New Income Tax Bill: Relief Likely On Tax Treatment For LLPs As Government Set To Fix Drafting Errors

The government is likely to rectify key “drafting errors” in the proposed new Income Tax Bill, top sources told NDTV Profit. The move aims to bring clarity and ease the confusion around certain tax treatments involving partnership firms and deduction on dividends.

The correction assumes significance as the draft Bill had proposed expanding the scope of the Minimum Alternative Tax (MAT) to LLPs, making them liable to pay a higher long-term capital gains tax of 18.5%—a provision that sparked concern across industry and taxpayers especially family offices.

At present, the MAT applies to LLPs claiming certain deduction. The draft however removes the provision, creating panic among entities.

According to official sources, the government has accepted the majority of suggestions submitted by the Select Parliamentary Panel, which conducted a detailed review of the draft legislation. These changes will be incorporated in the final version of the Bill.

The tax department officials reiterate that there is no change in tax policy. The amendments are purely technical—intended to correct unintended errors in drafting.

Apart from LLP provisions, confusion was mounting with respect to Section 80M (related to corporate dividend deduction claims) and NIL TDS on certain specified transactions.

Officials say these were oversights, not deliberate policy shifts.

In total, the Select Panel has recommended 285 changes, underlining the need for significant fine-tuning before the Bill is ready for passage.

While the legislation is currently listed for tabling in the ongoing Monsoon Session, sources indicate that it may now be pushed to the Winter Session to allow more time for revisions.

The new Income Tax Bill is a crucial part of the government's broader tax reform effort, aimed at overhauling and simplifying the decades-old Income Tax Act of 1961.