After final week’s withdrawal of the sooner model of the brand new Earnings Tax Invoice, the Lok Sabha on Monday handed the up to date model, the Earnings-Tax (No.2) Invoice, 2025 and the Taxation Legal guidelines (Modification) Invoice, 2025, which amends the Earnings-tax Act, 1961 and the Finance Act, 2025. The federal government accepted many of the suggestions of the Choose Committee, headed by BJP chief Baijayant Panda, and corrected a number of anomalies within the up to date 624-page Earnings Tax Invoice together with these for LLPs and nameless donations to religious-cum-charitable trusts.
Among the many important adjustments made within the Taxation Legal guidelines (Modification) Invoice, 2025 that sought to amend the Finance Act, 2025 was the inclusion of the ‘Public Funding Fund of the Authorities of the Kingdom of Saudi Arabia’ and its wholly-owned subsidiaries which make funding, instantly or not directly, out of the Fund in clause (23FE) of the Earnings-tax Act.
Earnings tax exemption is given at current to a number of sovereign wealth funds together with Saudi’s Public Funding Fund, which has over $925 billion property beneath administration and was notified for I-T exemption in November 2022. Nonetheless, the Fund had confronted some restrictive norms associated to investments by numerous subsidiaries. With this modification, the federal government has granted full revenue tax exemption to Saudi’s Fund by specifying its identify explicitly within the Act as has been executed earlier for the Abu Dhabi Funding Authority (ADIA).
Launched in Finance Act, 2020, Clause (23FE) of part 10 of the Act offers for the exemption to specified individuals from the revenue within the nature of dividend, curiosity, long-term capital positive aspects or sure different incomes arising from an funding made by it in India. The amendments for Saudi’s Fund are important as it might discover funding alternatives in India together with a stake within the two new refineries being deliberate by state-run ONGC and BPCL.
The Taxation Legal guidelines (Modification) Invoice additionally prolonged revenue tax advantages beneath the market-linked nationwide pension system (NPS) to the assured unified pension scheme (UPS) to supply additional impetus to the scheme. Lump sum funds or the gathered UPS corpus, as much as 60 per cent, from contributions made throughout an individual’s working years might be now withdrawn tax-free on the time of retirement.
Individually, within the adjustments made within the Earnings-Tax (No.2) Invoice, 2025, the federal government tweaked drafting errors to right anomalies like permitting people to assert TDS refund even when revenue tax return is filed after the deadline. It aligned the applicability of the Alternate Minimal Tax (AMT) for Restricted Legal responsibility Partnerships (LLPs) with the prevailing provisions of the Earnings-tax Act, 1961, eradicating the expanded scope that will have included LLPs not claiming particular tax advantages and attracted the next price of 18.5 per cent as in opposition to the preferential price of 12.5 per cent.
“One of the crucial essential amendments within the up to date invoice is the revision of Clause 263, which addresses the eligibility for claiming income-tax refunds. The unique draft included a provision—Clause 263(1)(a)(ix)—that would have been interpreted to imply {that a} taxpayer might solely declare a refund if their tax return was filed on or earlier than the statutory due date. This represented a big departure from the established authorized place, the place refunds might be claimed even for belatedly filed returns. Recognising the potential for this to trigger undue hardship and create ambiguity, the newly launched invoice has fully omitted this restrictive clause,” Amit Maheshwari, Tax Accomplice, AKM International mentioned.
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The brand new Invoice additionally clarified that there shall be nil TCS on Liberalised Remittance Scheme (LRS) remittances for schooling functions financed by any monetary establishments, a provision that had gone lacking within the earlier model. The Invoice has additionally allowed taxpayers who wouldn’t have any I-T legal responsibility to acquire nil-TDS certificates together with deductions for sure inter-corporate dividends for corporations choosing a concessional price, in step with the prevailing provisions.
The Authorities seeks to exchange the prevailing Earnings-Tax Act, 1961 by the brand new I-T Invoice, 2025, which was first launched in Parliament on February 13, 2025, to simplify the six-decade-old construction of direct taxation by streamlining provisions, eradicating out of date references, and making a crisper and less complicated authorized framework. The brand new I-T Invoice, is prone to come into impact from April 1, 2026.
Sure amendments have been made to take away ambiguities associated to switch pricing provisions together with adjustments regarding the carry ahead and set-off of losses. The reference to the helpful proprietor has been omitted to align with Part 79 of the Earnings-tax Act, 1961 together with a clarification of applicability of 30 per cent customary deduction after deduction of municipal taxes whereas calculating home property revenue. “Notable adjustments such because the inclusion of nil-TCS (tax assortment at supply) for specified LRS schooling remittances, provision for nil-TDS certificates, reinstatement of inter-corporate dividend deductions for corporations availing concessional tax charges, and the elimination of the helpful proprietor situation in loss set-off provisions handle key gaps within the earlier draft,” Sandeep Jhunjhunwala, accomplice, Nangia Andersen LLP, mentioned.
The Choose Committee’s advice that exemption ought to be allowed to non-profit organisations (NPOs) for five per cent of the whole donation as an alternative of simply 5 per cent of nameless donations, as is the case within the current Act, has been integrated within the revised Invoice. “Like many different adjustments made within the revised invoice, this modification additionally addresses an inadvertent drafting anomaly within the unique invoice,” Sachin Garg, accomplice, Nangia & Co LLP, mentioned.
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Like the sooner draft, the brand new Invoice introduces the idea of “tax 12 months”, which has been outlined because the 12-month interval starting April 1. It has additionally retained the contentious definition of “digital digital house” — the powers to name for info by revenue tax authorities throughout surveys, searches and seizures together with e-mail servers, social media accounts, on-line funding, buying and selling and banking accounts, distant or cloud servers and digital software platforms. Clause 247 permits tax officers to bypass passwords and entry digital platforms like emails and social media throughout searches.
The provisions associated to dam evaluation in search and seizure circumstances have additionally been streamlined, with a majority of adjustments made to exchange the definition of ‘complete revenue’ with ‘complete undisclosed revenue’. “When the block evaluation regime for search and seizure circumstances was launched by the Finance Act, 2024, the regulation used the time period “complete revenue” for figuring out the taxable base. This broad terminology created apprehension amongst taxpayers and professionals, because it prompt that even disclosed revenue — revenue already reported in returns or in any other case accounted for — might be introduced throughout the ambit of the block evaluation, probably attracting harsh penalties. Recognising these issues, the Finance Act, 2025 has revised the definition and changed the time period “complete revenue” with the extra exact time period “complete undisclosed revenue”.”
“This modification makes it clear that the first goal of search and seizure proceedings is to establish, tax, and penalise revenue that has been hid or not reported, moderately than re-assessing revenue that’s already on file. This modification was not recorded in earlier draft of revenue tax invoice 2025,” Maheshwari mentioned.