The Select Committee of the Lok Sabha has flagged 32 specific issues in the draft Income Tax Bill, 2025, marking a significant step in what is otherwise pitched as a plain-language rewrite of India's tax laws. The Committee's report, laid in Parliament on Monday, runs into over 4,500 pages and points out a mix of drafting inconsistencies, missing provisions, and gaps that could have implications for both individuals and organisations.
The Bill, introduced in February this year, is meant to replace the Income Tax Act of 1961 and streamline the language and structure of the law. However, the parliamentary panel, led by BJP MP Jay Panda, has sent a clear message: simplifying legal text is not the same as ensuring clarity or fairness.
Definitions Need Better Alignment
One of the first things the report dives into is definitions, many of which, the panel says, are either unnecessarily vague or not aligned with the laws they are meant to reflect. For example, the definition of "capital asset" doesn't factor in the updated treatment of foreign institutional investments. The terms "co-operative bank," "infrastructure capital company," and "micro and small enterprise" are other examples where either ambiguity creeps in or the references are outdated.
The suggestion is straightforward: instead of loosely referencing other laws, the definitions should directly adopt the relevant statutory language. It saves interpretation trouble down the line.
Tweaks Recommended in Key Deductions
The report points to several sections where income computation or deductions may end up deviating from the intention of the law. Clause 22, which is related to income from house property, is one example. It does not clearly state that municipal taxes are to be excluded before applying the standard 30 per cent deduction. The panel suggests that the clarification be made explicitly.
They also raised the issue of pre-construction interest on housing loans. As per the current version of the Bill, the deduction appears restricted to self-occupied property. The panel recommends opening it up to let-out properties as well.
In other areas, like employer pension contributions and donations to charitable institutions, the Committee noticed small changes in wording that could have unintended effects, either changing the scope of what qualifies or increasing the compliance burden.
Relief Sought for Small Taxpayers and Charitable Institutions
The Committee seems especially concerned about how the draft may affect individuals with lower incomes or organisations operating on public trust. One notable example: taxpayers earning below the exemption limit would still be required to file returns just to claim a TDS refund. The panel has asked the government to rethink this, calling it excessive.
For non-profits, several protections that exist in the current law didn't carry over into the draft Bill. The concept of "deemed application of income", a provision that lets institutions apply funds with a delay, has been omitted. The report suggests it be restored. They also point out the need to bring back exemptions on anonymous donations for religious-cum-charitable institutions.
Even the use of the word "receipts" instead of "income" in a few clauses could change how taxation is calculated for these organisations. That change, the report warns, would increase their tax liability unless corrected.
Procedural Gaps and Administrative Leeway
Some of the recommendations fall under technical or administrative changes, but they carry weight. The panel has asked that Clause 395, which deals with TDS certificates, explicitly allow "Nil" deduction certificates, a detail that was present in the 1961 law but missing here.
There is also concern around mandating penalties in cases of non-maintenance of books. The Committee wants to restore some discretion to tax officers, instead of making such penalties automatic. The recommendation is based on the belief that not every lapse is deliberate.
Another practical recommendation: non-resident liaison offices should get more time, up to 8 months, to file their statements, especially considering the compliance burden across jurisdictions.
One subtle but important change they have pushed for is the reinstatement of the phrase "in the circumstances of the case" under the anti-avoidance provisions. It may look minor, but in tax disputes, such language matters.
What's Next?
The government has not yet indicated how many of the Committee's suggestions it will accept. But given that this is one of India's biggest tax law overhauls in decades, the quality of legislative drafting will be under close watch, not just for how readable the law is, but for how fair and future-ready it turns out to be.
