The bill which was introduced earlier this year was withdrawn by the government. Now this bill will go to Rajya Sabha. Its purpose is to simplify the tax rules, reduce disputes and modernize the process. In this, many tax reliefs have been given to pensioners, investors of National Pension System (NPS) and Unified Pension Scheme (UPS).

Full tax exemption on commuted pension

Commuted pension means that the employee takes a part of his pension first as a lump sum amount. Now if this amount comes from an approved superannuation fund or a recognized pension scheme, then that amount is completely tax exempt.

This rule applies to both government and private sector employees, provided their pension plan is government-recognized. This means that you will not have to pay any income tax on the amount received as commuted pension at the time of retirement.

However, this exemption applies only to the lump sum amount received during commutation. The rest of the monthly pension is taxable under normal tax rules. This facility helps employees save tax and is financially helpful after retirement.

New rules are clear on UPS and NPS

The commuted pension portion received in the Unified Pension Scheme (UPS) will be completely tax free. Whereas, the old rules will apply in NPS i.e. on closing or exiting the scheme, 60% of the total deposit amount can be withdrawn tax free.

Retirement Benefit Account

There is a provision for Retirement Benefit Account in the new bill. These accounts will run approved funds and withdrawal from them will be tax free if the prescribed conditions are fulfilled at the time of retirement. Its purpose is to promote retirement savings in a proper manner.

Discount on family pension continues

The exemption that was already available on family pension will continue. In this, one-third of the pension or ₹ 15,000, whichever is less, will be deducted from the taxable income. This facility will be applicable on the pension received by the spouse or dependents of the deceased employee.

Rules for partial withdrawal fixed

The tax rules for partial withdrawal from pension schemes before retirement have now been clarified, which will reduce disputes and increase transparency.

According to the Finance Ministry, the purpose of these changes is to implement uniform tax rules on different pension sources, clarify the law and ensure financial security after retirement.

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Finance Minister Nirmala Sitharaman on Monday introduced the new Income Tax Bill 2025 in the Lok Sabha. This revised bill incorporates most of the recommendations of the Parliamentary Select Committee and will form the basis for replacing the old Income Tax Act of 1961. The government had earlier decided to withdraw the Income Tax Bill 2025 introduced on February 13. Sources have informed CNBC TV18 about many things included in this bill.

1- Deduction available under 80M (IT Act, 1961) — (Section 148 of Income Tax Bill, 2025) — will now be available to companies that have opted for the new tax regime.

2- Commuted pension and gratuity deduction for family members has been provided under Clause 93 of the Income Tax Bill, 2025.

3- Provisions of MAT (Minimum Alternate Tax) and AMT (Alternate Minimum Tax) have been separated into two sub-sections under Section 206.

4- AMT provisions will apply only to non-corporate entities that have claimed deductions. LLPs whose income is only from capital gains will not be liable for AMT if they have not claimed any deduction.

5- Clause 187 has been amended to add the word ‘profession’ after ‘business’ to enable professionals whose total receipts exceed Rs 50 crore in a year to use the prescribed electronic payment mode.

6- Clause 263 (1)(ix) has been removed to allow claim of refund in cases where returns are not filed in due time.

7- Provisions relating to loss carry forward and set-off have been redrafted for better presentation but retain the same intent.

8- The concept of receipt has been replaced by the concept of income, as in the Income Tax Act, 1961.

9- The use of capital gains on acquisition of new capital asset by a registered non-profit organization will be treated as application of income, as in the Income Tax Act, 1961.

10- Where the application of regular income falls below 85 per cent of the regular income due to non-receipt or delayed receipt of such income during a tax year, such income, if opted by the taxpayer, shall be treated as application of income in the tax year in which such income is received.

11- The provisions relating to taxation of anonymous donation have been made in line with the existing provisions of the Income Tax Act, 1961 and exemption has also been provided to mixed purpose non-profit organizations.

12- Mixed object registered non-profit organization has been clearly defined.

13- The requirement of mandatory investment and deposit of deemed accumulated income of 15 per cent of regular income has been abolished.

