Income Tax Act 2025 Key Features: Beginning April 1, the Income Tax Act, 2025, will come into force, replacing the six-decade-old Income Tax Act, 1961. All tax changes announced in the Union Budget 2026-27
will be incorporated into the new legislation.
The Income Tax Act, 2025, is revenue-neutral and does not alter existing tax rates. Its primary objective is to simplify direct tax laws, remove ambiguities, and reduce litigation. The new law cuts the volume of text and the number of sections by nearly 50 per cent compared with the 1961 Act.
One of the key structural changes is the introduction of a single ‘tax year’ system. The new framework removes the distinction between the ‘previous year’ and ‘assessment year’, making compliance timelines easier to understand. It also allows taxpayers to claim refunds of tax deducted at source even if income tax returns are filed after the due date, without attracting penal charges.
Any changes related to taxation of individuals, corporates, Hindu Undivided Families and other entities announced in the Budget for 2026-27 on February 1 will automatically become part of the new Income Tax Act, 2025.
Rules required to operationalise the new law are currently being framed and are expected to be notified after the presentation of the FY27 Budget. Income tax return forms, including those relating to advance tax payments and TDS, will be notified subsequently.
The Income Tax Act, 2025 was approved by Parliament on August 12, 2025, following scrutiny by a Parliamentary committee. It became law after receiving the assent of Droupadi Murmu on August 21, 2025.
Why was the Income Tax Act, 1961 reviewed?
The Income Tax Act, 1961 was enacted 64 years ago, when India’s economic structure and income patterns were vastly different. Over time, changes in society, business models, and technology led to hundreds of amendments to the law. As a result, the Act became bulky, complex, and difficult for taxpayers to comprehend, with frequent cross-referencing across sections, sub-sections, and provisos.
Given the transformation in India’s socio-economic landscape and the increasing use of technology, the government felt the need for a comprehensive overhaul of the outdated framework.
What does the new Income Tax Act aim to achieve?
The new law is designed to be leaner, simpler, and more reader-friendly. The government aims to make tax provisions easier to understand so that taxpayers can clearly determine their tax liability. By removing complexity and ambiguity, the new Act is also expected to reduce disputes and long-pending litigation.
How has the law been made leaner?
The Income Tax Act, 1961 originally dealt with multiple direct taxes such as personal income tax, corporate tax, securities transaction tax, wealth tax, gift tax, fringe benefit tax, and banking cash transaction tax. Over the years, many of these levies were abolished, while several sections became redundant or obsolete.
The new Act eliminates irrelevant provisions and consolidates applicable laws into a cleaner, amendment-free structure, removing decades of clutter.
Will the new law change tax liability?
Any change in tax rates is normally carried out through the Finance Act, which forms part of the Union Budget presented annually on February 1. Accordingly, all tax-related announcements made in the Budget 2026-27 will be reflected in the Income Tax Act, 2025.
Have earlier attempts been made to replace the 1961 Act?
Yes. In 2010, the Direct Taxes Code Bill was introduced in Parliament and referred to a Standing Committee. However, it lapsed following the change in government in 2014. Later, in November 2017, a six-member committee was constituted to redraft the Income Tax Act. The panel submitted its report to the finance minister in August 2019, laying the groundwork for the new legislation.
