New Delhi, August 2025 — The Income Tax (No. 2) Bill, designed to replace the six-decade-old Income Tax Act of 1961, has been passed in the Lok Sabha. Marketed as S.I.M.P.L.E — Streamlined, Integrated, Minimised litigation, Practical, Learn & adapt, Efficient — the reform promises a clearer, more transparent, and taxpayer-friendly regime.
Finance Minister Nirmala Sitharaman confirmed that most of the 285 recommendations from the Parliamentary Select Committee, chaired by BJP MP Baijayant Panda, have been incorporated. The bill is set to come into effect from April 1, 2026, reshaping how India’s tax system works for individuals, MSMEs, and corporates.
The Income-Tax Bill, 2025 has been introduced in the Lok Sabha today.
— Income Tax India (@IncomeTaxIndia) February 13, 2025
The Bill aims to simplify the tax system for all and is built on these core "SIMPLE" principles:⬇️ pic.twitter.com/bX4Zc1ImdR
Why This Bill Matters
The 1961 Act had undergone over 4,000 amendments and ballooned to over five lakh words, creating a complex web of legalese. The new Income Tax (No. 2) Bill aims to simplify tax laws by nearly 50%, cutting ambiguity, improving cross-referencing, and making deductions clearer.
Key changes include:
- Simplified definitions for ‘capital asset’, ‘micro and small enterprises’, and ‘beneficial owner’.
- Clearer rules on income from house property, including 30% standard deduction and clarity on pre-construction interest for home loans.
- Better alignment with MSME definitions under the MSME Act.
Major Taxpayer Benefits
- Refund Relief: Late return filers can still claim tax refunds.
- No Penalty on Late TDS Filing: Removes financial penalties for delays.
- Nil-TDS Certificate: Advance certificates for those with no tax liability, available to both residents and non-residents.
- Pension Deductions: Explicit deductions for commuted (lump-sum) pensions from specified funds like the LIC Pension Fund.
- Inter-Corporate Dividend Deduction: Restored under Section 80M to prevent double taxation.
Shift to a ‘Tax Year’ System
One of the most notable changes is replacing the financial year/accounting year model with a single tax year — meaning tax will be paid in the same year income is earned, streamlining compliance and reporting.
— Income Tax India (@IncomeTaxIndia) February 13, 2025
What Remains Unchanged
Despite the massive overhaul, existing income tax slabs stay the same. Key legal definitions upheld by past court rulings also remain intact.
Additional Legislative Moves
Alongside this bill, the Taxation Laws (Amendment) Bill, 2025 was also passed, offering direct tax relief to Saudi Arabia’s sovereign wealth fund and subsidiaries investing in India.
Why It’s Being Called ‘S.I.M.P.L.E’
The bill’s acronym stands for:
- Streamlined structure & language
- Integrated & concise provisions
- Minimised litigation
- Practical & transparent rules
- Learn & adapt approach
- Efficient tax reforms
This change is positioned as India’s biggest tax reform in decades, aiming to build a simpler, fairer, and more predictable tax environment.