14- The time period for filing details for TDS Correction Statements has been reduced from 6 years to 2 years, which is expected to reduce the complaints of tax deductors.

15- Those amendments of the Finance Act 2025, which were necessary to be included, have now been made part of the new bill.

16- The amendments made by the Taxation Laws (Amendment) Bill, 2025 have also been made part of the new bill.

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What is the matter- As per the current rules, if your income does not come under the tax bracket but TDS has been deducted from the bank or job, then it is necessary for you to file ITR to get a refund.

If you do not file ITR on time, then there is a risk of penalty or prosecution – even if you do not have any tax liability.

What will be the effect-

This provision has the greatest impact on people whose income is limited, such as:

Senior citizens

People living on pension

Temporary/contract employees

Small investors from whose FDs TDS is deducted

Most of these people do not come under the tax bracket, but still they are forced to file returns just for the refund.

What the committee says-

The Lok Sabha Select Committee has recommended the removal of sub-clause (1)(ix) of Section 263, which makes filing of ITR mandatory for refund.

The committee report says that forcing people with low income to file ITR only for refund is an undue burden. Failure to do so also creates a fear of punishment – which is wrong in practice.

What will change if the recommendation is accepted?

People whose income is less than the basic exemption limit will not be required to file ITR for refund. There will be no fear of penalty or legal action. Simplicity and justice will increase in the system.

What does it mean for taxpayers- If you file ITR every year only for refund, then now this compulsion can end. This will provide great relief to the elderly and people with limited income. The tax system will become more taxpayer-friendly.

What happened in Parliament

Bill introduced: 13 February 2025

Sent to committee: Same day

Report presented: 21 July 2025 (Select Committee Chairperson Baijayant Panda)

Members in the committee: 31 Lok Sabha MPs

Overall- If your income is less than the tax and you file returns only for refund, then the upcoming law can give you freedom from this hassle. This change is being considered a big step towards a simple tax system and respect for honest taxpayers.

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The provision to give such rights to the department has been made in the new Income Tax Bill-2025.

The department can also seize property if needed to investigate tax evasion. Section 132 of the current IT Act-1961 gives tax officials the right to conduct searches and seize properties and all types of accounts. However, honest taxpayers will not face any problem in this.

SR Patnaik, tax expert at Cyril Amarchand Mangaldas, says that this search and seizure should be done only as an exception and not as a rule. It is important to respect the privacy of every person in the digital space, so this law should be used only on the basis of solid reasons.

Officials can also break lockers and safes on undisclosed income.

According to Clause-247 of the Income Tax Bill, if a person has any information related to undisclosed income, property or accounts locked in a locker, safe or box and does not have its key, then the Income Tax Department also has the right to break it. They can enter any building and place and conduct a search.

• If the access code of any lock is not available then Income Tax officers can also break it or open it in their own way.
• Income Tax officials can obtain vital information related to tax evasion by raiding your computer system or even virtual space to access such information.

Clarity on virtual digital space is needed in the new bill

Experts say that the expansion of virtual digital space i.e. VDS under the new Income Tax Bill raises significant concerns regarding constitutional validity and enforcement. While the government may justify it as a measure to curb tax evasion and undeclared digital assets, the vague definition of VDS essentially allows monitoring of access to a person’s financial and private digital assets.

• Without safeguards, this new bill creates a conflict between financial scrutiny and individual privacy rights. This could potentially lead to legal challenges and erode trust in India’s digital ecosystem.

These officers will have the right to access the data.

The officers who have been given the right to access your personal data under the new Income Tax Bill include Joint Director or Additional Director, Joint Commissioner or Additional Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income Tax Officer or Tax Recovery Officer.

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The aim of this bill is to simplify the tax deduction and collection process, making compliance easier for common taxpayers, businesses and tax professionals. Currently, there are many complex sections of TDS and TCS, due to which taxpayers have difficulty in understanding the various rates and deduction rules. But in this new bill, all these provisions have been presented in a structured and simple form so that taxpayers can easily understand how much tax will be deducted or collected on which transactions.

What is TDS and TCS?

Tax Deducted at Source (TDS)

This is a tax that is deducted before any payment is made to a person. Its purpose is to ensure advance tax collection to the government so that the possibility of tax evasion is reduced later.

