The Income-tax Act, 2025, in India, which replaces the decades-old Income-tax Act, 1961, was passed by Parliament in August 2025 and received the President’s assent. The government has confirmed that it will come into force from 1 April 2026.
Latest Updates
- ICAI has announced a new version of the Income Tax Act 2025 to simplify the tax system for taxpayers. read more
Current Tax Law Challenges
- Periodic Litigation: The indefinite provisions are frequently directed to statutory disputes between the taxpayers and the tax authorities.
- Extreme Complexity: The existing income tax act has risen into a lengthy and intricate document with nearly 6 lakh words, making compliance challenging.
- Limited Tax Base: The current platform does not have large sections of the economy, specifically the informal sector lessening the tax collection efficiency.
- Duplicative Provisions: Various sections, particularly those introduced before 2012-13, have lost relevance in the existing economic world.
New Income Tax Act 2025
The Income Tax Act, 2025, represents a comprehensive reform of the direct tax legislative framework and is planned to replace the Income Tax Act, 1961, which has been in force for over six decades.
The primary objective of this new Act is to set clearer, more straightforward, and user-friendly tax requirements. It is systematically arranged into chapters and sections that pursue a logical system, managing important topics such as definitions, income heads, tax exemptions and deductions, total income computation, tax rates, the basis charge, return filing, assessment methods, reassessment protocols, liabilities, prosecution measures, pleas, and dispute resolution.
While the Act has undergone modernisation in both format and language to improve clarity, it fundamentally keeps the existing tax policy framework. This provides continuity while simultaneously enhancing the accessibility and interpretability of the law for taxpayers, practitioners, and administrators alike.
New Concept of ‘Tax Year’ to Replace ‘Assessment Year’
The new Income Tax Act will introduce the concept of ‘Tax Year’. This will substitute the current concept of assessment year (or previous year) from the Income Tax Act.
The “tax year” has been described as follows:
- 3. (1) For this Act, “tax year” represents the twelve months of the financial year commencing on the 1st of April.
- (2) In the case of a business or profession newly set up, or a source of income newly coming into existence in any financial year, the tax year shall be the period beginning with—
- (a) the date of setting up of such business or profession; or
- (b) the date on which these income source newly comes into force and ending with the said fiscal year. It is noted that the tax year is anticipated to substitute the assessment year, and no amendment in the definition of the financial year, which will start on April 1 and end on March 31.
Additional Developments Process
Here we have discussed some additional development processes in the Finance Act 2025:
No Modification in Residency Laws
Residency law does not get amended in the new Income Tax Act. They seem to remain the same in the new act. The existing income tax laws classify the residency provisions into three classes-
- Ordinarily resident individual
- Non-ordinarily resident individuals
- Non-residents individuals
Income Tax Slabs for FY 2025-26
The individuals who are making up to Rs 12 lakh annually will not be required to pay any income tax under the new tax regime, as the Finance Minister Nirmala Sitharaman on Saturday gave relief to the middle class by increasing exemption limits and rejigging slabs.
For salaried employees, after taking into account a standard deduction of INR 75,000, this nil tax limit will be INR 12.75 lakh per annum.
The tax slabs are as follows:
| Total Income | Slab Rate |
|---|---|
| 0 – Rs.4 lakh | 0 |
| Rs. 4-8 lakh | 5% |
| Rs. 8-12 lakh | 10% |
| Rs. 12-16 lakh | 15% |
| Rs. 16—20 lakh | 20% |
| Rs. 20-24 lakh | 25% |
| More than Rs.24 lakh | 30% |
Tax-free Income Limit
As per the proposed new tax regime, the maximum total income towards which the tax obligation for the individual taxpayer is NIL is Rs 12 lakh. Before that, the income limit for the nil tax payments was Rs 7 lakh. Via raising this limit to Rs 12 lakh, nearly 1 crore taxpayers who were before needed to file the tax ranging from Rs 20,000 to Rs 80,000 will not file the nil tax.
Total Tax Net on Brand Collaborations and Endorsement Agreements
People who are in digital content creation, along with social media influencers and online platforms, will be mandated to enrol for the Goods and Services Tax (GST) if their turnover surpasses Rs 20 lakh in a financial year (Rs 10 lakh for special category states).
Any payment surpassing Rs 50,000 in a fiscal year for professional services, along with the brand sponsorships, will need to file a 10% tax deducted at source (TDS) under section 194J. It directed the brands to deduct tax before making the payments.
Earnings via brand collaborations, social media promotions, and digital content creation will likely be treated as profits and gains of business or profession (PGBP). It signifies that the influencers could claim the deductions on expenses, though their income will be subject to taxation.
Amortisation of Specific Preliminary Fees
Under the current Income Tax Act, 1961, Section 35D cited that where a taxpayer being an Indian company or a person (other than a company) who is resident in India, makes after the 31st day of March 1970, any expenditure specified in sub-section (2), (i) before the commencement of his business, or (ii) post start of his business concerns with the extension of his undertaking or in association with his setting up a new unit thereafter the taxpayer will following and within the provisions of this section be permitted a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years” starting with the earlier year in which the business starts or as the case may be the last year in which the extension of the undertaking is finished or the new unit begins production or operation.
New Income Tax Act 2025: Significant Features
Finance Minister Nirmala Sitharaman, in the Union Budget speech, has outlined that the new tax act will be easier, creative, and more structured.
Simplification and Deduction in Word Count
The new act has the purpose of reducing nearly 3 lakh words, lessening the statute’s complexity by half. By eliminating the expired provisions, the statute will be concise, direct, and easier to comprehend for both the taxpayers and administrators.
Alignment with Global Tax Standards
The new framework shall be structured to fulfil the international taxation norms, which makes the tax system of India more effective for business. The same will promote investor confidence, drawing more foreign and domestic investments.
‘Trust First, Scrutinise Later’ Approach
The updated act is taxpayer-friendly, assuring less scrutiny and effective trust in the taxpayer. The manual interventions have been lessened by the government, ensuring that 99% of tax returns are furnished on a self-assessment basis.
Evolution of the Tax Base
The income tax exemption limit has surged to Rs 12 lakh from Rs 7 lakh, giving relief to lower-income taxpayers. But to balance the contraction in the tax base, this would be focused on drawing more entities from the informal sector into the tax net.
Facilitated Litigation Management
The objective of the act is to reduce tax disputes by introducing clearer tax provisions and ensuring effective statutory certainty. The important provisions for search and seizure actions against companies and individuals in cases of tax evasion have been carried out by the government.
Rationalisation of TDS/TCS and Compliance Measures
The act will comprise the rationalised Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) rates, lessening the compliance loads. Additional compliance actions, such as Safe Harbour Rules and simplified tax filing procedures, will be incorporated.
How Will the New Income Tax Act Provide an Advantage to Taxpayers?
The new income tax act 2025 will seek to furnish noteworthy advantages to taxpayers via a sequence of strategic adjustments and enhancements:-
For Businesses and Corporations
- Higher tax certainty allowing more promising financial planning.
- Lower compliance burden with explicit tax laws.
- Alignment with international tax norms, promoting India’s ease of doing business ranking.
For Individual Taxpayers
- Faster tax refunds due to improved assessment mechanisms.
- Lesser statute disputes with well-stipulated tax provisions.
- Easier tax filing with a structured and logical arrangement of statutes.
For the Indian Economy
- A robust statutory framework ensuring fairness in taxation.
- Higher tax compliance as a result of the surge in clarity and ease of filing.
- Motivate investors, which leads to higher economic growth.
