New Delhi, August 11, 2025 — The Lok Sabha today cleared the Income Tax (No. 2) Bill, a landmark reform set to replace the six-decades-old Income Tax Act, 1961, with a simpler and more transparent law. The Bill, dubbed S.I.M.P.L.E by Finance Minister Nirmala Sitharaman, aims to streamline tax provisions, reduce litigation, and make compliance easier for individuals and businesses.

The S.I.M.P.L.E acronym stands for: Streamlined structure and language; Integrated and concise; Minimized litigation; Practical and transparent; Learn and adapt; Efficient tax reforms. The first draft, tabled in February, was reviewed by a select committee led by BJP MP Baijayant Panda, which made 285 suggestions — most of which have now been incorporated.

Mr. Panda noted the 1961 Act had undergone over 4,000 amendments and grown to over five lakh words, creating unnecessary complexity. The new Bill cuts this bulk by nearly 50%, introduces clearer definitions, and aligns provisions for modern tax practices.

Key Changes in the New Draft
Refund Relief – Taxpayers can claim refunds even with late return filing.

No Penalty on Late TDS Filing – Financial penalties for delayed TDS filings will be removed.

Nil-TDS Certificate – Taxpayers with no liabilities can obtain advance ‘nil certificates’ — applicable to both Indian and non-resident taxpayers.

Commuted Pensions – Explicit tax deduction for lump-sum pension payments from specified funds like the LIC Pension Fund.

Inter-Corporate Dividends – Deduction under Section 80M restored to prevent double taxation in multi-tier company structures.

Property Tax Clarity – Standard deduction fixed at 30% for house property income; clearer rules for interest deductions and rental valuation.

Alignment with MSME Definitions
The Bill aligns definitions of micro and small enterprises with the MSME Act (revised July 2020).

Micro Enterprise – Investment under ₹1 crore; turnover below ₹5 crore.

Small Enterprise – Investment under ₹10 crore; turnover below ₹50 crore.

Introduction of ‘Tax Year’
A significant reform is replacing the current dual system of Financial Year (FY) and Assessment Year (AY) with a single Tax Year. This means income earned in a year will be taxed in that same year, improving transparency and ease of understanding.

Simplified Provisions and Handy Tables
The Bill removes redundant sections, such as those on fringe benefit tax, and includes easy-reference tables for TDS rates, presumptive taxation, salaries, and bad debt deductions.

What Stays the Same
The existing income tax slabs remain unchanged. Also, key terms and phrases established through court rulings will continue to hold legal weight.

Alongside, the Taxation Laws (Amendment) Bill, 2025 was also passed, providing direct tax relief to Saudi Arabia’s sovereign wealth fund and its subsidiaries investing in India.

The Income Tax (No. 2) Bill is scheduled to take effect from April 1, 2026, marking a new era in India’s taxation framework with a focus on simplicity, clarity, and fairness.