The Income Tax Bill, 2025 — popularly known as the ‘new I-T Bill’ — has been passed by both houses of Parliament and received the President’s assent on August 21, officially making it an Act. It is all set to come into force from April 1, 2026.

This is the second draft of the Bill that has been passed, following the withdrawal of an earlier draft by the Finance Ministry to make changes recommended by a Select Committee of the Lok Sabha. Amidst the rigmarole, taxpayers seem to have certain questions in their mind regarding the new legislation. Here’s addressing a few.

Why was the initial draft of the I-T Bill withdrawn?

According to Neeraj Agarwala, Partner, Nangia & Co LLP, “The new Income Tax Bill was initially withdrawn to correct drafting inconsistencies and to carefully consider the feedback received from various stakeholders. For example, in the first draft, taxpayers were required to file their return on or before the due date of original filing, in order to claim refund. While it did allow filing a belated return, this condition was considered restrictive when compared to the provisions under the existing Income Tax Act, 1961 (ITA). To address such issues, the draft was sent back for revision, and the Parliamentary Select Committee recommended several changes that were subsequently incorporated into the new version.”

What are the key changes proposed in the revised version?

According to Agarwala, “Among the important modifications was the treatment of pre-construction interest deduction. The earlier draft permitted this deduction only for self-occupied property, whereas the ITA extends the benefit to both self-occupied and let-out properties. The revised version has corrected this anomaly.”

Another important correction relates to the rebate under section 87A. Under the ITA, marginal relief is available to resident individuals under the new tax regime if their total income exceeds ₹12 lakh. This safeguard was missing in the initial draft but has been reinstated.

Similarly, the ITA provided taxpayers with the facility to obtain both lower TDS and nil-TDS certificates, albeit for specified receipts. The first draft of the bill failed to explicitly recognize nil-TDS certificates, which has now been addressed.

How does advance nil-TDS certification help?

“An advance nil-TDS certificate helps a taxpayer by preventing unnecessary tax deductions at source when their income is either exempt from tax or their total tax liability is expected to be nil. Without such a certificate, the payers are obligated to withhold TDS, often creating a situation where the taxpayer has to claim a refund while filing the return, leading to cash flow issues.

By obtaining a nil-TDS certificate in advance, the taxpayer ensures that no tax is deducted at source, thereby improving liquidity, and aligning the actual tax deducted with their final liability”, says Agarwala.

What are the changes proposed in commuted pensions or lumpsum pension payments received by some individuals?

In fact, there are no changes proposed in this regard. The new law just presents the earlier provisions in a table within section 19, for better comprehension.

Commuted pension received by employees of the Central Government or government of the States or a corporation established by a Central Act or State Act remain exempt.

For other employees, such as employees serving a private organization, commuted pension remains taxable with a deduction from the actual amount, as earlier. For those who are in receipt of gratuity, the deduction is one-third of the commuted pension. For others, it is half of the commuted pension.

Further, commuted pension from a pension scheme with an IRDAI-approved insurer remains outside taxation ambit, as it has been earlier.

What does clause 202(1) under the revised Income-tax Bill specify?

Clause 202(1) houses the provisions that relate to the new tax regime applicable to individuals and HUFs among others. Here, the provisions stay the same as contained in the extant section 115BAC of ITA. The new slabs that were introduced in Budget 2025 and provisions with respect to the restrictions on claiming deductions and exemptions under section 115BAC are all carried over and there are no notable changes.

Published on August 28, 2025