1. Introduction
The Income Tax Act, 2025, came into force on 1 April 2026, replacing The Income Tax Act, 1961, i.e., the statute governing direct taxation in India for over six decades. This repeal was marked by the Press Information Bureau as a “new chapter in India’s tax administration” and was formally announced by the Ministry of Finance.[1]
However, very little changed for the ordinary taxpayer filing a return. Neither was any tax rate revised, nor any new category of income introduced, nor any deduction abolished. The only thing that changed was the architecture of the law itself, i.e., the manner in which India’s tax obligations are organised, and presented. An understanding of the Income Tax Act, 2025, is essential for every income-earning individual in India, whether a salaried employee, a business owner, or a non-resident Indian having cross-border assets.
2. Challenges of the Former Law
One must understand the rationale behind the replacement of the previous legislation. The Income Tax Act, 1961, was amended, not once, not twice, but 65 times, across 4000 amendments over six decades through annual Finance Acts and 19 separate taxation Laws Amendment Bills.[2] Even before considering the application of the Act, it had become extremely difficult to merely read the Act due to numerous amendments, provisos, explanations, and layered sub-clauses. To understand a single obligation, the law often required readers to navigate and analyse across chapters and explanations because of its scattered structure within the Act. This led to confusion among the taxpayers, thereby making compliance expensive, fuelling litigation, and ultimately making the system difficult to understand for the very taxpayers it was meant to govern.[3]
Therefore, the need for reform was grounded in these practical difficulties faced by the taxpayers, tax professionals, and even courts while interpreting a statute that lacked structural coherence.
3. Role of the New Law
The main objective of the Income Tax Act, 2025, is to simplify this structure without any alteration of its substance. The core principles guiding this reform are:[4]
- Simplification of language and layout,
- Avoidance of significant policy changes, and
- Retaining existing tax rates.
The 1961 Act consisted of over 819 sections previously. This has now changed in the Income Tax Act, 2025 which consists of 536 sections, organised into 23 chapters and 16 schedules. Around 1,200 provisos and 900 explanations have been absorbed into plain language, or simply removed where they were redundant.[5]
Apart from these, several changes have been incorporated to make the law easier for the taxpayers to understand:[6]
- Active voice used rather than passive voice
- Complex and lengthy sentences simplified into shorter and clearer sentences
- Related provisions consolidated in a single place rather than being fragmented across the Act
- Cross-referencing, which previously required readers to navigate sections such as “sub-clause (ii) of clause (b) of sub-section (1) of section 133,” has been simplified to a reader-friendly format such as “section 133(1)(b)(ii).
Therefore, these changes do not alter what is owed by the taxpayer, rather it changes how that obligation is communicated.
4. The Key Change: Removal of ‘Assessment Year.’
The most notable change introduced by the 2025 Act is the abolition of the difference between the ‘Previous Year’ and the ‘Assessment Year’.
Under the Income Tax Act, 1961, there were 2 main concepts for taxation, namely the Previous Year, which isthefinancial year starting from 1 April and ending on 31 March, where the income earned during this year was taxed in the immediately following ‘Assessment Year’. This meant that the income earned during, for example, FY 2024-25 would be assessed in the AY 2025-26. This system required the taxpayers to simultaneously track two different year references when filing returns, responding to notices, or citing sections.
These two different financial years created a lot of confusion among the taxpayers, and hence, the 2025 Act replaced both with a single unified concept known as the ‘Tax Year’. It is a period consisting of 12 months in a financial year starting from 1 April 2026 onwards. Hence, the income earned during FY 2026-27 will be referred to as the Tax Year 2026-27 under the new Act.[7] This solved the core confusion of the taxpayers, where many found it difficult to distinguish between the year for which the return was to be filed and the year for which the return was actually related.
Therefore, this change results in greater alignment and clarity by eliminating the confusion arising from the use of two different terms for the year in which income is earned and the year in which income is taxed.
5. Tax Rates, Slabs, and Deductions Remain Unchanged
It is pertinent to note that the Income Tax Act, 2025, does not introduce any new taxes, despite some sensationalised commentary made during public discussions. The only aim behind replacing the old Act is to present the existing law in a more logical, reasonable, and reader-friendly manner. Under the New Act, only the structure has been changed and not the entire tax regime. Any provisions related to deductions in the former Act have been regrouped and simplified for better clarity, as earlier they were scattered across the Act. Nothing related to tax rates applicable to individuals, HUFs, companies, or other entities has been changed. Simultaneously, the taxpayers retain their choice to follow the old tax regime if preferred by them.[8]
6. A Notable Change For Deductors: Consolidation Of TDS Provisions
Earlier, the 1961 Act provided the TDS rules in a fragmented and complex manner, spread across 60 sections, i.e., Sections 192 to 194T. Moreover, each section had its own format, exceptions, and threshold, making its application difficult. This created confusion among businesses and resulted in frequent errors during tax compliance, filing, or audit processes.
