Income Tax Act 2025: Key Highlights, Applicability & PDF

 

The much-anticipated Income Tax Act 2025 was introduced in Parliament on February 13, 2025. This new tax law aims to modernize India's taxation system, simplify compliance, and introduce structural reforms. The bill is under review by a dedicated committee, which will submit its report by the first day of the Monsoon Session. Below is a detailed analysis of the Income Tax Act 2025, including its key highlights, changes, and applicability.

Introduction to the Income Tax Act 2025

The draft of the Income Tax Act 2025 is now available for public review, offering taxpayers and professionals an insight into its provisions. Earlier, there was speculation that it would be called the Direct Tax Code, but it has officially been named the Income Tax Act 2025. This law is set to bring major reforms to India’s tax structure.

Implementation Date of the Income Tax Act 2025

A crucial aspect for taxpayers and students is the applicability date of the Income Tax Act 2025. The new tax law will come into effect on April 1, 2026, making the first taxable financial year FY 2026-27.

Exam Guidance for CA, CS & CMA Students

• Exams conducted before March 31, 2026, will follow the Income Tax Act, 1961.

• Exams held after April 1, 2027, will be based on the Income Tax Act 2025.

Objectives of the Income Tax Act 2025

The government aims to achieve three key objectives with the Income Tax Act 2025:

✅ Aligning India's tax system with global best practices. ✅ Simplifying tax laws by reducing complexity. ✅ Streamlining tax calculations for improved efficiency and transparency.

Several changes have been introduced to fulfill these objectives. Let’s explore them below.

Key Changes in the Income Tax Act 2025

1. Reduction in Sections

The Income Tax Act 2025 reduces the number of sections from 298 (with over 800 provisions) to 536, eliminating redundant clauses.

2. Restructuring of Chapters

The previous Act had 47 chapters, whereas the Income Tax Act 2025 consolidates them into 23 chapters, making it more structured and accessible.

3. Simplified Language and Structure

The Income Tax Act 2025 has been rewritten using simpler language, tables, and formulas, making it easier to understand and reducing ambiguities.

4. Reduction in Word and Page Count

The Income Tax Act 2025 has been optimized for better readability:

• Old Act: 5.12 lakh words

• New Act: 2.6 lakh words

• Old Act Pages: 822 pages

• New Act Pages: 622 pages

5. Litigation Reduction Measures

The new Act incorporates past judicial rulings, reducing tax disputes and making compliance smoother.

6. Removal of ‘Previous Year’ & ‘Assessment Year’

The Income Tax Act 2025 replaces traditional terms with a single ‘Tax Year’ (April 1 - March 31). The first tax year will be 2026-27.

7. Retention of Old & New Tax Regimes

Despite speculation, both the old and new tax regimes will continue under the Income Tax Act 2025, giving taxpayers the flexibility to choose their preferred system.

8. Virtual Digital Assets (VDA) Taxation

The Income Tax Act 2025 formally recognizes Virtual Digital Assets (VDA), including cryptocurrencies and NFTs, as taxable assets. This move ensures digital income compliance under taxation.

9. Tax Slab Structure

The tax slabs remain unchanged from the Union Budget 2025, with an effective NIL tax on INR 12 lakh income due to rebates.

10. Retention of the Five Income Heads

The fundamental classification of income remains unchanged:

• Salary

• House Property

• Business/Profession

• Capital Gains

• Other Sources

11. Changes in Section Numbers

The Income Tax Act 2025 introduces a new numbering system for sections:

• Salary Income: Sections 15-19 (previously 15-17)

• House Property: Sections 20-25 (previously 20-27)

• Business/Profession: Sections 26-66 (previously 28-44)

• Capital Gains: Sections 67-91 (previously 45-55)

• Other Sources: Sections 92-95 (previously 56-59)

Conclusion

The Income Tax Act 2025 is a transformative step toward a simplified, transparent, and globally aligned tax system. By reducing complexities, improving legal clarity, and incorporating modern taxation principles, this law is set to benefit both taxpayers and businesses.

Stay updated with the latest amendments and expert discussions on the Income Tax Act 2025 pdf. For an in-depth understanding.