New Delhi, July 22 -- India's most significant direct tax reform in over six decades moved a step closer to becoming law on Monday, with a Lok Sabha select committee submitting its report on the draft Income Tax Bill, 2025. The panel broadly endorsed the government's goal of simplifying the tax code, but recommended a series of changes to address potential ambiguities, safeguard taxpayer rights, and ensure regulatory continuity. The report, tabled by committee chair Baijayant Panda, a member of parliament from the Bharatiya Janata Party (BJP), comes within months of the bill being introduced in Parliament in February by finance minister Nirmala Sitharaman. The proposed law is intended to replace the Income Tax Act of 1961, which has served as the cornerstone of India's direct tax regime for more than six decades. While expressing support for the bill's intent to streamline tax administration, the 32-member panel set up to scrutinise the bill flagged multiple concerns and technical inconsistencies that it said could dilute protections or increase the compliance burden if left unaddressed. Among its core recommendations, the panel called for clarifying several key definitions-such as capital asset, infrastructure capital company, and parent company-to align them with current laws. It called for harmonisation of definitions for micro and small enterprises with the MSMED Act, and pressed for more precise rules on various deductions, including those related to house property income, scientific research, and pension contributions. The panel identified an anomaly in the rebate clause applicable to individuals earning above Rs.12 lakh and recommended corrective language to avoid misinterpretation. To protect taxpayer rights and preserve discretion under the anti-avoidance regime, the committee proposed reinstating the phrase "in the circumstances of the case" under the General Anti-Avoidance Rules (GAAR). It noted that the phrase had served as an important safeguard to ensure that tax enforcement under GAAR was context-sensitive and not excessive. The panel opposed blanket disallowance of deductions for late filers and supported retaining flexibilities like "deemed application" for non-profits. It urged clearer rules for taxing religious and charitable trusts and anonymous donations to reduce ambiguity. In addition, the panel recommended that valid circulars, approvals, and exemptions under the existing Income Tax Act, 1961 be explicitly carried forward into the new regime. It also called for easing compliance requirements for non-residents and codifying standards related to valuer qualifications and jurisdictional limits. The committee flagged the risk of prosecution in cases where small taxpayers fall below the taxable threshold but are still required to file returns to claim refunds. "The committee observed that the current mandatory requirement to file a return solely for the purpose of claiming a refund could inadvertently lead to prosecution, particularly for small taxpayers whose income falls below the taxable threshold but from whom tax has been deducted at source," the report said....