While presenting the Union Budget for 2026-27 on Sunday, Finance minister Nirmala Sitharaman declared that the New Income Tax Act, 2025 will take effect on April 1, 2026 and replace the 60-year-old tax law.
Sitharaman informed that the simplified Income Tax rules and forms will be issued soon to give taxpayers a proper chance to familiarise themselves with what is required of them under the New Act. "The forms have been redesigned such that ordinary citizens can comply without difficulty," Sitharaman was quoted as saying by news agency Hindustan Times.
Besides this, there has been a reprieve extended until March 31 to file income tax return instead of December 31.
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However, this year's Budget did not change tax structures or slabs. During the February 2025 Budget, taxpayers were given a substantial relief across their tax slabs.
Tax structure under new regime:
o-4 lakh rupees: Nil
Rs 4 lakh to Rs 8 lakh: 5 per cent
Rs 8 lakh to Rs 12 lakh: 10 per cent
Rs 12 lakh to Rs 16 lakh: 15 per cent
Rs 16 lakh to Rs 20 lakh: 20 per cent
Rs 2o lakh to Rs 24 lakh: 25 per cent
Above Rs 24 lakh: 30 per cent
What is the new Income Tax Act, 2025?
The new Income Tax Act, 2025 does not change the tax rate amounts or tax brackets that were present under the previous act, making it revenue neutral. It, however, simplifies direct taxes by authorities clarifying ambiguities, thereby removing any opportunity for future legal action against various aspects of the Direct Tax Laws.
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Additionally, as the new Income Tax Act has a simplified and streamlined tax structure which significantly reduces the amount of taxation laws from 819 sections to 536, and from 47 chapters to 23 chapters, 16 schedules added and introducing new tools such as tables and formulas for clarity and ease of interpreting taxation documents.
The core objectives of this Act are:
Simplification: This includes using clear, modern legal text and eliminating obsolete language and redundant provisions.
Digital interpretation: Remove face-to-face interactions and allow for faceless assessments and automated compliance.
More transparency for the taxpayer: Increase transparency, make it easier for the taxpayer to file and reduce litigation.
Global standards of compliance: Develop a single set of standards that are in line with current economic conditions, include taxes on digital property and worldwide income.
Benefits of the new Act
The new legislation includes a simplified and contemporary framework of taxes that removes the ambiguous terminology of "previous year" and "assessment year" and distinguishes only one term, "tax year".
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As defined in the new Act, the "tax year" is the 12-month period within an income year that starts on April 1. if a business or profession is newly established, or if there is a new source of income that has been created during an income year, the tax year will commence on the day of the establishment of the business or profession or the day on which the source of income was established, and would end with the said fiscal.
The 2025 Income Tax Act enables the Central government to create different schemes that can enhance tax administration's efficiency, transparency and accountability.
The new act promotes compliance through simplification of tax deducted at source (TDS)-related sections. TDS laws used to be found in several separate places but have since been consolidated into one part of the Income Tax Act under Section 393.
The law permits taxpayers to claim TDS refunds if they filed ITRs after the deadline, without any penalties.
Finally, the new Income Tax Act of 2025 creates a welcoming and fair system for taxpayers when resolving any tax dispute.
