The government on Friday formally notified the Income-tax Act, 2025. The legislation was passed in the Parliament last week and is aimed at consolidating and updating India’s income tax framework. The Act received the President’s assent on Thursday (August 21) and was notified by the Ministry of Law and Justice through a gazette order.

According to the notification, the law will come into effect next year on April 1, unless specified otherwise.

Announcing the notification on X, Income Tax India posted, “The Income-tax Act, 2025 has received the Hon’ble President’s assent on 21st Aug 2025. A landmark reform replacing the 1961 Act, it ushers in a simpler, transparent & compliance-friendly direct tax regime.”

On August 18, 2025, the Central Board of Direct Taxes (CBDT) issued a notification which effectively increased the income threshold limits for calculating tax-free perquisites (perks) in salary income. These new limits were introduced in the Finance Act, 2025, via a notification in the India e-Gazette, and will take effect from April 1, 2025 (AY 2026-27).

Previously, the salary income limit for tax free perquisite were Rs 50,000 for specified employees and Rs 2 lakh for overseas medical treatment. Now, these limits have been significantly raised to Rs 4 lakh for specified employees and Rs 8 lakh for overseas medical treatment, thanks to the insertion of new Rules 3C and 3D into the Income-tax Rules, 1962.

The Rs 4 lakh and Rs 8 lakh mentioned above refers to the threshold limit of salary or gross total income of the employee,which allows certain benefits/amenities to be excluded from perquisite taxation; they do not represent the value of benefit/ amenities themselves.

What is perquisite taxation?
Chartered Accountant Rahul Singh, senior manager, advisory & research, Taxmann explains:

Section 17(2)(iii) [specified employees]
"When an employer provides the following benefits or amenities to its employees, the value of such benefits or amenities is taxable as perquisite only in the hands of specified employees as per Section 17(2)(iii) of the ITA read with Rule 3 of the Income-tax Rules:

Use of a car or any other automotive conveyance [Rule 3(2)]
Services of a sweeper, a gardener, a watchman or a personal attendant [Rule 3(3)]

Chartered Accountant Aditi Bhardwaj has pointed out a glitch in the computer system which processes filed and verified income tax returns (ITRs). The problem is that the tax refund amounts aren’t being rounded off, resulting in small amounts being overlooked.

On August 16, 2025, Bhardwaj said on X (formerly Twitter): “As per Section 288B of the Income-tax Act, 1961, the amount of refund should be rounded off to the nearest multiple of ten rupees. However, it is observed that for ITR refunds of AY 2025-26, the final refund is not rounded off. For example, Rs 35,807 is not rounded to Rs 35,810. This appears to be happening across all cases. Request to clarify @IncomeTaxIndia. Example acknowledgment attached.”

While CAs have varying opinions, they all agree that Bhardwaj is correct.

Sanjoli Maheshwari, Executive Director, Nangia & Co LLP, says: In reference to the query, yes, the understanding is correct that while filing the tax returns for AY 2025-26 , the final refund is not getting rounded off. However, given the quantum involved being very negligible, the same would hardly have any impact on the Taxpayers.

The Central Board of Direct Taxes (CBDT) has enabled updated income tax return (ITR-U) filing via ITR-3 and ITR-4 forms on the e-filing ITR portal for AY 2021-22 and 2022-23. This ITR-U return via ITR-3 and ITR-4 forms can also be filed using the respective ITR form’s offline Excel utilities.

As per Finance Act, 2025, taxpayers now have up to 48 months from the end of the applicable assessment year to file an updated return under Section 139 (8A) of the Income Tax Act, according to the Union Budget 2025. Even if they did not file a return or filed it incorrectly, the extended period will enable people to repair mistakes or omissions in their prior filings by paying more taxes.

What is an Updated Income Tax Return (ITR-U)?
With an objective to reduce litigation, ITR-U provides an opportunity for voluntary compliance to taxpayers to rectify errors/ omissions.

The September 15 deadline to file your Income Tax Returns (ITR) for FY 2024-25 is approaching and as per media reports, the Income Tax Department has already flagged around 1.65 lakh cases for detailed scrutiny under Section 143(2), which is a sharp rise in such cases compared to previous years. This clearly means that filing returns does not mean the process or the due diligence of the process is over, as notices can still be issued if the tax department finds mistakes in your ITRs. But what sort of mistakes can flag your returns to the incomes tax officials? Let’s find out.

