By IndiaHub 
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.
For individual taxpayers, the main updates include refunds for late or revised ITRs, nil TDS certificates, standard deductions on property income, and deductions for interest on pre-construction home loans.
Nil TDS Certificate
ET Wealth Online highlighted this error with help from EY back in April 22, 2025.
According to Sachin Garg, Partner, Nangia & Co LLP, “Section 197 of the Income-Tax Act, 1961 provided for both a “Nil” as well as a “lower” deduction tax certificate. However, the parallel Clause 395 of the Income-Tax Bill, 2025 deviated from it by omitting the explicit reference to “Nil” deduction and only covering “lower” deduction.”
Some examples of taxpayers who would require a nil TDS certificate:
- Those with income up to the basic exemption limit of Rs 2.5 lakh (old tax regime) or Rs 3 lakh (new tax regime) for taxpayers below 60 years old.
- Following the Section 87A tax rebate, those with income up to Rs 12 lakh would be tax-free.
- NRIs claiming DTAA benefits.
Garg says that while it was possible to contend that “Nil” is subsumed within “lower” deduction, there was scope for interpretation which could have led to ambiguity and operational challenges, especially where a Nil rate was intended but not clearly stated.
Garg explains: “ To avoid such problems with interpretation, the established language of Section 197 of the Income Tax Act, 1961 has been reinstated in Clause 395 in the revised Income Tax Bill 2025. This will provide much-needed relief and avoid unnecessary and unintended litigation.”
Tax Deduction for commuted pension
Chartered Accountant (Dr.) Suresh Surana explains that as per Section 10 (10A) (iii) of the Income Tax Act, 1961, read with Section 10 (23AAB), the law provides for full tax exemption for commuted pension not only for employees but also for payments received from approved pension funds, irrespective of employment status.
Surana says:
- “The Select Committee, after a detailed examination of Clause 19 of the original Income-tax Bill, 2025, identified a critical gap in the equitable tax treatment of commuted pension across different classes of recipients. Under Clause 19, the Bill originally granted an exemption only to employees.”
- “However, no relief was provided for individuals who receive commuted pension from approved pension funds but are not employees, such as independent contributors or nominees.”
- “To address this disparity, the Committee recommended that a deduction be explicitly provided under the head “Income from Other Sources” for non-employees receiving commuted pension from approved pension funds. This ensures parity with the current law and maintains relief for all eligible recipients whether salaried or otherwise.”
Surana explains:“As a result of this recommendation, Section 93(1)(g) was incorporated in the revised Income Tax Bill 2025. This clause now grants a deduction for the entire amount of commuted pension to recipients not covered under Clause 19, i.e., primarily non-employees and private individuals receiving pension payouts from approved pension funds.”
Surana says: “This suggestion is aimed at aligning the provisions of the Income Tax Act 1961 with the Income Tax Bill 2025, specifically to extend relief to taxpayers who are not in formal employment but invest in pension schemes as specified in approved pension funds (as specified in Schedule VII, Table SI. No. 3 of the Income Tax Bill 2025). However, it is pertinent to note that this does not provide a full tax exemption; rather, it proposes a full deduction of such income under the head Income from Other Sources for non-employees.”
Standard deduction on house property income
A standard deduction of 30% on the net annual value of a residential house property is available after factoring in the municipal taxes that have been paid. The updated Income Tax Bill, 2025 now explicitly states that standard deduction is calculated after subtracting the municipal taxes paid. This provision is identical to what is stated in the Income Tax Act, 1961.
Pre-construction interest deduction for let-out house property is explicitly written
Surana explains:
- Section 24(b) of the Income-tax Act, 1961 provides for a deduction w.r.t. interest on borrowed capital used for the acquisition or construction of house property. In cases where such interest pertains to the pre-construction or pre-acquisition period, the law permits a deduction in five equal annual installments, beginning from the year in which the construction is completed.
- This benefit is available regardless of whether the property is self-occupied or let out, ensuring equitable treatment across both categories of ownership.
- The initial draft of the Income-tax Bill, 2025 allowed the deduction of pre-construction interest solely for self-occupied properties, without amy similar provision for let-out (rented) or deemed to be let-out properties. This was a major deviation from the existing law and might have caused unintended hardship for taxpayers owning such properties.
- Acknowledging this inconsistency, the Select Committee recommended an amendment to Clause 22(2) to restore parity by extending the deduction for pre-construction period interest to rental properties too. The revised Bill now aligns with the current legal framework by permitting this deduction for both self-occupied and let-out property categories.
Also read: Online ITR filing charges across six tax filing websites compared for AY 2025-26
Tax exemption for anonymous donations
Sachin Garg says that in the case of non-profit organisations, Clause 337 of the Income-Tax Bill, 2025 introduced in February, deviated from the Income-Tax Act, 1961. It calculates the 5% exemption for anonymous donations based on the percentage of anonymous donations rather than total donations.
Garg says: “This shift from “total donations” to “anonymous donations” calculation could materially reduce the exempt portion and thereby increase the tax burden on non-profit organisations, particularly those receiving a small proportion of anonymous donations relative to total donations.”
Garg explains: “The Select Committee had recommended that exemption should be allowed for 5% of total donation instead of just 5% of anonymous donation. In the revised Bill tabled on Monday (August 11, 2025), the said recommendation has been incorporated and the provision restricting the exemption to 5% of anonymous donation has been amended to 5% of total donation, aligning it with the Income-tax Act, 1961. Like many other changes made in the revised bill, this amendment also addresses an inadvertent drafting anomaly in the original bill.”
Taxation laws about vacant commercial property
Preeti Sharma, Partner, Global Employer Services, Tax and Regulatory Services, BDO India, explains:
- “Under the Income-tax Act, 1961 if a property is used or intended to be used for one’s business/commercial purpose, it is not covered under the relevant provisions to tax ‘Income from House Property’ but is treated as a business asset. Hence, any income from such commercial property is taxed as a business income.
- There is a concept under the existing law which allows a taxpayer to tag up to 2 properties as “self-occupied” and hence not taxable. However, any third vacant house property is considered as deemed to be let out and notional rental income is subject to tax. As a commercial property is outside the purview of house property taxation, this concept of deemed income taxation is not applicable.
- The language in the new Income-tax Bill, 2025 is different and only ‘occupied’ commercial properties are excluded to calculate income from house property. This may create possible disputes and the tax authorities may consider vacant commercial properties to calculate deemed rental income subject to tax as house property income.
- Hence, the Committee provided the recommendation to keep similar language in the new Income-Tax Act as provided in the current law which excludes all type of commercial properties “occupied” as well as “vacant” for taxation of house property income. By this change, the Committee wanted to ensure that business properties which are temporarily idle or waiting to be used are not unfairly taxed and the new law stays in line with current one.”
Sharma explains: “This change was needed to prevent unfair tax and avoid disputes for businesses. If the wording ‘occupied’ had remained, a temporarily idle/vacant property — like a warehouse, factory, or showroom could have been taxed as house property under the deeming provisions, even though it is clearly a part of the business. Restoring the words ‘as he may occupy’ ensures the law reflects practical business realities, prevents unintended tax burdens, and upholds the nyaya or fairness principle in taxation. It also provides certainty and reduces litigation by aligning the new law with the current Income-tax Act, 1961.”