Parliament witnessed a rare moment of legislative continuity, as the Lok Sabha cleared the Income Tax (No. 2) Bill—meant to replace the six-decades-old Income Tax Act of 1961—without any discussion from the Opposition benches, their attention firmly fixed on protests over voter list revisions in election-bound Bihar. The passage of the Bill marks a significant step in India’s fiscal reform journey, promising to make taxation simpler, clearer, and more accessible for taxpayers. Finance Minister Nirmala Sitharaman had, when introducing the draft in February, summarised its vision with the acronym S.I.M.P.L.E: Streamlined structure and language; Integrated and concise; Minimized litigation; Practical and transparent; Learn and adapt; and Efficient tax reforms.
The Bill has travelled a considered path. The initial draft was scrutinised by a select committee headed by BJP’s Baijayant Panda, which proposed 285 changes. Most of these, Sitharaman confirmed, have found their way into the final version. Panda underscored the spirit of the reform: the 1961 Act had ballooned into a labyrinth of more than five lakh words and over 4,000 amendments, rendering it dense and inaccessible. The new framework, he said, trims the verbiage by nearly half, offers better cross-referencing between provisions, and aims to cut down needless disputes for individuals and MSMEs. This exercise is not merely about condensing a law; it is about recasting the tax landscape into something more predictable and less intimidating. Complex provisions have been rewritten in plain language. Definitions that once triggered litigation—such as those relating to “capital asset”, “micro and small enterprises”, and “beneficial owner”—are now explicitly laid out. Ambiguities around income from house property, especially standard deductions and pre-construction interest on home loans, have been addressed. New rules also align tax treatment for pension contributions and scientific research expenses. Several changes stand out for their taxpayer-friendly tilt. Refunds will be allowed even in cases of late filing of returns—an important relief for individuals who miss deadlines due to genuine difficulties. There will be no penalty for late filing of TDS, a provision that could ease the burden on small businesses and professionals. Taxpayers without liability can obtain ‘nil TDS certificates’ in advance, a facility extended to both residents and non-residents. For pensioners, the law now makes explicit a deduction for commuted pensions received from specified funds, such as the LIC Pension Fund. Corporate taxation sees a notable revision too. The reinstatement of the deduction for inter-corporate dividends under Section 80M addresses concerns of double taxation in layered company structures—particularly relevant for those under the 22% corporate tax regime who feared losing this benefit. Property income rules have also been clarified: the standard deduction remains 30% and interest on loans for acquisition, repair, or construction of property continues to be deductible. However, for vacant rental properties, the annual value will now be based on the higher of reasonable expected rent or actual rent received/receivable, making assessments more uniform.
The Bill also harmonises the definition of micro and small enterprises with the MSME Act (last revised in July 2020). A micro enterprise will be defined as having investment under ₹1 crore and turnover below ₹5 crore; for small enterprises, the thresholds are ₹10 crore and ₹50 crore, respectively. Such alignment reduces compliance confusion for entrepreneurs navigating both tax and industrial laws. A subtle but important shift is the introduction of a “tax year” to replace the current dual reference to “financial year” and “assessment year”. Today, income earned in 2023-24 is taxed in 2024-25; under the new system, tax will be payable in the same year it is earned. This alignment with global practice simplifies accounting and reporting for individuals and corporations alike. Obsolete provisions, such as those on fringe benefit tax, have been removed. Handy reference tables for TDS rates, presumptive taxation, salary calculations, and bad debt deductions are built into the statute to reduce the need for constant cross-checking.
What the Bill does not do is equally telling. The basic tax slabs remain unchanged. The government has chosen stability over tinkering, avoiding a reshuffle that could disrupt financial planning mid-decade. Moreover, judicially interpreted “key words” and “phrases” have been retained to preserve continuity and avoid reopening settled disputes. Alongside the main Bill, the Lok Sabha also passed the Taxation Laws (Amendment) Bill, 2025, which provides direct tax relief to Saudi Arabia’s sovereign wealth fund and its subsidiaries investing in India—another signal of New Delhi’s intent to position itself as a global investment magnet.
The larger question is whether this legislative overhaul will translate into tangible ease for the average taxpayer. The scale of the change is undeniable: halving the volume of the statute, codifying clearer definitions, and setting out taxpayer rights in more explicit terms is not a cosmetic exercise. Yet, the true test will lie in implementation—how quickly tax officers adapt to the new framework, how effectively litigation is reduced, and whether taxpayers actually find the system more predictable and less adversarial. Tax laws are not just about numbers on a return; they shape the relationship between citizen and state. A transparent, concise, and fair code fosters trust, encourages compliance, and reduces the incentive to evade. By modernising a law that has been patched and repatched for over six decades, the government signals its intent to move away from a labyrinthine approach to a more service-oriented one. Critics may point to the absence of changes in slabs or rates, or to the timing of such a sweeping reform just months before a general election. Supporters will argue that simplification is long overdue and should be welcomed regardless of political context. Both positions have merit, but the fact remains that India’s tax architecture was in need of a reset. The Income Tax (No. 2) Bill is that reset—one that promises to marry clarity with efficiency, and tradition with modernity. If the promise is kept, April 1, 2026, will not just mark the start of a new tax year, but the beginning of a more straightforward fiscal dialogue between the government and its people. For a country with aspirations of becoming a $5-trillion economy, that clarity is not just welcome—it is essential.