The Income-tax Bill, 2025 has now cleared the Lok Sabha, and if you’ve been following its journey since the February draft, you’ll notice it’s not exactly the same animal anymore. Some of the sharper edges have been filed down. A few potentially confusing clauses? Gone. And, in several cases, the drafters have circled back to what already works under the Income-tax Act, 1961.
It’s not a total rewrite. Think of it more like a course correction — the government heard the feedback from tax professionals and corporate stakeholders, and the August version reflects that. Let’s go through the big shifts, starting with one that caused quite a stir earlier this year.
Loss Carry Forward – Wording That Won’t Trip You Up
In the February draft, the phrase “beneficial owner” appeared in the context of closely held companies carrying forward losses. Sounds harmless enough — but in practice, it could have meant tracking ownership up to the ultimate shareholder. That’s not just tedious; it’s a recipe for disputes.
The new Bill restores the long-familiar “beneficially held” language from the old Act. Simple? Yes. Important? Absolutely. This single change could mean the difference between retaining legitimate tax benefits and losing them on a technicality.
Hitesh Sawhney from Price Waterhouse & Co LLP summed it up well: the original wording “would have required testing ownership at the ultimate owner level, leading to ambiguity.” Now, that risk is gone.
AMT and LLPs – Rolling Back the Blanket Rule
Another early red flag: the Alternate Minimum Tax (AMT) rules in the February version appeared to cover all LLPs at a flat 18.5% — even those that weren’t claiming the specific deductions AMT is designed to catch.
The August revision takes a step back. Now, AMT applies only if such deductions are actually claimed, which is how it’s always been. For many LLPs, especially family offices or promoter-backed investment vehicles, this change means avoiding an entirely unnecessary tax hit.
Dinesh Kanabar of Dhruva Advisors noted that the revision prevents “an unintended hike in tax rates” and keeps the focus where it belongs.
MAT and AMT – Now in Separate Lanes
The February draft lumped Minimum Alternate Tax (MAT) and AMT into one section. It wasn’t impossible to read, but it was cluttered enough to cause headaches.
That’s now fixed — the provisions live in separate sub-sections under Section 206. It’s the sort of behind-the-scenes tidying that makes compliance work easier, even if it doesn’t make headlines.
Transfer Pricing – Possibly a Wider Net
Here’s where things get interesting. The new Bill tweaks the way sub-sections in the definition of ‘associated enterprise’ are merged. It’s subtle, but the effect could be to pull more transactions under transfer pricing rules.
At first glance, it may not look like a big deal. But for companies with cross-border dealings or complex ownership chains, this could mean more documentation and reporting requirements. Sawhney warns that taxpayers should watch this one closely.
TDS Defaults – Relief Beyond Residents
Late payment of tax deducted at source (TDS) has long been a trap for expense disallowance. In the February draft, relief was offered only for payments to resident payees. The August Bill now extends that to non-residents as well.
It’s a practical move — the rule no longer penalizes multinational setups purely on timing grounds.
Indirect Transfer – Broader Than Just Capital Gains
The earlier draft limited indirect transfer taxation to capital gains. The August version expands it to all income deemed to accrue or arise in India, keeping it aligned with the 1961 Act.
For foreign investors and cross-border structures, that’s a signal: tax exposure could go beyond just gains on disposal.
Inter-Corporate Dividends – Deduction Restored
If you remember, the February draft dropped the deduction for inter-corporate dividends under the concessional 22% tax regime. Without it, corporate holding structures risked double taxation.
The new Bill reinstates Section 80M. This doesn’t just save money — it prevents an inefficient tax outcome that the older law had already solved.
NIL TDS Certificates – Back in the Toolkit
Tax officers can again issue NIL deduction certificates, not just reduced-rate ones. If no tax is legitimately due, businesses can avoid overpaying and waiting months for a refund.
Digital Payments – Extending the Rule to Professionals
The mandatory acceptance of digital payment modes (BHIM UPI, RuPay, etc.) for businesses over ₹50 crore in turnover now extends to professionals in the same income bracket. It’s another step in the government’s steady push toward a cashless economy.
TDS Corrections – The Window Narrows
The time allowed for filing TDS correction statements has been cut from six years to two. On paper, this reduces misuse. In practice, it means finance teams will need to catch and fix errors faster.
NPOs – Back to Fairer Ground
For non-profit organizations, the Bill restores several useful provisions:
- Shortfall in applying 85% of income can be carried to the year of actual receipt.
- Tax is on net income, not gross receipts.
- Capital gains reinvested in new assets count as applied income.
- Mixed-object NPOs face 30% tax on anonymous donations.
- The 15% investment rule applies only when such investments are made.
Riaz Thingna of Grant Thornton Bharat sees these as “simplifying and harmonising” NPO taxation.
Digital Records in Searches – Explicitly Allowed
The Bill now spells it out: tax authorities can access digital data during searches. It’s not a surprise, but it’s formal recognition of how business records exist today. Safeguards remain under both the tax law and data protection statutes.
The Bottom Line
The August version of the Income-tax Bill doesn’t tear up the February draft — but it does smooth the road ahead. Several changes simply remove confusion. Others reinstate tried-and-tested rules. A few, like the transfer pricing tweak, might quietly increase compliance needs.
For corporates, LLPs, and even NPOs, this is a moment to update tax playbooks. The law may now be clearer in parts, but the fine print still matters — and in tax, the fine print is often where the real costs live.
Source: cnbctv18.com
