Individuals will be allowed to claim TDS refund even if their return of income is filed beyond the statutory timeline provided for filing of the original income-tax return

PTI New Delhi

The Income Tax Bill (No.2) 2025 - a major legislative move to replace the 63-year-old law governing income taxation for individuals and corporations - was passed in the Lok Sabha on Monday in just three minutes, without any debate.

The Bill, which streamlines TDS, exemptions and other compliance-heavy provisions as also allows individuals to claim refunds without penalty on delayed filings, was passed as the opposition parties continued to disrupt proceedings over allegations of irregularities in the special intensive revision (SIR) of electoral rolls in Bihar.

Finance Minister Nirmala Sitharaman, who had on August 8 withdrawn the Income Tax Bill, 2025 she had introduced in February, on Monday introduced an updated version incorporating recommendations made by a Parliamentary panel that scrutinised the legislation. Amid slogan shouting by the opposition, the bill was put to vote and passed by voice vote.

The Bill will now go to the Rajya Sabha for approval and thereafter to the President for assent. It will become law once the Presidential assent is provided. The new bill reduces the size and complexity of the current Income Tax Act, drastically cutting the number of effective sections and chapters and nearly halving the word count.

"Almost all of the recommendations of the Select Committee have been accepted by the Government. In addition, suggestions have been received from stakeholders about changes that would convey the proposed legal meaning more accurately," said the statement of Objects and Reasons of the Income Tax (No.2) Bill. It does away with the confusing concepts of assessment year and previous year, replacing them with easier to understand 'tax year'.

According to the revised Bill, individuals will be allowed to claim TDS refund even if their return of income is filed beyond the statutory timeline provided for filing of the original income-tax return. Thus, the Finance Ministry has incorporated the provision of the existing Income Tax Act, 1961. The Income Tax (No.2) Bill provides for 'nil' TCS on Liberalised Remittance Scheme (LRS) remittances for education purposes financed by any financial institutions.

Nangia Andersen LLP Partner Sandeep Jhunjhunwala said deductions in respect of certain inter-corporate dividends for companies opting for concessional rate of taxes have been re-introduced in line with the provisions of the existing Income-tax Act, 1961 The provisions relating to the carry forward and set-off of losses have been appropriately amended and the reference to the beneficial owner has been omitted to align with Section 79 of the Income-tax Act, 1961.

"By enabling refunds for belated returns and harmonising definitions of Micro and Small enterprise with allied statutes, the Bill reflects a balanced, pragmatic, and taxpayer-oriented approach," Jhunjhunwala said.

While the Bill has welcome changes for enhancing clarity and reducing litigations, there seems to be no significant changes made to contentious provisions surrounding search and seizure in the virtual digital space. The present act provides authorised officers to conduct search and seize assets and books of accounts of individuals who may be suspected to have any undisclosed income or documents in order to evade paying tax.