New Income Tax law from April 1: No rate change, less litigation, easier compliance
Beginning April 1, 2026, India’s tax landscape will undergo a major transformation with the implementation of the Income Tax Act, 2025, replacing the Income Tax Act, 1961 that has governed the country for over six decades. The new legislation will also incorporate the changes announced in the 2026-27 Union Budget.
The Income Tax Act, 2025, is revenue-neutral, with no changes in existing tax rates. Instead, it aims to make direct tax laws simpler and easier to understand, removing ambiguities and reducing the scope for litigation. Overall, the new law cuts the text volume and sections by nearly 50% compared to the 1961 Act.
Simplified tax timeline
One of the major reforms is the replacement of the assessment year–previous year system with a single ‘tax year’ framework, streamlining compliance for taxpayers. Additionally, taxpayers can now claim TDS refunds even if their ITRs are filed after deadlines, without facing penalties.
The rules to implement the new law are currently being drafted and are expected to be notified after the presentation of the FY27 Budget. Various forms, including those for advance tax and TDS payments, will be released thereafter.
The 1961 Income Tax Act, enacted 64 years ago, had grown increasingly complex and bulky due to hundreds of amendments over the decades. Lawmakers noted that the old Act had become difficult for the common taxpayer to comprehend, with multiple cross-references across sections, sub-sections, and provisos.
Technological advancements and changes in the socio-economic fabric of India made a comprehensive overhaul essential. The new law is designed to be leaner, clearer, and more reader-friendly, reducing litigation and helping taxpayers accurately understand their liabilities.
Key features of the 2025 Act
Leaner structure: Obsolete sections and amendments, including those relating to wealth tax, gift tax, fringe benefit tax, and banking cash transaction tax, have been removed.
Simplified compliance: Streamlined rules, easier language, and reduced text volume will make the law accessible to individuals, corporates, HUFs, and other taxpayers.
Budget alignment: All amendments announced in the 2026-27 Budget will automatically be integrated into the new Act.
Past attempts at reform
The government has attempted to modernise the 1961 Act in the past. In 2010, the Direct Taxes Code Bill was introduced but lapsed after the 2014 change in government. Later, in 2017, a six-member panel was set up to redraft the law, submitting its report to the finance minister in 2019, paving the way for the current overhaul.
The Income Tax Act, 2025, was approved by Parliament on August 12, 2025, and received the assent of President Droupadi Murmu on August 21, 2025, officially becoming law.