ITR Filing Mistake No.1 : Mismatch between TDS details and declared income
If the tax deducted at source (TDS) shown in Form 26AS or in your Annual Information Statement (AIS) does not match the income you report in your return, the tax department may select your ITR for scrutiny.

The latest version of the Income Tax Bill, 2025 has corrected several drafting mistakes. It is set to take effect on April 1, 2026 for FY2026-27. The corrections include issues related to nil TDS certificates, standard deductions for house property income, tax deductions for commuted pension for non-employee category, among others.

In this article, we have summarized some of the key errors that the finance minister addressed in the updated Income Tax Bill, 2025.

On Monday, the Lok Sabha approved a revised Income Tax Bill 2025, correcting drafting oversights from the previous version that might have led to refund issues for taxpayers, made TDS rules more complicated, and limited property income deductions. Experts indicate these modifications restore clarity, align the law with long-standing provisions, and will help avoid unnecessary litigations.

Chartered accountants' apex body ICAI on Wednesday said the new Income Tax Bill provides a simple and clear framework that will enhance the ease of doing business and support India's goal of becoming the favoured investment destination.

On Tuesday, Parliament passed a new income tax bill to replace the six-decade-old Income Tax Act, 1961, that will come into force from April 1, 2026.

The Institute of Chartered Accountants of India (ICAI) said the bill incorporates a significant number of suggestions from the Parliamentary Select Committee, which consulted ICAI and other stakeholders.

Around 90 suggestions of the institute have been considered in the bill, ICAI said in a statement on Wednesday.

The suggestions included the applicability of Alternative Minimum Tax (AMT) to only those persons who have claimed deductions in respect of certain income or investment-linked tax deduction, and removal of requirement to file return on or before due date for claiming refund.

India’s gross direct tax collection fell to Rs 7,98,822 crore in the current financial year up to August 11, from Rs 8,14,048 crore in the same period last financial year, registering a contraction of 1.87% because of higher refunds to corporate assesses and lower collections from individual taxpayers, according to government data.

Overall refunds to taxpayers (both corporate and individual assesses) jumped by nearly 10% to Rs 1,34,948 crore in 2025-26 (from April 1 to August 11) as compared to Rs 1,22,895 crore in the same period of financial year 2024-25, contributing to a year-on-year fall in net direct tax revenue.

Net direct tax collections after refunds in FY26 (as on August 11) fell by 3.95% to Rs 6,63,874 crore as compared to Rs 6,91,153 net revenue up to August 11 of FY25, the data showed.

The Income Tax Bill 2025 passed in the Lok Sabha on Monday has brought great relief to government pensioners and many other taxpayers. The new bill clearly provides that the entire amount of commuted pension will be exempted from tax, provided this pension is received from an approved pension fund.

Earlier this exemption was available only to certain categories of employees, while there are many who are not government employees, but voluntarily invest in recognised pension funds. So, the new bill has eliminated this difference and cleared the way to give equal tax relief to all eligible pensioners.

What is commuted pension?
Commuted pension means taking a lump sum amount instead of monthly installments of pension. For example, if a pensioner wants to take his future pension of 10 years in one go, then it is called commuted pension.

The finance ministry on Tuesday notified a corrigendum to the Income Tax Bill with regard to interest to be charged on short payment of advance tax by a taxpayer.

The corrigendum, which provides for 3 per cent interest on short payment of advance tax, aligns the clause with the existing provisions in the Income Tax Act, 1961.

Taxpayers having a tax liability of Rs 10,000 or more have to pay advance tax in 4 instalments -- June 15, September 15, December 15 and March 15.

Nangia Andersen LLP, Partner, Sandeep Jhunjhunwala said that as per the corrigendum to Clause 425 of the Income-tax (No 2) Bill, 2025, the interest provision for shortfall in advance tax payment has now been aligned with that under the Income-tax Act, 1961.

The Ministry of Finance has said in a written reply to Lok Sabha that the government has implemented various measures about income tax and GST laws that aim to make the process simpler for small taxpayers. Some of the simplification measures undertaken in income tax laws include availability of income tax return (ITR) filing through online, offline and excel utilities, updated Form 26AS, AIS, others. With regard to GST, the ministry said that an auto-generated return with editing facility is being provided to the taxpayers on the portal based on details of the outward supplies furnished by the taxpayers and their suppliers.

