India's new income tax law: Key changes to expect
What's the story
India is set to witness a major overhaul in its direct tax system with the introduction of the Income-tax Act, 2025. The new legislation will replace the existing Income-tax Act, 1961, which has been in place for over six decades. The new law will come into effect from April 1, 2026, and will govern tax filings for the financial year 2025-26 (Assessment Year 2026-27).
Need for change
Why a new income tax law?
The 1961 Act, despite regular amendments, had become a complex and cumbersome statute with over 800 sections. To simplify tax law and make it more precise and technology-ready, the Government of India decided to overhaul the existing legislation. The new law seeks to consolidate redundant provisions, remove obsolete language, and bring clarity to key areas of compliance.
Major changes
Key features of the new act
The new Act reduces the number of sections from 819 to 536 and chapters from 47 to 23. It also relies heavily on tables and formulas, introducing 39 tables and 40 formulas. This is a major departure from the long textual provisions that often led to interpretational disputes under the previous Act.
Tax year
Introduction of a unified 'tax year'
The new law also introduces a single standard 'Tax Year' concept, replacing the separate concepts of "previous year" and "assessment year." This change is expected to streamline compliance for individuals as well as businesses. The 2025 Act also emphasizes digital and faceless procedures to reduce human interface in tax administration.
Modernization
Updated treatment of digital and global income
The new Act also clarifies the treatment of virtual digital assets and expands definitions of income sources. These updates are aimed at covering newer forms of economic activity without creating uncertainty. Even though tax rates and slabs for individuals remain unchanged, several taxpayer-friendly adjustments are expected under this new regime.