Fortunately, the new 2025 Act makes the TDS provisions much simpler by consolidating them into three sections:[9]
- Section 392 – TDS on salaries
- Section 393 – TDS across three structured tables for residents, non-residents, or any person
- Section 394 – Tax collected at Source
Additionally, the 2025 Act empowers the Central Board of Direct Taxes (CBDT) to issue guidelines for the chapter on collection and recovery of tax, thereby making the process more consistent. Further, the taxpayers are allowed to apply for a certificate for lower TDS rates across all TDS provisions rather than for selected cases, as was the process earlier. Lastly, a higher TDS rate on cash withdrawals for return defaulter is eliminated and aligns tax deduction on compensation payments under this new Act.[10]
7. The Former Law Is Not Replaced, Only Restructured
The Income Tax Act, 1961, has not been completely extinguished, as the proceedings under this Act continue to be followed. The repeal does not affect anything related to tax years before 1 April 2026. Any assessment of a taxpayer that was completed in AY 2023-24 will continue to be valid even after the introduction of the new law. Similarly, any pending proceedings will be continued as per the relevant transitional provisions.
Therefore, a dual-statute environment is created for practitioners and litigators and will continue to operate for several years. Additionally, the government has notified the Income Tax Rules, 2026, which replace the Income Tax Rules, 1962, with effect from 1 April 2026. However, for AY 2024-25 and earlier, the Income-tax Rules, 1962, will continue to govern, with no retrospective application.[11]
8. Conclusion
It is better to consider the Income Tax 2025, not as a tax reform, but as a reform of the tax experience.The only change in this Act concerns the process for communicating a taxpayer’s obligation, rather than what a taxpayer owes. The most immediate change for an individual taxpayer is the replacement of the assessment year with the tax year, reducing confusion. The second change is for business and compliance teams, i.e., the consolidation of TDS provisions under a structured set of sections, reducing the risk of error. Lastly, for practitioners and courts, the dual-statute transition periods require them to carefully check the application of the former law or the new law to a particular case or proceeding.
Ultimately, the fulfilment of the Act’s objectives will only be apparent when the first returns are filed under the Tax year 2026-27, notices are issued, and disputes adjudicated. Whether the promise of genuine simplification will truly improve the experience is yet to be determined.
[1] ‘Income-Tax Act, 2025 Comes into Force from Today (1st April, 2026)’ <https://www.pib.gov.in/www.pib.gov.in/Pressreleaseshare.aspx?PRID=2248005> accessed 18 May 2026.
[2] ‘PIB Backgrounder’ <http://www.pib.gov.in/PressNoteDetails.aspx?NoteId=155137> accessed 19 May 2026.
[3] S Das, ‘Income Tax Act 2025: Key Changes Explained’ (India Policy Hub, 26 February 2026) <https://indiapolicyhub.in/2026/02/26/income-tax-act-2025-key-changes-effective-1-april-2026> accessed 19 May 2026.
[4] ‘Objective and Scope of the New Act | Income Tax Department’ <http://www.incometax.gov.in/iec/foportal/help/all-topics/e-filing-services/objective-and-scope-new-act> accessed 19 May 2026.
[5] ‘Income Tax Act 2025 – Key Changes, Chapters and Tax Slabs’ (cleartax) <https://cleartax.in/s/income-tax-act-2025> accessed 19 May 2026.
[6] EY India, ‘Income Tax Bill 2025: March towards Simplification’ (Tax Alert, February 2025) https://www.ey.com/content/dam/ey-unified-site/ey-com/en-in/alerts-hub/2025/02/ey-decoding-the-new-income-tax-bill-v1.pdf accessed 19 May 2026.
[7] ‘Objective and Scope of the New Act | Income Tax Department’ <http://www.incometax.gov.in/iec/foportal/help/all-topics/e-filing-services/objective-and-scope-new-act> accessed 19 May 2026.
[8] Income Tax Department, Ministry of Finance (Government of India), FAQs on Interplay and Transition (2026) https://www.incometaxindia.gov.in/documents/81799/11848482/FAQs-on-Interplay-and-Transition.pdf/05f80c1a-073c-a5d7-fb6f-55509242be53 accessed 19 May 2026.
[9] ‘Income Tax Act 2025: Full Guide to New Sections, Slabs & Changes (1961 vs 2025 Mapper) | KDK Software’ <https://www.kdksoftware.com/blog/posts/new-income-tax-bill-2025> accessed 21 May 2026.
[10] ‘Key Changes in Income Tax Act 2025 vs 1961 | TDS and TCS’ <https://www.taxmann.com/post/blog/key-changes-in-income-tax-act-tds-and-tcs> accessed 21 May 2026.
[11] ‘Income Tax Act 2025 vs Income Tax Act 1961 – Changes from April 1, 2026’ <https://taxguru.in/income-tax/income-tax-act-2025-income-tax-act-1961-april-1-2026.html> accessed 21 May 2026.
