Lok Sabha Passes Income Tax Bill 2025 with Key Reforms

Nirmala Sitharaman addressing media on Income Tax Bill 2025 reforms – Lok Sabha updates, Indian economy, tax policy changes.

In a significant move for taxpayers and non-profit organizations alike, the Lok Sabha has passed the new Income Tax (No.2) Bill, which retains several key provisions from the existing tax laws while introducing crucial amendments. As India navigates its fiscal landscape, this legislation seeks to streamline processes surrounding income tax returns (ITR), tax exemptions for religious and charitable organizations, and the treatment of anonymous donations. In this article, we delve into the salient features of the new bill and examine how it aligns with the recommendations of the Select Committee.

Retention of ITR Filing for TDS Claims

One of the most notable aspects of the new bill is its retention of provisions regarding ITR filing for Tax Deducted at Source (TDS) claims. This decision marks a shift from earlier proposals that aimed to eliminate such flexibility. By maintaining these provisions, the government is addressing concerns from taxpayers who rely on these claims for refunds.

Changes in TDS Correction Statements

To alleviate grievances faced by deductees, the new bill reduces the time period for filing TDS correction statements from six years to two years. This amendment is expected to simplify compliance and enhance efficiency in resolving disputes related to TDS deductions.

Electronic Payment Facilities for Professionals

The Income Tax (No.2) Bill also introduces an important update regarding electronic payment facilities. Clause 187 now includes professionals with total receipts exceeding ₹50 crore per annum, thereby providing them with prescribed electronic modes of payment. This change not only modernizes tax compliance but also aligns with global practices in financial transactions.

Tax Exemptions for Anonymous Donations

A major point of contention in previous drafts was the taxation of anonymous donations received by non-profit organizations (NPOs). The Select Committee's recommendations have led to a restoration of provisions from the Income Tax Act, 1961, allowing religious trusts that do not engage in mixed charitable activities to receive anonymous donations tax-free. However, donations directed towards charitable functions such as education or healthcare will be subject to taxation.

Shift from 'Receipts' to 'Income' 

Another significant change pertains to how NPOs are taxed. The committee opposed taxing 'receipts', arguing it contradicted principles of real income taxation. Consequently, the bill replaces 'receipts' with 'income', ensuring that only net income is subject to tax—an important clarification that aligns with established taxation norms.

Flexibility in ITR Filing Requirements

The new Income Tax (No.2) Bill removes mandatory requirements for individuals who wish to claim refunds through ITR filing if they miss deadlines. This flexibility allows taxpayers who may not be required to file returns under normal circumstances to still benefit from refund claims—a welcome change aimed at simplifying taxpayer obligations.

Conclusion

The passage of the Income Tax (No.2) Bill represents a crucial step forward in India's tax reform journey. By retaining essential provisions concerning TDS claims and refining regulations governing non-profit organizations, this legislation seeks to create a more efficient and taxpayer-friendly environment. As these changes come into effect, both individual taxpayers and NPOs will need to stay informed about their rights and responsibilities under this updated framework.

In light of these developments, stakeholders are encouraged to review their compliance strategies and seek professional advice where necessary to navigate this evolving landscape effectively. The reforms introduced through this bill signify a commitment toward enhancing transparency and fairness in India's tax system—an aspiration that ultimately benefits all citizens.

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