India's direct tax framework is undergoing its most substantial reform in over sixty years with the introduction of the Income-tax Act, 2025. This new legislation, effective from April 1, 2026, will apply to income earned in the financial year 2025–26 and beyond. The reform aims to simplify tax compliance, enhance clarity, and leverage technology in tax administration.
The previous Income-tax Act, 1961, had evolved into an intricate law with over 800 sections, frequent amendments, and overlapping interpretations. To tackle these complexities, the government initiated a comprehensive rewrite of the Act. The primary goals are to eliminate obsolete provisions, reduce litigation, and align tax regulations with a modern digital economy. This new framework is designed to facilitate easier compliance for taxpayers while enhancing administrative efficiency.
Although the Income-tax Act, 2025 received presidential assent in August 2025, its operational date is set for April 1, 2026. Consequently, tax returns for the Assessment Year 2026–27 will largely adhere to the 1961 Act. Nevertheless, the procedural and administrative adjustments related to the new law will start influencing compliance systems in the upcoming financial year.
The new Act significantly reduces complexity by decreasing the number of sections from 819 to 536 and the chapters from 47 to 23. The language has been simplified, utilizing tables and formulas to replace lengthy textual provisions. A notable reform is the introduction of a unified "Tax Year," which replaces the dual concepts of "previous year" and "assessment year," thus streamlining tax computation and understanding.
While the individual tax rates and slabs remain unchanged, the new Act supports the revised tax regime with increased 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 minimize disputes and enhance certainty. The focus on technology and simplified compliance is expected to benefit salaried individuals, professionals, and businesses alike.
Q1. What is the effective date of the Income-tax Act, 2025?
Answer: The Income-tax Act, 2025 will become effective on April 1, 2026, applying to income earned in the financial year 2025–26.
Q2. How many sections does the new Income-tax Act contain?
Answer: The Income-tax Act, 2025 reduces the number of sections from 819 to 536, significantly simplifying the tax framework.
Q3. What major change does the Income-tax Act, 2025 introduce regarding tax years?
Answer: The Act introduces a unified "Tax Year," replacing the previous concepts of "previous year" and "assessment year" for easier tax computation.
Q4. Will individual tax rates change under the new Act?
Answer: Individual tax rates and slabs remain unchanged, but the Act offers higher rebates and larger standard deductions for taxpayers.
Q5. How does the Income-tax Act, 2025 benefit taxpayers?
Answer: The Act emphasizes digital and faceless procedures, clearer provisions, and simplified compliance, benefiting individuals and businesses alike.
Question 1: What is the effective date of the Income-tax Act, 2025?
A) April 1, 2025
B) April 1, 2026
C) April 1, 2027
D) April 1, 2024
Correct Answer: B
Question 2: How many sections are in the Income-tax Act, 2025?
A) 800
B) 700
C) 536
D) 819
Correct Answer: C
Question 3: What new concept does the Income-tax Act, 2025 introduce?
A) Assessment Year
B) Previous Year
C) Tax Year
D) Income Year
Correct Answer: C
Question 4: Will the individual tax rates change under the new Act?
A) Yes, they will increase
B) Yes, they will decrease
C) No, they will remain unchanged
D) They are eliminated
Correct Answer: C
Question 5: What is a benefit of the Income-tax Act, 2025 for taxpayers?
A) Increased tax rates
B) Complicated compliance
C) Simplified procedures and clarity
D) More litigation
Correct Answer: C
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