Income Tax Bill 2025: Why Has Centre Withdrawn the Bill from Lok Sabha?

The Centre withdrew the Income Tax Bill, 2025, from the Lok Sabha on August 8, 2025, primarily to avoid confusion stemming from multiple versions of the Bill and to present a consolidated, updated draft reflecting all parliamentary recommendations and corrections. The original Bill, introduced on February 13, 2025, aimed to replace the six-decade-old Income Tax Act, 1961, with a modernized, simplified taxation framework. 

But following an exhaustive inquiry by a 31-member Select Committee presided over by BJP MP Baijayant Panda, which presented over 280 suggestions in a comprehensive 4,500-page report, the government decided to withdraw the bill and introduce a superior one scheduled for August 11, 2025.

Principal Causes of Withdrawal and Reintroduction 

The replaced version lacked some convoluted amendments proposed by the committee. The new draft will include changes in definitions (i.e., "capital asset," "infrastructure capital company," and "MSME"), clarifications on property-linked tax deductions, and new rules on withholding tax certificates and refund claims.

Correction of Draft and Technical Errors

The Select Committee and tax professionals have spotted several drafting errors, inconsistencies, and congruence issues in the original Bill. The new Bill will rectify these to facilitate legislative convenience and reduce legal uncertainty.

Avoiding Confusion owing to Multiple Versions 

The government sought legislators and stakeholders to refer to a single, consolidated, and up-to-date version of the Bill in a bid to avoid confusion owing to earlier multiple drafts and in a bid to facilitate easier parliamentary debates.

• Simplification and Modernisation: The new Bill will seek to simplify India's indirect tax laws, reducing their length and complexity by up to 50%, which would be a welcome relief to small businesses, MSMEs, and plain-vanilla taxpayers by reducing litigation and compliance costs.

• Taxpayer-friendly Reforms: To give some examples, the committee suggested bringing benefits such as home loan interest deductions to rental houses, streamlining the conventional deduction after municipal taxes, and procedural simplicity for TDS/TCS refunds, and ensuring fairness in tax evasion provisions.

Finance Minister Nirmala Sitharaman officially moved the motion to withdraw the Bill in the Lok Sabha, which was unanimously passed without discussion, showing government intent to bring a detailed, thoroughly reviewed tax reform bill in the near future.

Together, the Centre rescinded the Income Tax Bill, 2025, to summarize the extensive parliamentarian feedback, correct defects of drafting, and present the reintroduced legislation in a clearer, more comprehensive, and taxpayer-friendly form. The amended Bill will be introduced in Lok Sabha on August 11, 2025, as an important move to overhaul India's six-decade-old income tax regime.