The Income Tax Act, 2025, will come into force from April 1, 2026, replacing India’s six-decade-old direct tax law, Finance Minister Nirmala Sitharaman announced during the presentation of the Union Budget 2026–27. The new legislation is aimed at simplifying tax compliance, reducing ambiguities, and lowering litigation, while remaining revenue-neutral with no changes to existing tax slab rates.

Presenting the budget in Parliament, Sitharaman said the redesigned income tax rules and forms would be notified shortly to give taxpayers sufficient time to familiarize themselves with the new framework. She added that the forms have been simplified so that ordinary citizens can comply with tax requirements more easily. The finance minister also announced an extension of the income tax return filing deadline from December 31 to March 31.

Despite the structural overhaul, the government has not altered the tax structure or slab rates announced earlier. Under the new tax regime introduced in the previous budget, income up to ₹4 lakh remains tax-free, with progressive rates ranging from 5 percent for income between ₹4 lakh and ₹8 lakh to 30 percent for income above ₹24 lakh. These slabs will continue unchanged under the new act.

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The Income Tax Act, 2025, focuses on simplification by replacing complex and outdated provisions with clearer and more concise language. The number of sections has been reduced from 819 to 536, chapters have been cut from 47 to 23, and 16 schedules have been retained. New tools such as tables and formulas have been introduced to improve clarity and ease of interpretation for taxpayers and administrators alike.

One of the key changes under the new law is the replacement of the terms “assessment year” and “previous year” with a single concept called the “tax year.” The tax year will correspond to the financial year beginning April 1, with specific provisions for newly established businesses or new sources of income. This move is intended to reduce confusion and align tax terminology with global practices.

The new Act also places strong emphasis on digital and taxpayer-friendly administration. It streamlines Tax Deducted at Source provisions into a single section, allows refunds of TDS even when returns are filed late without penalties, and promotes faceless and digital assessments. The legislation further introduces a modern dispute resolution framework and empowers the government to roll out new schemes to enhance transparency, efficiency, and accountability in tax administration.

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