 1, 2026, for the financial year 2026–27