The Parliament of India has passed the Income Tax (No.2) Bill, 2025, replacing the Income Tax Act, 1961, with a focus on simplifying the language and structure of the act. The bill aims to remove redundant provisions and bring it in line with the current era.
The new bill has been streamlined to 259,676 words compared with the 512,535 words in the 1961 act. This means the new bill has 536 sections and 23 chapters in comparison to 819 sections and 47 chapters in the 1961 act.
While the Finance Ministry’s Central Board of Direct Taxes says the revised bill does not introduce major policy changes or any modification of tax rates, there are changes of note.
Among these, section 247 enables authorities to direct any income tax officer to inspect account books or other documents held in electronic form or on a computer system where it is believed that files mentioned in the summons notice have been concealed. Officials will be able to gain access to the virtual digital space, which includes email servers, social media accounts, online investment accounts, bank accounts, websites, etc.
The bill eliminates clause 263, which was present in an earlier draft that prevented taxpayers from filing refunds claims if they had missed the due date for submitting income tax returns. The inter-corporate dividend deduction for companies opting for the concessional 22% tax regime has been reinstated to prevent cascading taxation and significant costs levied on enterprises.
The new bill also reinstated a condition for the application of alternate minimum tax if deductions were claimed, which otherwise would have exposed all limited liability partnerships to an increased tax burden.
Eligible assessors will be able to refer draft orders to a dispute resolution panel of three principal commissioners or income-tax commissioners. The panel has the power to confirm, reduce or enhance the variations proposed in the draft order, which will be binding on the assessing officers.
The bill is expected come into effect on 1 April 2026.
