Polity & GovernanceImportant2025-07-21

Select Committee Report on Income-Tax Bill Tabled

In News

What Happened

On July 21, 2025, the 31-member Select Committee of the Lok Sabha, chaired by Baijayant Panda, tabled its comprehensive 4,500-page report on the Income-Tax Bill, 2025. Following the report, the government withdrew the original bill to introduce the updated Income-Tax (No. 2) Bill, 2025. This updated bill was passed in August 2025.

Why It Matters

This report paved the way for the most significant overhaul of India's direct tax laws in six decades, reducing the 800-plus sections of the 1961 Act to just 536. By identifying critical drafting errors and anomalies, the committee ensured a simpler, digitally-aligned, and more legally sound tax code.

Background

History & Context

The original Income-Tax Bill, 2025 was introduced on February 13, 2025, aiming to simplify and replace the legacy Income-Tax Act, 1961. It was immediately referred to a Parliamentary Select Committee for detailed examination to ensure no substantive policy changes were accidentally introduced during the language simplification. The committee submitted its exhaustive report in July 2025, leading to the withdrawal of the February draft and the swift passage of the revised No. 2 Bill.

What Changed

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BEFORE: The original 2025 draft inadvertently allowed long-term capital losses to be set off against short-term capital gains. NOW: The revised text aligns with the 1961 Act, restricting long-term capital losses to be set off only against long-term capital gains.
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BEFORE: The initial draft missed the provision exempting Liberalised Remittance Scheme (LRS) remittances for education from Tax Collected at Source (TCS) if financed by a loan. NOW: The revised bill provides a 'nil' TCS on LRS education remittances.
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BEFORE: The original draft inadvertently removed deductions for inter-corporate dividends passed on to shareholders for companies availing a concessional corporate tax rate. NOW: The revised bill reinstated this deduction to prevent unintended corporate tax burdens.
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BEFORE: The initial draft heavily cross-referenced the legacy 1961 Act for definitions like 'income', forcing taxpayers to consult the old law. NOW: The committee recommended removing redundant cross-references to ensure the new code is self-contained.

Prelims Angle

NCERT Connection

This event practically demonstrates the role of legislative committees discussed in Class 11 Political Science Chapter 5 - Legislature. It highlights how an ad hoc Select Committee scrutinizes complex legislation, invites expert inputs, and suggests vital corrections before Parliament passes the law.

Practice Questions

Q1

Correct Statement(s)

With reference to the Select Committee report on the Income-Tax Bill, 2025, consider the following statements: 1. The committee was an ad hoc body formed specifically to scrutinize the proposed overhaul of the Income-Tax Act, 1961. 2. Based on the committee's recommendations, the government withdrew the original bill and introduced the Income-Tax (No. 2) Bill, 2025. Which of the statements given above is/are correct?

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