Income Tax Bill (No 2) Passed In Lok Sabha: Top 5 Changes Every Taxpayer Should Know

The Lok Sabha has passed the revised Income Tax (No. 2) Bill, 2025, which was earlier withdrawn on Friday for corrections. Finance Minister Nirmala Sitharaman introduced the updated version on August 11, incorporating most of the recommendations made by the Parliamentary Select Committee. The Bill is set to replace the six-decade-old Income-tax Act, 1961, from April 1, 2026 once it gets approval in Rajya Sabha as well.

The Bill, as the Income Tax Department and government has been putting forth, intends to bring a S.I.M.P.L.E. tax regime without any overhaul in tax rates.

While the structure of the new tax regime announced in the Union Budget 2025 remains unchanged, the revised draft brings in a series of clarifications and relief measures for individual taxpayers, property owners, and even businesses. Experts say the biggest win is the simpler language, which makes it easier for an average taxpayer to navigate the rules.

The government says it has accepted "almost all" of the Select Committee's recommendations, over 285 of them, along with other suggestions from industry and tax experts. The Bill has 536 sections and 16 schedules, reorganised to make it easier to read and navigate.

Here are the top 5 changes that every individual taxpayer should know and track before April 2026:

1. One "Tax Year" Instead of two dates to remember

The current tax system talks about a "Previous Year" and an "Assessment Year", which has always been a source of confusion. The new Bill scraps that in favour of a single "Tax Year", meaning the year in which you earn the income is also the year in which it is taxed.

If you start a business or have a new source of income mid-year, your tax year will begin from that date and end on March 31.

2. Clarity on rules for property income

If you own a property and it's vacant, the way its taxable value is calculated was riddled with confusion in the original Bill. However, as per the Select Committee's recommendation, the annual value will now be whichever is higher, the reasonable rent it can fetch or the actual rent you received (or are entitled to receive).

Local taxes you have paid can be deducted, and unrealised rent will not be counted. Self-occupied homes or those lying vacant for valid reasons will have a nil annual value, but this is capped at two houses per taxpayer.

For let-out or stock-in-trade properties, the standard deduction stays at 30 per cent after municipal taxes. Interest on borrowed capital will also be deductible, as before.

3. Refunds even if you file late

One small but welcome change, you will now be able to claim a tax refund even if your return is filed after the deadline. Until now, late filers risked losing that money entirely.

4. Pension relief for everyone

Says Archit Gupta, founder and CEO, ClearTax, "Under the previous Income-tax Bill, commuted pensions for non-salaried individuals were taxed at regular slab rates, while salaried employees benefited from full tax exemption. This created an unequal tax burden for those investing in approved pension funds like LIC but not employed in formal pension schemes."

The Bill addresses this by granting full tax exemption on the entire commuted pension for individuals receiving payments from approved pension schemes like LIC Pension Fund, regardless of employment status. "This change ensures that private sector employees or anyone who has independently invested in a pension fund now receives the same tax relief as salaried employees," Gupta notes.

The Bill fixes a long-standing inequity in how commuted pensions (lump sum payouts) are taxed. Earlier, salaried employees got a full exemption, but non-salaried individuals, even those who had invested in approved pension funds like LIC, did not. When this Bill is passed and enacted, the exemption will apply to anyone receiving commuted pensions from approved funds, regardless of employment status.

Gupta believes this is a positive step forward for individuals outside the employment sector who have been saving for retirement. It removes the tax burden on commuted pensions, making it easier for more people to invest in pension schemes and secure their future.

5. Key reliefs for corporate taxation

Dinesh Kanabar, CEO of Dhruva Advisors notes that the provisions of levying Alternate Minimum Tax on LLPs has been done away with in the revised Bill.

Some key notable changes include:

• Rigours placed on Charitable Trust have been removed

• Provisions of Transfer Pricing and the definition of Associated Enterprise to whom these provisions apply, have been relaxed

The earlier Bill proposed that two enterprises would be regarded as associated if at any time during the year, there was common management or control irrespective of the specific definitions of common control provided in the Act. This understanding would have created a subjective challenge, Kanabar notes.

"It is now provided that only in the specified circumstances will management and control be regarded as common. Also, the test is for it to exist as at the end of the year. This will take away the subjectivity and all litigation that goes with it."

Nil TDS Certificates

Another important change is regarding 'Nil-TDS certificates' which can now be obtained in advance by taxpayers with no tax liability, including non-residents.

Besides these headline changes, the Bill also removes redundant provisions (such as those on fringe benefit tax), aligns MSME definitions with the MSME Act, and introduces easy-to-read tables for TDS, presumptive taxation, and salary rules.

The Bill, however, does not change the tax rates announced in Budget 2025. The focus here is on making the law less of a legal puzzle and more understandable for the common taxpayers. From April 2026, taxpayers may still have to choose between the old and new regimes, but the rules around them should be clearer than ever before.