Income Tax Act 2025: A significant change in the new law is the elimination of the distinction between the assessment year and the previous year. Under the old law, the previous year and the following year were considered separately for calculating income. The new law has replaced this with a single tax year.
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Income Tax Act 2025: The new Income Tax Act 2025 will come into effect in the country from April 1, 2026. It will replace the old law enacted in 1961, which had been in use for the last 60 years. The new law does not change tax rates, meaning it will not directly impact your tax amount. Its sole purpose is to simplify and make tax law easier to understand. The government states that the new law will be approximately half as long as the old law. It removes unnecessary and outdated provisions. This will simplify the tax process for both the common man and businesses. Additionally, the new law will reduce the likelihood of tax disputes and lengthy legal battles.
The gap between the assessment year and the previous year will be eliminated.
A key change in the new law is that the gap between the assessment year and the previous year will be eliminated. Under the old law, the previous year and the following year were considered separately for calculating income. The new law has replaced this with a single tax year. Additionally, if you fail to file your ITR (Income Tax Return) on time, you can still seek a refund of the TDS (Tax Deducted at Source) amount. Under the old law, doing so would have attracted a penalty. However, the new law provides this facility.
The government has also stated that the new law will incorporate any changes made in the 2026-27 Budget. This means that any new changes to personal or corporate taxes in the budget will automatically be implemented in the new law. The new rules and tax return forms will be released gradually so that all taxpayers can use them.
The old Income Tax Act was implemented in 1961.
The old Income Tax Act was implemented in 1961. At that time, India was a newly formed country. Social and business conditions were very different from today. The 1961 Act was amended repeatedly. However, over time, the process became complex and cumbersome, and in today’s digital age and changing economic environment, the old Act became difficult for the common man to understand. It contained numerous action subsection provisions that were difficult to follow. Therefore, the government completely rewrote the Act.
Purpose of the New Act
The aim of the new Act is to make it simple, accessible, and clear. Taxpayers will be able to easily understand how much tax they owe. The government claims that the new Act will reduce tax disputes. This means that people will not have to fight long-drawn battles over disputed tax demands. Also, learn how the Act was simplified. The old Act covered personal income tax, corporate tax, securities transactions, gift tax, and wealth tax. The 1961 Act contained approximately 298 sections and 23 chapters. Over time, several taxes, such as the Veltag, Gift Tax, Fringe Benefit Tax, and Banking Cash Transaction Tax, have been eliminated. Many sections had become outdated or irrelevant. The new Act will retain only those sections that are still relevant today. It will be approximately half as short as the old Act, allowing you to easily pay taxes without any complications.
No Changes to Tax Rates in the New Law
The new law does not change tax rates. Any changes are introduced in the Union Budget through the Finance Act. This means that tax rates will remain the same, but the new law will make them easier to implement. Furthermore, the government has previously attempted to amend the old law. The Direct Tax Code Bill 2010 was introduced in 2010, but it remained pending due to a change in government. A six-member committee was formed in 2017, which submitted its report to the Finance Minister in 2019. The new law was finally passed by Parliament on August 12, 2025, and became a new law with the signature of President Draupadi Murmu on August 21, 2025.
Preparation of Rules and Forms
The rules for the new law are currently being formulated. Forms for tax returns, advance tax, and TDS will be released gradually. This means that taxpayers will soon be able to file their returns under the new rules. The government’s goal is to make tax laws simple and transparent for everyone. It’s easy to understand the amount of tax payable. It’s also important to reduce tax disputes and legal battles. It’s also important to reduce the number of old, irrelevant provisions and simplify the law. The government says the new law is a significant step toward simplifying tax payments and saving people time.
The Income Tax Act 2025, which will come into effect on April 1, 2026, will be simpler and clearer than the old law. Taxpayers will now be able to easily determine their tax liability. The refund process will also be simplified. Old tax disputes and complexities will gradually be reduced. This change will not only transform how taxes are calculated but also make it accessible and transparent for both the public and businesses.
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