For example, if you get interest of Rs 10,000 on FD from a bank, then the bank will deduct 10% TDS and deposit Rs 1,000 with the government and pay you Rs 9,000. Later when you file your ITR, this Rs 1,000 will be shown as already deposited and will be adjusted in your tax liability. TDS is usually applicable on salary, professional fees, rent, interest income, commission and contracts.

Tax Collected at Source (TCS)

TCS works exactly opposite to TDS. In this, instead of the payer, the seller collects the tax and deposits it to the government.

For example, if you buy a car worth Rs 12 lakh, the car dealer will take 1% TCS (Rs 12,000) from you and deposit it in the government’s account. TCS is applicable on certain transactions such as sales of motor vehicles, minerals, liquor, scrap, foreign remittances and some others.

What are the changes in TDS/TCS under Income Tax Bill 2025?

Earlier the provisions related to TDS were divided into 43 different sections which included different rates of deduction, limits and other rules. Now all these have been incorporated in a single section 393.

Under this, three different tables have been created:

• For residents
• For non-residents
• For all persons

Each category has a table with these questions:

• Type of payment
• Minimum Limit
• person making the payment
• Applicable TDS Rate

What will happen under the new rules?

Income of similar nature has been grouped together such as commission, rent, interest and income from stock market. Along with this, a separate table has been created in the new rule for those cases in which TDS will not be applicable.

The provisions of TCS have also been consolidated in section 394, which includes all the TCS applicable transactions, minimum thresholds, collectors and TCS rates. Also, some provisions have been split into different sections to provide more clarity, such as:

• Procedure for obtaining Lower TDS/TCS Certificate
• Compliance and reporting
• Penalty for non-deduction or non-deposit of TDS/TCS
• Rules for filing the statement

How have TDS/TCS rules been simplified?

The government has simplified the rules by reducing their number and wording:

• Earlier there were 69 different sections for TDS/TCS, now these have been consolidated into 13 sections.
• Earlier the word number of these sections was 27,452, now it has been reduced to 14,675 words.

This means that now taxpayers will face less complexities and will be able to comply easily.

New TDS/TCS Rates

Although there has been no change in the rates of TDS and TCS, their provisions have been simplified.

Main TDS rates:

• Salary- As per Income Tax slab
• Interest Income – 10%
• Rent (above ₹2.4 lakh) – 10%
• Professional fees (above ₹30,000) – 10%
• Commission (above ₹15,000) – 5%

Main TCS rates:

• On purchase of car above ₹ 10 lakh – 1%
• Foreign remittances above ₹7 lakh – 5%
• On sale of minerals, liquor, scrap – 1%-5%

Standardization of compliance rules

Earlier there were different rules for penalty, refund and exemption for TDS and TCS but now all these have been made uniform.

• Lower TDS/TCS certificate will now be available under a single process.
• For non-deduction of TDS/TCS, 1% monthly interest will have to be paid.
• Late filing will result in penalties and possibility of litigation.

What do these changes mean?

With the new tax rule changes, people will no longer need to understand different sections. Also, businesses and taxpayers will face less documentation process. Tax compliance will become simpler and faster than before.

Which taxpayers will be affected?

For the employed:

• No new change has been made in the TDS deduction applicable on salaries.
• Filing ITR will be easier than before.

For Businesses and Professionals:

• Less paperwork, as now there will be no need to go through multiple sections of TDS.
• Provision for penalty, discount and refund has been made under the same rule.
• Having TDS and TCS in one structure will simplify tax payment.

For investors and taxpayers:

• Old TDS rates will continue to apply on interest, rent and professional fees.
• Understanding and filing TDS/TCS will be easier than ever.

Simple and transparent tax rules

The Income Tax Bill 2025 has made the TDS and TCS rules simple and clear. Now taxpayers will not need to get entangled in many complex sections. This new framework will be in an easy-to-understand format for salaried persons, businesses, investors and professionals.

While there is no change in tax rates, the new rules will make it easier to pay taxes because they are designed to reduce confusion and limit paperwork.

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