PANAJI
India’s income-tax law has received its biggest rewrite in more than sixty years. The Income-tax Act, 2025, has replaced the Income-tax Act, 1961, from 1 April 2026. The new Act was passed by Parliament on 12 August 2025, received the President’s assent on 21 August 2025, and came into force from 1 April 2026.
The most important point for ordinary taxpayers is this: the new Act is not meant to create a new tax system. It is mainly a simplified and reorganised version of the old law. The Government has stated that the Act has been introduced to make the law simpler, clearer, more modern and easier to comply with, and that it does not impose any new tax.
One of the major visible changes is the use of the term “tax year”. Earlier, taxpayers had to understand two separate terms: “previous year”, meaning the year in which income is earned, and “assessment year”, meaning the later year in which the income is assessed. This often confused small taxpayers. Now, “tax year” means the twelve-month period of the financial year starting on 1 April. In simple words, income earned during 1 April 2026 to 31 March 2027 will relate to Tax Year 2026–27.
The basic charging idea remains the same. Income-tax continues to be charged on the total income of a person for the relevant year at the rates provided by Parliament. The Act is also shorter and better arranged than the old law. The 2025 Act contains 536 sections and 16 schedules, compared with 819 sections and 14 schedules in the 1961 Act. The Income-tax Rules have been reduced from 511 rules with 399 forms to 333 rules with 190 forms. This does not mean tax law has become easy in every case, but the structure is more reader-friendly.
Many familiar concepts continue. PAN, TAN, faceless assessment, faceless appeal, TDS, return filing, deductions, exemptions, capital gains, business income, house property income, salary taxation and penalties continue in substance.
There are some modern features. The Act uses clearer references to electronic records, computer systems and digital information. For example, Section 247, dealing with search and seizure, specifically refers to information in electronic form or on a computer system, access codes and computer systems.
Another important feature is continuity. The new Act does not wipe out past proceedings, past assessments or past rights. The Income Tax Department’s guidance explains that the repeal of the 1961 Act does not disturb matters relating to years before 1 April 2026, and pending proceedings for earlier years continue under transitional provisions.
Therefore, the Income-tax Act, 2025, should be understood as a cleaner, reorganised and modernised income-tax law, rather than a completely new tax policy. For the common taxpayer, the major change is not “how much tax” but “how the law is presented”. The rates, basic principles and familiar tax concepts largely continue, while the drafting has been simplified, old clutter has been reduced, and the law has been aligned with digital compliance.
In short, the new Act is like moving an old office into a new, better-labelled building. The files are mostly the same, but the rooms are cleaner, the signs are clearer, and the system is easier to navigate.
(The writer, a Fellow Chartered Accountant (FCA), specialising in Goods, Services tax, Transfer Pricing and Income tax, is the co-author of the book ‘Comedium of Industrial Policy for MSMEs in Goa’ released by ICAI)
