Observations/Recommendations from Income Tax Bill Lok Sabha Committee Out [Read Press Release]

The committee’s recommendations, released on July 21, 2025, come after months of deliberation, stakeholder consultation, and in-depth review of the Bill, which was originally introduced in the Lok Sabha on February 13, 2025, and quickly referred to the Select Committee for scrutiny.

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The committee’s report highlights a substantial push for clarity, contemporary relevance, and simplification of the proposed tax measures. One of the key areas targeted is ambiguity arising from definitions. The committee suggests aligning the definition of “capital asset” with recent statutory changes, particularly to account for the treatment of certain securities held by Foreign Institutional Investors and investment funds. Similarly, it seeks direct incorporation of the definition of “infrastructure capital company,” instead of relying on repealed legislation, to make the law self-contained and more accessible. The panel recommends that the terms “micro” and “small” enterprises be redefined to exactly match definitions set forth in the Micro, Small and Medium Enterprises Development Act, 2006, thereby ensuring uniformity and legal certainty across acts.

For income from property, it recommends that the standard deduction of 30% be calculated after subtracting municipal taxes, and that deductions for pre-construction interest should also be granted to let-out properties, improving parity with the current law. Deductions based on actual payment must be explicitly available only for “otherwise allowable” expenses; provisions paralleling Explanation 2 to Section 43B of the prior Income Tax Act should also be restored to avoid interpretational disputes.

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Scientific research and employer pension contributions emerged as key themes. The committee has asked for clearer articulation in clauses governing additional deductions for in-house R&D and the necessary approvals for research expenditures. For employer pension schemes, it calls for amending language to remove ambiguities which could affect deductions taken by individuals.

Drafting errors and potential loopholes in rebates, donations, and set-off of losses were also identified, with the report urging swift corrections. The committee insists that references to “gross total income” in donation deductions be revised to “adjusted gross total income” to uphold the intent of the clause and prevent excessive tax breaks. Meanwhile, ambiguity in the application of certain penalty provisions and appeals processes have prompted calls for more flexibility and scope for discretion, especially for small taxpayers and those facing genuine compliance difficulties.

Recommendations specifically address the nonprofit sector by advocating that legislation revert to taxing only “income” (rather than “receipts”) for non-profit organizations, as per longstanding principles of real income taxation. The committee also seeks to preserve crucial reliefs such as the “deemed application” provisions for NPOs and to clarify how anonymous donations to religious-cum-charitable trusts are treated, thus supporting hybrid entities that serve broad public causes.

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In the area of procedural modernization, the Select Committee calls for extending electronic payment facilities to professionals alongside businesses, more robust definitions for entities such as co-operative banks and valuers, and a substantial extension of time (from sixty days to eight months) for non-resident liaison offices to submit annual statements.

The committee’s drive for simplification is evident in its push to streamline advance ruling fees, clarify the rules on inclusion of income and refund entitlement, and consolidate references to repealed acts, ensuring a clean break from the old regime and enhancing clarity for taxpayers and administrators alike.

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