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New Income Tax Bill 2025 – Nirmala Sitharaman Withdraws Bill, Explained
On August 8, 2025, Finance Minister Nirmala Sitharaman withdrew the New Income Tax Bill 2025 to integrate Select Committee recommendations and present a simplified, taxpayer-friendly version. Key expectations include clearer rules on salary and house-property taxation, a possible Section 87A rebate increase, reduced ambiguities, and easier compliance for middle-class taxpayers and MSMEs.
📌 Featured Articles
- New Income Tax Bill 2025 – What happened?
- What is a Parliamentary Select Committee?
- Baijayant Panda-led Select Committee – Key role
- Reasons for withdrawal – Quick points
- Present vs Expected – Key changes
- Impact on taxpayers – How the changes help you
- 💬 Frequently Asked Questions
- 📩 Need help? Connect with us
New Income Tax Bill 2025 – What Happened?
On August 8, 2025, Finance Minister Nirmala Sitharaman announced the withdrawal of the New Income Tax Bill 2025 from the Lok Sabha. The Bill, first introduced on February 13, 2025, aimed to replace the Income Tax Act, 1961 with a simplified, modern framework. A revised draft is expected on August 11, 2025, focusing on ease of compliance, more clarity, and potential relief for middle-class taxpayers and MSMEs.
What is a Parliamentary Select Committee?
A Parliamentary Select Committee is a temporary panel of Members of Parliament formed to study a specific Bill in detail. It exists only for the review phase and is dissolved after presenting its report.
- When it exists: Only during the Bill’s clause-by-clause examination period.
- What it does: Reviews each provision, invites expert/public feedback, recommends changes, and submits findings to Parliament.
Baijayant Panda-led Select Committee – Key role in Nirmala Sitharaman’s Income Tax Bill 2025
- Reviewed 500+ suggestions from experts, taxpayers, and industry stakeholders.
- Recommended a potential Section 87A rebate increase (higher threshold and cap) to benefit middle-class families.
- Sought clarity for Clauses 19–22 on salary deductions, house-property taxation, and home-loan interest rules.
- Emphasised simplification and taxpayer-friendly compliance without expanding search and seizure powers.
Reasons for withdrawal of Nirmala Sitharaman’s Income Tax Bill 2025 (bullet points)
- Integrate Committee inputs: Full incorporation of Baijayant Panda Select Committee recommendations.
- Avoid dual drafts: Prevent confusion and compliance conflicts for taxpayers and MSMEs.
- Simplify language: Reduce legal jargon; improve taxpayer comprehension.
- Boost middle-class/MSME benefits: Strengthen rebates, deductions, and compliance relief measures.
- Fix contentious clauses: Resolve ambiguities in salary and property taxation rules.
Present vs Expected – Key changes
| Category | Original Bill (Feb 2025) | Likely Revised Bill (Aug 2025) |
|---|---|---|
| Status | Introduced Feb 13; withdrawn Aug 8 | New draft to be introduced Aug 11 |
| Structure | 23 chapters, 536 sections, 16 schedules | Similar scope, more concise & user-friendly |
| Clause Issues | Clauses 19–22 unclear on deductions/property tax | Clearer definitions & fairer tax treatment |
| Committee Input | Partially integrated | Adopt key recommendations |
| Complexity | Reduced vs 1961 Act but still technical | Further simplified; less jargon |
| Section 87A Rebate | ₹7 lakh limit; ₹25,000 max rebate | ₹12 lakh limit; ₹60,000 max rebate (if adopted) |
| Target Groups | General taxpayers | Middle-class earners, salaried, MSMEs |
Impact on taxpayers – HOW Nirmala Sitharaman’s Income Tax Bill 2025 changes can help you
1) Tax filing will be simpler (how)
- Fewer ambiguous clauses → fewer choices in ITR: If the revised draft of the Income Tax Bill 2025 cleans up tricky bits (salary & house-property clauses), the ITR can ask fewer, clearer questions (e.g., one consistent way to report vacant/rented house income).
- Standard sequencing of deductions: Clear order like Municipal taxes → Standard 30% deduction → Interest on home loan (if adopted) means no second-guessing what to subtract first, especially for middle-class taxpayers and MSMEs.
- Consolidated TDS/TCS rules for salaried/MSMEs: Fewer overlapping sections or thresholds → less section-hunting and fewer compliance errors.
- Plainer language + better instructions: When wording is de-jargonized, government portals and tax software can prefill and validate more reliably.
Example: Today, reporting “deemed rent” for a vacant flat confuses many. If the Select Committee’s clarity on vacancy rules is adopted, most salaried people with one property will just tick a simpler option—no “what-if” rent debates.
