Individual taxpayers can expect much-needed clarity on tax refunds for belated returns and the computation of standard deductions on house property after the Lok Sabha passed the reintroduced Income Tax Bill, 2025 on August 11. The updated legislation incorporates several key amendments recommended by a 31-member parliamentary panel headed by BJP MP Baijayant Panda.
The bill, once enacted, will take effect from April 1, 2026, replacing the Income Tax Act, 1961, which has been in force for over six decades.
Key Recommendations Incorporated
The select committee submitted its report on July 21, suggesting 285 amendments to the original bill introduced in February. Following this, the government withdrew the initial bill last week and tabled a revised version, accepting several critical changes.
1. Refunds Now Allowed for Belated Returns
One of the most notable changes addresses the confusion over tax refunds for late-filers. Earlier interpretations of the bill suggested that taxpayers filing after the due date - usually July 31 (or September 15 for AY 2025-26 in certain cases) - would not be eligible for refunds.
Although the Income Tax Department had denied such claims, uncertainty remained. The committee recommended removing sub-clause (1)(ix) from Clause 263 to allow flexibility in refund claims even when returns are filed after the due date.
"The government has accepted the recommendation, ensuring that belated and revised returns will also be eligible for refunds, removing a significant pain point for taxpayers," a tax expert said.
Also Read: FM Sitharaman introduces Revised Income Tax (No. 2) Bill, 2025 in Lok Sabha
2. Standard Deduction on House Property to Factor in Municipal Taxes
Another major change relates to Clause 22 of the bill. The committee suggested explicitly stating that the standard 30% deduction on house property income should be calculated after deducting municipal taxes from the annual value.
Additionally, the pre-construction interest deduction will now be available for let-out properties as well as self-occupied properties, aligning with the existing Income Tax Act.
Tax professionals noted that these changes reflect current practices but now provide legislative clarity to avoid disputes. For example, if a property's annual value is Rs 100 and municipal taxes are Rs 5, the 30% deduction will apply to Rs 95, not Rs 100.
A Step Toward Modernising Tax Laws
The passage of the Income Tax Bill, 2025, marks a significant step toward modernising India's direct tax framework. By addressing long-standing ambiguities and aligning provisions with existing practices, the government aims to make compliance smoother and reduce litigation.
With its implementation set for April 1, 2026, taxpayers and professionals have ample time to adapt to the new regime - one designed to replace a law that has governed Indian taxation since April 1, 1962.
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