Pankaj Chaudhary, Minister of State, Finance, provided this information in Lok Sabha on Monday (August 11, 2025) in reply to a starred question No 3651 from Dharambir Singh, member of Parliament (MP) from the Bhiwani-Mahendragarh Lok Sabha constituency in Haryana.

ET Wealth Online tells you about the 10 prominent moves that the government claims to have taken in the interest of the small taxpayers

India’s net direct tax collections declined 3.95% year-on-year to Rs 6.64 trillion in the period from April 1 to August 11, data from the Income Tax Department showed on Tuesday.

This decline was largely due to a rise in tax refunds issued during the period.

Meanwhile, on a gross basis, before accounting for refunds, direct tax collections stood at Rs 7.99 lakh crore—a 1.87% drop from Rs 8.14 lakh crore collected during the same period last year.

"The tepid performance of advance tax collections seems to have been dampened by high refunds of corporation tax collections and a later deadline for personal income tax filings. The available data on advance tax collections suggests that the GoI’s personal income tax and corporation tax collections are required to record a high double-digit growth in the remaining part of FY2026, to meet their respective FY2026 targets," said Aditi Nayar, Chief Economist, ICRA Ltd.

"While this may seem challenging, the growth rates in net PIT and CT collections are likely to improve as the year progresses, and the base normalises," she added.

The Lok Sabha Select Committee recommended correcting a drafting error regarding how interest is calculated for shortfalls in advance tax payments. The revised Income Tax Bill 2025 that was introduced in the parliament yesterday (August 11, 2025) had a drafting error that stated:”the assessee shall be liable to pay simple interest at the rate of 1% for every month or part of a month, for the period….”.

The select committee proposed that the penal interest for these shortfalls should be set at 3% for the first three installments and then drop to 1% for the final installment.

So essentially there is no change to the advance tax shortfall interest law as outlined in the Income Tax Act, 1961 and New Income Tax Bill, 2025.

What did the Lok Sabha Select Committee say in the corrigendum?
As per the Lok Sabha Select Committee Corrigendum, this is what the select committee said:

New Income Tax Bill 2025: The Income Tax Bill was passed by the Lok Sabha amid din on Monday, after Finance Minister Nirmala Sitharaman introduced a revised version, incorporating most of the recommendations made by the Select Committee headed by Baijayant Panda.

The bill was tabled on Monday following the government’s decision last week to withdraw the Income-Tax Bill, 2025, which was presented on February 13 to replace the six-decade-old Income-Tax Act, 1961. The new draft, tabled on August 11, aims to provide lawmakers with a single, updated version that reflects all suggested changes.

Explaining the withdrawal in Parliament, Sitharaman said, “Suggestions have been received which are required to be incorporated to convey the correct legislative meaning. There are corrections in the nature of drafting, alignment of phrases, consequential changes and cross-referencing.” She added that the earlier Bill was pulled back to avoid confusion and that the fresh draft will serve as the basis for replacing the 1961 Act.

Clause 22 of the latest version of the New Income Tax Bill, 2025 has clarified two key laws relating to taxation of income from house property. The first clarification is regarding standard deduction of 30% from the annual value of a residential house property. The second clarification is about availability of tax deduction for pre-construction interest for home loan taken for construction of a house.

In the earlier version of the bill, this tax deduction for pre-construction interest and standard deduction were not explicitly clarified. Therefore, the Lok Sabha Select Committee had said:

“The Committee, after deliberations on Clause 22, identified the need to clarify the computation of deductions to enhance fairness and transparency for property owners. The Committee, recommend two key amendments:

firstly, in Clause 22(1)(a), to explicitly state that the standard 30% deduction is computed on the annual value after deducting municipal taxes; and

Chartered Accountant Abhas Halakhandi, writing on X (formerly known as Twitter) has recently brought attention to a concern regarding the denial of the Section 87A tax rebate to eligible taxpayers. Section 87A rebate is applicable to taxpayers with an annual income of up to Rs 7 lakh under new tax regime and Rs 5 lakh under the old tax regime. When the Section 87A tax rebate is applied, the net tax liability becomes nil. However, Halakhandi and other chartered accountants have highlighted on social media that it is not being given to eligible taxpayers if they have any special rate incomes like short term capital gains (STCG) under the new tax regime.

