Revised Income Tax Bill, 2025
The government has corrected a previous drafting error in the Income Tax (No. 2) Bill, 2025, providing relief from the Alternate Minimum Tax (AMT) for partnership firms and limited liability partnerships (LLPs).
Key Provisions
- The revised bill was passed by the Lok Sabha and includes almost all recommendations from the Select Committee.
- The Taxation Laws (Amendment) Bill, 2025 was also approved, granting tax relief under the new Unified Pension Scheme and extending benefits to Saudi Arabia's Public Investment Fund.
Alternate Minimum Tax (AMT)
- AMT is levied at 18.5% plus cess and surcharge for non-corporate taxpayers to prevent high earners from offsetting their tax liabilities through exemptions.
- LLPs with only long-term capital gains (LTCG) income are taxed at 12.5%.
- The revised draft restores reference to Chapter VI-A deductions, ensuring AMT applies appropriately.
Select Committee Recommendations
- The Select Committee made over 285 recommendations, although no changes to the AMT framework for LLPs were suggested.
- The government has incorporated stakeholder suggestions for clarity and accuracy, including adjustments to drafting and cross-referencing.
Transfer Pricing Rules
- A significant recommendation to broaden transfer pricing scrutiny was dropped to prevent subjectivity and litigation.
- A company would be treated as an "associated enterprise" based on "substantial influence," but this proposal was removed.
Benefits for Charitable and Religious Trusts
- The bill restores tax benefits for charitable and religious trusts, allowing them to reinvest capital gains in new capital assets for exemption.
- Trusts can also apply unspent income in the following year without losing tax benefits, consistent with historical rules under the Income-tax Act, 1961.
The revisions ensure clarity and maintain the original intent of the legislation, supporting fair tax mechanisms for various entities.