2) More savings for middle-class earners & home-loan borrowers (how)
Section 87A rebate raised (if adopted):
If the rebate threshold moves from ₹7L to ₹12L and the cap from ₹25k to ₹60k, many salaried filers in the ₹7–12L band will pay zero or much lower tax under the new regime.
| Step | Current Rule (₹7L limit, ₹25k rebate) | Proposed Rule (₹12L limit, ₹60k rebate) |
|---|---|---|
| 1. Taxable Income | ₹9,50,000 | ₹9,50,000 |
| 2. Tax Before Rebate | ₹54,600 | ₹54,600 |
| 3. Rebate Eligibility? | ❌ Not eligible (income > ₹7L) | ✅ Eligible (income ≤ ₹12L) |
| 4. Rebate Applied | ₹0 | ₹54,600 (fully covered by ₹60k cap) |
| 5. Final Tax Payable | ₹54,600 | ₹0 |
Home-loan interest clarity/extension (if adopted under Nirmala Sitharaman’s Income Tax Bill 2025):
If interest deduction treatment is clarified/extended for rented properties, and the standard 30% deduction is applied after municipal taxes, middle-class taxpayers can retain more of their rental income. This aligns with the Select Committee’s recommendations alongside a possible Section 87A rebate increase.
Mini example: Annual rent ₹3,60,000; municipal tax ₹20,000; interest ₹1,80,000
Clear sequence → Net Annual Value = ₹3,40,000 → 30% = ₹1,02,000 → income left ₹2,38,000 → minus interest ₹1,80,000 → taxable ₹58,000 (lower than under unclear sequencing).
3) Less litigation due to clear provisions (how)
- Ambiguity removed = fewer disputes: Tight definitions (e.g., vacancy, deemed rent, order of deductions) cut down on department-vs-taxpayer interpretation fights.
- Safe-harbor–style clarifications: Bright-line tests (e.g., when “deemed to be let out” applies) let AOs and taxpayers reach the same answer more often.
- No extra search powers: Assurance that the revised Bill focuses on compliance rather than raids reduces adversarial proceedings.
4) Better compliance from small businesses & MSMEs (how)
- Cleaner TDS matrix (if adopted): Fewer rates/sections and higher de-minimis limits → less accidental non-compliance and fewer late-fee/interest hits.
- Aligned definitions (MSME, capital asset, etc.): When Income Tax rules mirror other laws, accountants don’t need two playbooks—compliance becomes easier.
- Predictable refunds/relief: Faster resolution of TDS mismatches and refunds improves MSME cash flow, encouraging them to stay tax-compliant.
💬 Frequently Asked Questions – Income Tax Bill 2025
Q1. Is the Income Tax Bill 2025 really withdrawn?
✅ Yes. The government, under Finance Minister Nirmala Sitharaman, has withdrawn the Income Tax Bill 2025 from Parliament to make changes based on Parliamentary Select Committee recommendations.
Q2. Why was the Income Tax Bill 2025 withdrawn?
To simplify the draft, remove legal confusion, improve taxpayer comprehension, and include expert suggestions — especially for middle-class taxpayers and MSMEs.
Q3. Is this withdrawal permanent?
❌ No. The Bill will return in a new version, possibly with revised income tax slabs and a higher Section 87A rebate increase.
Q4. Where can I get the New Income Tax Bill PDF?
📄 You can download the official PDF from
PRS Legislative Research
or the
Lok Sabha website
once it’s reintroduced.
Q5. What will be the applicability of the new Income Tax Bill?
It will apply from the date mentioned in the final Act/notification. Until then, current income tax rules remain in force.
Q6. Is the Direct Tax Code 2025 the same as the new Income Tax Bill?
No. They are different laws. Right now, discussions are focused only on the Income Tax Bill 2025.
Q7. Will the new Bill change income tax slabs or Section 87A rebate?
Most likely, yes — but final details will be known only after the Bill passes and official notifications are issued.
Q8. Can I withdraw from the new tax regime?
✔️ Salaried taxpayers can switch every year while filing ITR. Business/professional taxpayers have stricter switching rules under the Income Tax Act.
Q9. Is there a form for withdrawing from the new tax regime?
No special form. You choose your regime during ITR filing. Employers may request a declaration for TDS purposes.
Q10. Will the Income Tax Bill 2025 affect my income tax login?
No. You can continue using
incometax.gov.in
without changes.
Q11. Will there be changes in house property rules?
Possibly. The Select Committee has recommended changes to house property deductions and vacancy rules to benefit middle-class homeowners.
Q12. When will the new rules apply?
Only after Parliament passes the revised Income Tax Bill 2025 and the government issues a notification in the Gazette of India.
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