The Union Government on 8 August 2025 withdrew the Income-Tax Bill, 2025 from Lok Sabha — the comprehensive direct tax reform measure originally introduced on 13 February 2025. Three days later, on 11 August, the Finance Minister tabled the Income-Tax (No. 2) Bill, 2025, a revised version incorporating recommendations from the select committee that had examined the original legislation.
Background
The Income-Tax Bill, 2025 was introduced during the Budget Session as the most ambitious overhaul of India's direct tax legislation since the Income Tax Act, 1961 came into force. The Bill sought to replace the 1961 Act with a simplified, modernised statute designed to reduce litigation and improve compliance.
Following its introduction, the Bill was referred to a select committee for detailed examination. The committee received representations from professional bodies, industry associations, and tax practitioners, and submitted its report with over 100 recommendations addressing drafting ambiguities, transitional provisions, and computational complexities that had been identified in the original text.
The withdrawal-and-reintroduction procedure — rather than moving amendments clause by clause — was adopted to accommodate the volume and nature of changes recommended by the select committee.
Key Provisions
The Income-Tax (No. 2) Bill, 2025 retains the structural architecture of the original Bill while incorporating the following revisions:
Select committee recommendations adopted: The revised Bill incorporates recommendations from the committee's report, addressing concerns raised by tax professionals and industry stakeholders regarding computational provisions and transitional arrangements.
Structural framework preserved: The Bill maintains the reorganised chapter structure that consolidates the 1961 Act's provisions into a more logically arranged framework. The objective of reducing the total number of operative provisions remains intact.
Transitional provisions strengthened: Enhanced transitional provisions address the treatment of ongoing assessments, pending appeals, and existing tax holidays under the 1961 Act, providing clearer guidance on the switchover regime.
Drafting clarifications: Several provisions that had generated interpretive uncertainty in the original Bill have been redrafted for precision, particularly in the areas of capital gains computation, trust taxation, and international taxation.
Effective date retained: The Bill maintains the proposed effective date of 1 April 2026 for the new direct tax regime, allowing taxpayers and administrators a full financial year to prepare for the transition.
Implications for Practitioners
The withdrawal-and-reintroduction route signals the Government's recognition that the original Bill required substantial refinement before enactment. Tax practitioners should obtain the revised Bill text and conduct a clause-by-clause comparison with the original to identify all changes — particularly in areas where they had flagged concerns during the committee process.
For advisory firms with clients holding ongoing assessments or appeals under the 1961 Act, the strengthened transitional provisions merit immediate attention. The treatment of pending proceedings under the old Act during the transition to the new regime will determine case strategy for thousands of matters currently before appellate authorities.
Given the retained 1 April 2026 effective date, practitioners have approximately seven months from the Bill's expected passage to prepare clients for the new regime. Internal training, system updates, and client advisories should be prioritised during this window.