In this context, it is important to mention that the Section 87A tax rebate is not applicable to special rate income as per the amendment introcuded in Budget 2025, which will take effect from FY 2025-26 (AY 2026-27) onwards. The concern raised by chartered accountants is that the Section 87A rebate on special rate incomes is also not being granted for FY 2024-25 (AY 2025-26).

Halakhandi said on X (formerly Twitter on August 4, 2025): “Section 87A Rebate – Restriction applied even before it became law? From FY 2025-26, 87A rebate in the new regime won’t apply on special rate income (like LTCG, STCG @111A)—as per new proviso inserted by Finance Act 2025. But taxpayers are paying additional taxes & being denied this rebate in FY 2023-24 and 2024-25 — even though the restriction wasn’t in force! Only in Indian taxation- future law enforced for past years!!”

Union Finance Minister Nirmala Sitharaman formally withdrew the old draft of the Income Tax Bill, 2025 from the Lok Sabha last week. The updated version of the bill will be presented today.

The Select Committee of the Lok Sabha made around 285 recommendations and submitted a detailed 4,500-page report to Parliament last month, proposing reforms to the bill. The original bill was introduced in February during the Budget session of Parliament.

The original bill introduced then was immediately sent to the Select Committee so that a thorough review could be done on this new law replacing the old Income Tax Act, 1961.

The Select Committee suggested improvements on many technical, procedural and practical aspects related to taxpayers. Now it has to be seen how many of their suggestions are incorporated in the revised bill.

The select committee of Lok Sabha has found a couple of drafting issues in Clause 21 of the Income Tax Bill 2025, which talks about the annual value of residential house properties and has recommended two key changes. The first change is the deletion of the phase “in normal course” and the second relates to deeming house rent provisions. Chartered Accountants we spoke to said that if the provisions of the Income Tax Bill 2025 were implemented without incorporating these suggestions, the annual value of a house property would have gone up, resulting in a higher tax liability. Thankfully, because of these suggestions, the tax treatment remained the same as it was under the Income Tax Act, 1961.


What did the Select Committee say?
Based on the suggestions from the Income Tax Bill, 2025, here’s what the select committee had to say:

The Committee, after a careful review of Clause 21, identified drafting issues in 21(2) that could lead to ambiguity in determining the annual value of properties experiencing vacancy.
The committee, therefore, recommend two key changes: first, that the phrase "in normal course" be deleted, and second, that the clause be amended to explicitly provide for a comparison of the actual rent received with the "deeming rent," as was available in the existing Act.

The Income Tax department has conducted 465 surveys, leading to detection of undisclosed income of Rs 30,444 crore in the 2024-25 fiscal year, Parliament was informed on Tuesday.

Minister of State for Finance Pankaj Chaudhary in a written reply in the Rajya Sabha said whenever any credible information of 'direct tax' evasion comes to its notice, it takes suitable actions, including surveys, search and seizure operations, assessments, to bring to tax, the undisclosed income.

During FY25, a total of 465 surveys were conducted, which led to detection of undisclosed income of Rs 30,444 crore.

In FY24 and FY23, 737 and 1,245 surveys were conducted by the I-T department and undisclosed income of Rs 37,622 crore and 9,805 crore, respectively, were detected.

The total number of groups searched during FY25 stood at 1,437 and assets seized stood at Rs 2,504 crore.

In FY24, 1,166 groups were searched leading to total asset seizure of Rs 2,555 crore. In FY23, Rs 1,766 crore assets were seized following searches in 1,437 groups.

Total direct and indirect tax arrears stood at over Rs 54.53 lakh crore as of June 30, Parliament was informed on Tuesday.

In a written reply to a question in the Rajya Sabha, Minister of State for Finance Pankaj Chaudhary said, "The total amount of tax arrears pending as on June 2025, under indirect taxes is over Rs 7.01 lakh crore and under direct taxes is over Rs 47.52 lakh crore."

Cumulatively, direct and indirect tax arrears stood at Rs 54.53 lakh crore as of June 30.

Of the total indirect tax arrears, over Rs 2.66 lakh crore pertain to those where pending taxes in individual cases is above Rs 10 crore as of June 2025.

In case of direct taxes, tax arrears above Rs 10 crore as on June 2025 totalled about Rs 35.48 lakh crore.

Further, of the Rs 7.01 lakh crore pending tax arrears under indirect tax, over Rs 3.71 lakh crore is pending due to litigation at various stages.