India’s tax system is on the cusp of one of its most significant transformations in over six decades. The Income-tax Act, 1961, the principal law governing direct taxes for generations, is being replaced
by the Income-tax Act, 2025. The changes for taxpayers begin with the financial year 2025-26, effectively impacting tax returns filed from April 1, 2026, onward.
Why a New Income Tax Law?
The 1961 Act, despite periodic amendments, had grown into a complex and cumbersome statute with over 800 sections and decades of layered interpretations. The Government of India undertook a comprehensive overhaul to make tax law simpler, more precise, technology-ready and suited to the 21st-century economy. The new legislation consolidates redundant provisions, removes obsolete language, and brings clarity to key areas of compliance.
When Does the New Act Come into Force?
Formally enacted after receiving presidential assent in August 2025, the Income-tax Act, 2025, is slated to come into effect from April 1, 2026. This means tax filings for the financial year 2025-26 (Assessment Year 2026-27) will be governed largely by the current tax law of 1961, but several new rules and administrative changes will begin from the next fiscal year.
Key Features of the New Income Tax Act, 2025
1. Simplified, Clearer Language and Structure
One of the most striking changes is the scale of simplification. The new Act reduces the number of sections from 819 to 536, and chapters from 47 to 23. The word count has been nearly halved—from 5.12 lakh words to 2.6 lakh.
For the first time, the law relies extensively on tables and formulas, introducing 39 tables and 40 formulas, to replace long and complex textual provisions that often caused interpretational disputes under the 1961 Act.
2. Introduction of a Unified ‘Tax Year’
Currently, Indian taxation uses separate concepts of “previous year” and “assessment year”. The new tax law introduces a single standard ‘Tax Year’ concept, aligning tax computations with a clear and uniform period, a change expected to streamline compliance for individuals and businesses alike.
3. New Sections
The sections under the new Income-tax Act 2025 changes. For instance, Section 80C has become Section 123.
4. Procedural Modernisation & Technology Emphasis
The 2025 Act places greater emphasis on digital and faceless procedures, helping reduce human interface in tax administration. Faster refunds, clearer timelines, and technology-driven compliance processes aim to benefit regular taxpayers and lower dispute rates.
5. Updated Treatment of Digital and Global Income
To reflect modern economic realities, certain provisions clarify the treatment of virtual digital assets and expand definitions of income sources. Such updates are meant to cover newer forms of economic activity without creating uncertainty.
What Changes for Individuals and Taxpayers?
Though the tax rates and slabs for individuals remain unchanged, several taxpayer-friendly adjustments will reflect:
Revised Tax Slabs and Higher Basic Exemption
Under the new regime ushered in by the Budget, tax slabs were adjusted to provide significant relief. Taxable income up to Rs 12 lakh effectively becomes tax-free through enhanced rebates, and a higher standard deduction benefits salaried taxpayers, boosting disposable income for a broad section of earners.
Simpler Returns and Clearer Compliance
From the next financial year, taxpayers can expect redesigned ITR forms that are easier to navigate, with reduced ambiguity in reporting requirements — a direct outcome of the legislative rewrite.
More Certainty
One of the government’s goals with the new Act is to reduce tax disputes. Clearer language, consolidated presumptive schemes, and logically framed provisions for deductions and exemptions aim to minimise interpretation disputes.
What Taxpayers Should Do Now
Understand the Revised Slabs: Review the updated tax slabs and rebate thresholds for FY 2025-26 to plan your tax liability and investments.
Stay Updated on Draft Rules: Since the new Act comes with fresh rules and clarifications, periodically check official CBDT notifications and ITR form updates.
Plan With the Transition in Mind: Although the 1961 Act continues for one more assessment year, many procedural advantages of the 2025 Act will begin affecting compliance soon.
The Income-tax Act, 2025 represents a bold attempt to modernise India’s direct tax system — simplifying language, reducing outdated provisions and aligning tax law with the needs of a fast-changing economy. While most structural changes take effect from April 1, 2026, the ripple effects of this tax reboot are already being felt in tax slabs, compliance processes and taxpayer expectations. As India ushers in this new era of taxation, taxpayers and professionals alike will need to update their understanding to fully leverage the benefits of the reformed regime.
