New Income Tax Act 2025 To Take Effect From April 1

India’s direct tax framework is set for its most sweeping reform in over six decades with the replacement of the Income-tax Act, 1961, by the Income-tax Act, 2025. The new legislation will come into force from April 1, 2026, and will apply to income earned in the financial year 2025–26 onwards. The move marks a decisive shift towards simplification, clarity, and technology-driven tax administration.

Why the Income-tax Act, 2025 Was Introduced

Over the years, the 1961 Act had expanded into a highly complex law with more than 800 sections, frequent amendments, and overlapping interpretations. To address this, the government undertook a comprehensive rewrite aimed at eliminating obsolete provisions, reducing litigation, and aligning tax law with a modern, digital economy. The new Act seeks to make compliance easier for taxpayers while improving administrative efficiency.

Effective Date and Transition Timeline

Although the Income-tax Act, 2025 received presidential assent in August 2025, it will be operational from April 1, 2026. This means tax returns filed for Assessment Year 2026–27 will still largely follow the 1961 Act. However, procedural and administrative changes linked to the new law will begin influencing compliance systems from the upcoming financial year.

Key Structural and Procedural Changes

The new Act significantly reduces complexity by cutting sections from 819 to 536 and chapters from 47 to 23. The language has been simplified, with extensive use of tables and formulas replacing long textual provisions. A major reform is the introduction of a unified “Tax Year”, replacing the dual concepts of “previous year” and “assessment year”, thereby simplifying tax computation and understanding.

Imporatnt Facts for Exams

• The Income-tax Act, 2025 replaces the Income-tax Act, 1961.
• The new law becomes effective from April 1, 2026.
• Number of sections reduced from 819 to 536.
• A single ‘Tax Year’ concept replaces previous year and assessment year.

Implications for Individual Taxpayers

While individual tax rates and slabs remain unchanged, the Act supports the revised tax regime with higher rebates and a larger standard deduction, effectively making income up to Rs 12 lakh tax-free. Redesigned income tax return forms, expanded digital and faceless procedures, and clearer provisions aim to reduce disputes and improve certainty. The emphasis on technology and simplified compliance is expected to benefit salaried individuals, professionals, and businesses alike.