New I-T Bill 2025 Brings Key Changes: Refunds for Late Returns, Anomaly Fixes, and More
The Lok Sabha on Monday passed two important pieces of legislation — the Income-Tax (No.2) Bill, 2025 and the Taxation Laws (Amendment) Bill, 2025. These amendments mark a significant step toward making India’s taxation system more transparent, fair, and practical for taxpayers.
This update comes just a week after the withdrawal of the earlier version of the Bill, which had faced criticism over various anomalies. The government took into account the recommendations of the Select Committee headed by BJP leader Baijayant Panda. The revised Bill is a 624-page document that addresses several issues raised by stakeholders, including provisions for Limited Liability Partnerships (LLPs), rules for anonymous donations to religious-cum-charitable trusts, and even exemptions for specific foreign investment funds.
Why Was the Earlier Bill Withdrawn?
When the government first introduced the new Income Tax Bill, it was seen as a major overhaul of the 1961 Act. However, after detailed discussions in Parliament and feedback from experts, it became clear that the Bill contained certain inconsistencies and technical gaps.
For example:
- LLP taxation rules were not aligned with corporate taxation norms.
- Anonymous donations to certain religious-cum-charitable trusts were treated in a way that created confusion over tax applicability.
- Certain international investment funds that had been promised exemptions were missing from the final draft.
To avoid pushing through a flawed version, the government decided to withdraw the Bill and reintroduce an improved version that addressed these concerns.
Key Changes in the Updated Income-Tax (No.2) Bill, 2025
1. Refunds for Returns Filed Beyond Deadline
One of the most taxpayer-friendly changes in the updated Bill is the provision that allows refunds for income tax returns filed after the deadline.
Earlier, if you missed the due date for filing your return, you could still file a belated return but were not eligible for any refund — even if you had paid more tax than required. This was often seen as unfair to genuine taxpayers who might have faced delays due to unavoidable reasons.
Now, under the new rules, even late filers can claim refunds, provided they meet certain conditions. This move is expected to benefit thousands of taxpayers each year and reduce resentment against the tax system.
2. Fixing LLP Taxation Anomalies
Limited Liability Partnerships (LLPs) are popular among professionals and small businesses due to their flexible structure. However, there were inconsistencies in how LLPs were taxed compared to companies, especially regarding deductions and capital gains provisions.
The updated Bill aligns LLP taxation more closely with corporate taxation norms, removing ambiguity and making compliance simpler. This is expected to encourage more businesses to choose the LLP model without fearing unequal tax treatment.
3. Clarity on Anonymous Donations to Religious-Cum-Charitable Trusts
Religious and charitable trusts often receive anonymous donations, which are taxed differently from regular donations. The earlier version of the Bill had unclear language that risked creating compliance headaches for such trusts.
The new version provides clear definitions and reporting requirements for anonymous donations, ensuring that legitimate trusts are not penalized while also preventing misuse of this exemption for money laundering or unaccounted cash.
4. Special Exemption for Saudi Arabia’s Public Investment Fund (PIF)
In an important move for foreign investment relations, the Taxation Laws (Amendment) Bill, 2025 adds the ‘Public Investment Fund of the Government of the Kingdom of Saudi Arabia’ and its wholly-owned subsidiaries to the list under clause (23FE) of the Income-tax Act.
This means investments made directly or indirectly by this fund will be exempt from certain taxes in India. Such exemptions are generally provided to sovereign wealth funds to encourage them to invest in Indian infrastructure, energy, and development projects.
This decision reflects India’s efforts to strengthen economic ties with Saudi Arabia, which has been increasing its investment footprint in India over the last few years.
Impact on Different Stakeholders
For Individual Taxpayers
The ability to claim refunds even after missing the filing deadline is a big relief. It adds a layer of fairness to the tax system and acknowledges that delays can happen due to genuine reasons.
For Businesses and LLPs
LLPs will now enjoy clearer tax rules, making them a more attractive option for entrepreneurs and small firms. This could lead to a rise in LLP registrations in the coming years.
For Charitable Organisations
With clearer definitions and guidelines for anonymous donations, genuine trusts can operate without fear of sudden penalties, while authorities can still track suspicious transactions.
For Foreign Investors
The tax exemption for Saudi Arabia’s PIF will make India a more appealing investment destination for sovereign funds. This could bring in more capital for large-scale infrastructure and industrial projects.
Government’s Stance
Speaking after the Bill’s passage, Finance Ministry officials said the changes were “designed to make tax laws simpler, more equitable, and better aligned with the realities of the modern economy.”
They also emphasized that the updated Bill was a result of listening to feedback from Parliament, experts, and the public — a rare move in India’s legislative process that shows flexibility and willingness to improve.
Expert Opinions
Tax experts have welcomed the move to allow refunds for late filers, noting that it promotes voluntary compliance rather than penalizing taxpayers for honest mistakes.
Business groups, particularly those representing LLPs, have praised the alignment of tax rules, saying it will remove unnecessary legal disputes.
However, some analysts have cautioned that tax exemptions for foreign funds should be granted carefully to ensure they don’t create loopholes for tax avoidance.
What Happens Next?
With the Bills now passed in the Lok Sabha, they will move to the Rajya Sabha for approval. Once both Houses pass them, they will receive the President’s assent and become law.
The Finance Ministry is expected to issue detailed rules and notifications to clarify certain operational aspects, especially regarding the late refund process and the reporting format for anonymous donations.
A Step Toward Fairer Taxation
The updated Income-Tax (No.2) Bill, 2025, and the Taxation Laws (Amendment) Bill, 2025 represent a balanced approach to taxation reform. By correcting anomalies, clarifying rules, and addressing taxpayer concerns, the government has shown that it is willing to adapt and improve its legislation based on feedback.
From late refunds to LLP parity and foreign investment incentives, these changes are likely to have a positive impact on individuals, businesses, and the economy as a whole.
If implemented effectively, this reform could improve compliance, build trust in the tax system, and attract more investment — both domestic and foreign — into India’s growth story.
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