Simplified Income Tax Act, 2025, to be implemented from April 1: What you need to know

The Income Tax Act, 2025, will come into force from April 1, replacing the six-decade-old Income Tax Act of 1961. The new legislation will also incorporate the changes announced in tax laws in the Union Budget for 2026-27.

According to the government, the Income Tax Act, 2025, is revenue neutral and does not alter existing tax rates. The legislation focuses on simplifying direct tax laws, removing ambiguities, and reducing the scope for litigation. The overall text volume and the number of sections have been reduced by about 50 per cent compared to the Income Tax Act of 1961.

One of the key structural changes under the new law is the simplification of the tax timeline. The distinction between the assessment year and the previous year has been removed and replaced with a single ‘tax year’ framework. This change is intended to make compliance easier for taxpayers and reduce confusion around filing timelines.

The new law also allows taxpayers to claim refunds of tax deducted at source (TDS) even if income tax returns (ITRs) are filed after the prescribed deadlines. Such refunds can be claimed without any penal charges, as per the provisions of the Income Tax Act, 2025.

Any changes related to the taxation of individuals, corporates, Hindu Undivided Families (HUFs) and other categories of taxpayers that are announced in the Union Budget for 2026-27 on February 1 will be incorporated into the Income Tax Act, 2025.

The rules required to implement the new Income Tax law are currently being framed and are likely to be notified after the presentation of the FY27 Budget. These rules will operationalise various provisions of the Act.

In addition, the rules relating to different tax compliance processes under the Income Tax Act, 2025, are being worked out. The government will notify various tax return forms, including those related to the payment of Advance Tax and Tax Deducted at Source (TDS), after the rules are finalised.

The Income Tax Act, 2025, was approved by Parliament on August 12, 2025, following scrutiny by a Parliamentary committee. It became law after receiving the assent of President Droupadi Murmu on August 21, 2025.

With the new Act set to come into force from April 1, the government aims to streamline India’s direct tax framework by simplifying language, reducing complexity, and improving ease of compliance for taxpayers.

(With inputs from agencies)