Lok Sabha Approves Income Tax (No. 2) and Taxation Laws (Amendment) Bills

Concerning The Income-Tax (No.2) Bill, 2025

The Bill aims to substitute the Income-tax Act of 1961. It streamlines tax terminology, elucidates deductions, and enhances cross-referencing among provisions.

Tax rates and systems for individuals and businesses stay the same. There are no modifications in crimes and punishments.

Authority to Formulate Plans: The Act established particular stipulations for a faceless system concerning matters like inquiries, valuations, order revisions, and tax collection.

Revised Change: The Bill provides broad authority to the central government to create plans for; Reducing taxpayer interaction through technology and Enhancing resource efficiency via economies of scale and functional specialization.

Virtual digital environment: The legislation permits income tax officials to access and search premises and force open locks. The legislation additionally grants officials the authority to examine electronic records.

Updated Regulation: Officials are now permitted to access virtual digital environments, including bypassing access codes, during search and seizure activities.

The Bill describes virtual digital space as a setting, zone, or domain that is created and encountered via computer technology. This encompasses email servers, social media profiles, online trading and investment accounts, and platforms for recording asset ownership information.

Tax treaty interpretation: The Act permits the central government to make arrangements with foreign nations to offer relief in situations of double taxation.

The Bill maintains these provisions and states that if a term is undefined in the treaty, the Act, or a notification from the central government, its interpretation will be based on any other central law.

Dispute resolution panel: The Act permits specific qualifying assessees to submit draft orders issued by assessing officers to a dispute resolution panel.

The Taxation Laws (Modification) Bill, 2025

The proposal aims to modify the Income-Tax Act of 1961 and the Finance Act of 2025. The 1961 Act establishes the framework for imposing income tax on both individuals and businesses.

Exemptions related to the Unified Pension Scheme: The 1961 Act designates income types that are free from income tax. The Bill includes exceptions for;

disbursements from the Unified Pension Scheme (UPS) upon reaching retirement age, voluntary exit, or retirement (up to 60% of the pension fund), and

lump sum payments received through UPS.

The transfers from individual corpus to pool corpus will not be considered income and will not incur taxes.

Exemption for Saudi Arabia's Public Investment Fund (PIF): Tax exemption granted to PIF and its fully owned subsidiaries deploying Saudi government funds in India.

Block evaluation in search situations: The 1961 Act outlines a method for determining total undeclared income resulting from a search. It accommodates evaluation for a set duration.

The Bill states that if a notice for this assessment is given after a search has started but before it concludes, that assessment will cease on the notice's date.