New Income Tax Bill 2025: What are the Key Changes You Should Know?

On August 11, the Lok Sabha approved the new Income Tax Bill, 2025, marking significant updates for individual taxpayers. Among the most notable changes are provisions clarifying eligibility for tax refunds on belated returns and the revised computation method for standard deduction on house property income.

The updated tax bill, once enacted, will come into force from April 1, 2026, effectively replacing the current Income Tax Act, 1961, which has governed taxation in India since April 1, 1962.

Tax Refunds Now Possible for Belated Returns

One of the most debated aspects of the original Bill was the proposed denial of tax refunds for returns filed after the due date, typically July 31, or September 15 for the assessment year 2025–26 in case of extended deadlines. Despite the Income Tax Department previously clarifying that refunds would still be allowed, confusion hovered among tax professionals.

To eliminate this ambiguity, the Select Committee suggested the removal of sub-clause (1)(ix) in Clause 263. This amendment reinstates the flexibility to allow refund claims even when returns are filed late, ensuring relief for taxpayers who miss the initial deadlines.

Standard Deduction for House Property Income

Another key change relates to the calculation of standard deductions on income from house property. The panel advised that the standard 30% deduction should be applied to the annual value after municipal taxes are deducted, clarifying an issue that previously led to interpretational disputes.

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Furthermore, the committee recommended extending the deduction for pre-construction interest to let-out properties, aligning the new code with the provisions of the existing law. Currently, such a deduction is explicitly available only for self-occupied properties.

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