Income Tax Act, 2025 to replace the 1961 law from April 1: Explained

What the Income Tax Act, 2025 changes and what stays the same for taxpayers

Beginning April 1, the Income Tax Act, 2025 will come into force, replacing the six-decade-old Income Tax Act of 1961. The new law seeks to simplify direct tax provisions, cut down legal complexity, and reduce the scope for litigation, while remaining revenue neutral. This means there is no change in existing tax rates, according to a report by PTI.

 

The government has described the new Act as a structural clean-up rather than a policy shift. Any changes in tax rates or slabs announced in future Budgets will continue to be made through the annual Finance Act and will be incorporated into the 2025 law.

 

Why was the old law reviewed?

The Income Tax Act, 1961 was enacted at a time when India’s economy, business environment, and income patterns were very different. Over the last 64 years, the law has been amended many times to keep pace with social, economic, and technological changes.

 

As a result, the Act became bulky and difficult for ordinary taxpayers to understand, with frequent cross-references to sections, sub-sections, and provisos. According to PTI, this complexity increased ambiguity and led to higher litigation between taxpayers and the tax department.

What the new Act aims to do?

The Income Tax Act, 2025 is designed to be leaner and more reader-friendly. The government intends to reduce the volume of the law by nearly 50 per cent compared with the 1961 Act. Obsolete provisions and references to abolished taxes, such as wealth tax, gift tax, fringe benefit tax, and banking cash transaction tax, have been removed.

 

By simplifying language and structure, the new law aims to help taxpayers better understand their tax liabilities and reduce disputed tax demands.

Key changes taxpayers should note

Some of the notable features of the new law include:

• Single ‘tax year’ concept: The distinction between the ‘previous year’ and ‘assessment year’ has been removed. Taxation will now be based on a single tax year, simplifying timelines.
• Relief on delayed returns: Taxpayers will be allowed to claim refunds of tax deducted at source (TDS) even if income tax returns are filed after the deadline, without any penal charges.
• No change in tax rates: The law is revenue neutral. Any rate changes announced in the Union Budget for 2026–27 and beyond will be incorporated into the new Act.

Implementation timeline

The Income Tax Act, 2025 was approved by Parliament on August 12, 2025, and received Presidential assent on August 21, 2025. Rules required to implement the law are currently being framed and are expected to be notified after the presentation of the Union Budget for 2026–27.

 

Tax return forms, including those for advance tax and TDS, will be notified subsequently, completing the transition to the new tax framework.

 

(With inputs from PTI)