The Income Tax Bill 2025 has officially been passed in the Lok Sabha on August 11, bringing some much-awaited clarity for taxpayers in India. One of the most talked-about updates is that even late income tax return (ITR) filers will now be eligible for tax refunds.
The bill also introduces important clarifications on standard deduction for house property and other provisions to make compliance easier and disputes less likely.
Here’s a simple breakdown of everything you need to know.
The Income Tax Act, 1961 has been in force for over six decades. With evolving business structures, digital transactions, and tax complexities, the government has decided to overhaul the law completely. The new Income Tax Bill, 2025 will replace the existing Act starting April 1, 2026.
The journey of this bill has been interesting:
Earlier, there was widespread confusion that late ITR filers would lose the right to claim refunds. This came from interpretations of Clause 263 in the original draft, which appeared to block refunds for those filing after the due date (usually July 31 or September 15 for certain cases).
Even though the Income Tax Department had clarified that these interpretations were incorrect, tax consultants and taxpayers still feared losing refunds.
What Has Changed?
The Select Committee recommended removing the restrictive sub-clause from Clause 263 to ensure flexibility in refund claims. The government accepted this suggestion.
Final Rule:
Example:
If you pay excess tax and file your ITR after the due date (say in October), you can still claim your refund. Earlier, this was unclear and could have led to disputes.
Another important clarification relates to how standard deduction on income from house property will be calculated.
Under the existing law, a 30% standard deduction is allowed on the annual value of the property. But there was ambiguity on whether municipal taxes should be deducted before applying the 30%.
The parliamentary panel suggested:
The government accepted both recommendations.
Example:
This will help avoid unnecessary disputes and align the law with current practices.
Many taxpayers miss the due date for genuine reasons—technical glitches, health issues, or lack of awareness. Blocking refunds in such cases would have been unfair. The revised bill ensures you get back your excess tax paid, even if you file late.
By stating how municipal taxes should be treated, the government is removing grey areas that could lead to litigation. This is especially helpful for property investors and homeowners who let out their properties.
While these two changes have grabbed headlines, the Income Tax Bill 2025 includes several other updates aimed at simplifying compliance:
Once passed by both Houses and notified, the Income Tax Bill 2025 will come into force from April 1, 2026. This will officially replace the Income Tax Act, 1961, marking a big shift in how taxes are calculated, filed, and processed in India.
Once passed by both Houses and notified, the Income It’s important for taxpayers, accountants, and business owners to stay updated and prepare for the transition.
Here’s what you should keep in mind after this update:
Even though late filers can now claim refunds, late filing still has drawbacks such as interest, late fees, and reduced carry-forward of losses.
Since municipal taxes will directly affect your standard deduction, keep payment receipts safely.
With the complete overhaul of the tax law, regular updates will be crucial. Follow credible sources or consult your tax advisor.
Whether early or late, ensure your ITR is correct to avoid notices and reassessments.losses.
The New Income Tax Bill 2025 brings much-needed clarity and relief for Indian taxpayers. By allowing refunds for belated returns and clarifying standard deduction rules for house property, the government is making the system more fair and transparent.
From April 1, 2026, the tax landscape will change significantly—being prepared is the key to avoiding compliance headaches.