The Central Government has officially notified the Income Tax Act, 2025, a sweeping reform that aims to modernize India’s direct tax regime. Published in the Official Gazette after receiving the President’s assent, the Act will come into force from April 1, 2026, replacing the Income Tax Act of 1961 that has governed taxation for over six decades.
Key Highlights of the New Law
The Income Tax Department has described the reform as a major step toward making taxation simpler, transparent, and compliance-friendly. One of the most significant changes is the structural simplification of the law. The number of sections has been reduced from 819 to 536, while the number of chapters has been slashed from 47 to 23.
The Act also introduces tables and formulas to ensure clarity in tax calculations, addressing long-standing issues of complexity and ambiguity faced by taxpayers and professionals.
Introduction of a “Tax Year”
A notable reform under the new law is the replacement of the financial year and assessment year system with a single ‘tax year’ concept. This move is expected to reduce confusion, particularly for individuals and businesses filing returns and complying with tax regulations.
Why This Reform Matters
For decades, the 1961 law has been criticized for being outdated, complex, and burdened with countless amendments. The Income Tax Act, 2025 seeks to streamline the legal framework, making it more predictable and taxpayer-friendly. The consolidation is also expected to improve India’s global ranking on ease of doing business and encourage greater voluntary compliance.
Moreover, the Act aligns with the government’s broader agenda of creating a digitally empowered tax ecosystem, leveraging technology for transparency and efficiency.
Looking Ahead
The transition to the new Act will require businesses, professionals, and individuals to adapt to the revised provisions. Tax experts suggest that while simplification is the main objective, initial challenges in interpretation and implementation may arise. However, the long-term gains of clarity, reduced litigation, and better compliance far outweigh the short-term hurdles.
With this reform, India takes a decisive step toward a modern, efficient, and transparent taxation regime, marking the beginning of a new era in direct taxes.
Summary
The Income Tax Act, 2025, notified in the Official Gazette, replaces the 1961 law and will be effective from April 1, 2026. It reduces sections from 819 to 536 and chapters from 47 to 23, introduces clearer tables and formulas, and replaces the financial/assessment year with a “tax year”, ensuring simplicity, transparency, and compliance-friendly taxation.
