New Delhi: In a significant legislative development, the Indian government has officially withdrawn the much-anticipated Income-Tax Bill, 2025, which was introduced in the Lok Sabha on February 13 with the intent to overhaul India’s outdated tax regime. The decision was announced by Union Finance Minister Nirmala Sitharaman, who confirmed that a revised and updated version of the Bill will be introduced in Parliament on Monday, August 11.
The now-withdrawn draft was introduced as a replacement for the over six-decade-old Income-Tax Act of 1961, marking what many saw as the most comprehensive reform in India’s direct tax law history. However, due to a series of technical oversights, inconsistencies, and ambiguous provisions, the government opted for a fresh draft instead of pursuing amendments to the existing proposal.
Why the Withdrawal Was Necessary
Addressing the House, Finance Minister Sitharaman stated that the decision to withdraw the Bill stemmed from the need to ensure clarity, legal precision, and correctness in legislative language. “Several suggestions have been received which are required to be incorporated to convey the correct legislative intent. There are corrections in the nature of drafting, alignment of phrases, consequential changes and cross-referencing,” she explained.
Instead of issuing a patchwork of changes, the government decided to start afresh to present a clean and error-free document. The new version of the Bill will integrate most of the recommendations made by the Select Committee headed by BJP leader Shri Baijayant Panda.
Key Concerns Flagged by the Select Committee
The Select Committee, which closely examined the draft, raised critical concerns, particularly with regard to drafting inconsistencies that could potentially result in misinterpretations or legal loopholes.
Clause 21 (Annual Value of Property): The phrase “in normal course” was flagged for creating confusion in valuation scenarios involving vacancy. The panel recommended reintroducing a comparative approach between actual rent received and “deemed rent,” as practiced under the current Act.
Clause 22 (House Property Deductions): It was advised that the standard 30% deduction be applied after subtracting municipal taxes from the annual value. Additionally, deductions for pre-construction interest on let-out properties were recommended.
Clause 19 (Pensions): The Committee proposed allowing deductions for commuted pensions received by non-employees under “Income from Other Sources,” bringing parity with salaried individuals.
Clause 20 (Commercial Property Use): The change of language from “occupied” to “as he may occupy” was suggested to avoid taxing business premises that are temporarily unused as income-generating properties.
These suggestions were intended to bring consistency with existing practices and promote fairness, particularly for middle-class taxpayers and property owners.
What the Withdrawn Bill Offered
Despite its shortcomings, the Income-Tax Bill, 2025 was hailed as a transformative piece of legislation designed to simplify India's complex tax structure. Its highlights included:
Simplified Legal Framework: The proposed Bill aimed to replace 298 sections of the 1961 Act with just 536 logically arranged sections in a modern format. It reduced legal jargon, consolidated deductions, and eliminated over 300 redundant clauses.
No New Tax Burdens: The Bill retained the current tax slabs, capital gains rules, and income classifications, aiming to ease anxiety among taxpayers.
Reduced Penalties & Litigation: The “trust first, scrutinise later” approach reflected a shift toward voluntary compliance, with lower penalties for technical or first-time errors.
Digitally-Driven Administration: The Bill emphasized digital monitoring, streamlined TDS provisions, and introduced the concept of a “tax year” to avoid confusion with the assessment year.
User-Friendly Structure: Tables, formulas, and simpler definitions were used throughout to improve readability and implementation by both professionals and ordinary taxpayers.
Next Steps: A Fresh Bill on August 11
The revised Income-Tax Bill will now be tabled on August 11, incorporating the Select Committee’s inputs and correcting all major drafting flaws. This version is expected to offer a cleaner, streamlined, and more legally sound alternative to the withdrawn draft.
The government’s decision to proactively withdraw and replace the Bill reflects both the complexity of tax reform and the commitment to legislative precision in a fast-evolving economic landscape.
As India awaits this modernized tax code, the Finance Ministry has assured citizens that transparency, simplicity, and taxpayer convenience will remain at the heart of the country’s new fiscal framework.