Select Committee Flags Gaps in Income Tax Bill 2025, Issues 32 Critical Recommendations [Read Report]

The report was presented in Parliament by MP Baijayant Jay Panda, who led the Committee. The Income Tax Bill was first introduced by Finance Minister Nirmala Sitharaman on February 13, 2025. It is meant to replace the old Income Tax Act of 1961 with a new and modern version.

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Simplifying the Law and Improving Clarity

One of the main goals of the new bill is to make the language simpler and the law easier to follow. But the Committee found that many parts of the bill still use unclear words or old references from the 1961 law.

For example, the definition of “capital asset” should be updated to match changes made in the Finance Act 2025. Terms like “parent company,” “co-operative bank,” and “micro and small enterprises” should match the definitions used in other Indian laws. This will help avoid confusion and legal problems.

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Deductions Must Be Easy to Understand

The Committee wants the rules about deductions (money that can be reduced from taxable income) to be clearer.

It said the 30 percent standard deduction on income from house property should only apply after subtracting municipal taxes.

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It also suggested:

• Allowing deductions for pre-construction interest on both self-occupied and rented houses.
• Making the rules for scientific research and pension contributions clearer.
• Bringing back the term “adjusted gross total income” to avoid giving more tax relief than intended.

Help for Small Taxpayers and Charitable Groups

The Committee gave good news for low-income individuals. It said people should not be forced to file tax returns just to get back the tax already deducted from their income. This rule should be removed, as it causes stress and confusion for small taxpayers.

It also gave helpful suggestions for charitable and religious organisations. The current bill does not clearly explain how these groups will be taxed. The Committee said:

• The law should again allow a category for “religious-cum-charitable” organisations so they can get exemptions on anonymous donations.
• The word “income” should be used instead of “receipts” so that only real income is taxed.
• A rule called “deemed application” should be brought back so groups that spend funds a little late can still get tax benefits.

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Fixing Legal Gaps and Keeping Old Rules Safe

The Committee saw some issues where the new bill may change the meaning of old laws by mistake. For example, the bill now says that authorities “may” give penalties instead of “shall.” This change could let officers skip penalties even when someone breaks the law. The Committee said this must be corrected.

It also recommended making changes to:

• Rules about capital gains (profits from selling assets),
• Rules about carrying forward losses, and
• Rules about refunds when income is shared between people.

The Committee supported anti-tax avoidance rules, but said that each case must be checked carefully and fairly. To make sure the change from the old law to the new one goes smoothly, the Committee said there should be a clear rule to save past legal judgments made under the 1961 law.

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Better Ways to Solve Tax Disputes

The Committee suggested that more people should be allowed to use the Advance Ruling system, which helps taxpayers understand how the law applies to them. It also said:

• The fees should be lower so more people can use it.
• The system needs more staff and resources to handle complex cases.

It also supported the Dispute Resolution Committee for small taxpayers and said it should be improved and expanded later.

Updating Tax Administration for Today’s World

The Committee gave ideas to make tax administration modern and more practical. These include:

• Giving foreign liaison offices more time (8 months instead of 60 days) to follow tax rules,
• Allowing the government to set fees for advance rulings through rules, not fixed amounts in the law,
• Expanding the list of approved valuers and professionals to help in asset valuation.

On Digital Access Powers

A lot of debate was around Clause 247, which gives tax officers the right to access emails, cloud storage, and online accounts during investigations. The Committee said this power already exists in law, but must be used carefully. It asked the government to include privacy safeguards and make sure it is not misused.

India’s New Tax Era Begins – Are You Ready for the Changes? Click here

The Select Committee’s 32 suggestions cover everything from basic definitions to major legal and digital powers. Now it is up to the government to decide whether to accept these recommendations. The final law could shape how India’s tax system works for many years.

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