India's tax framework is set for simplification with the President giving assent to the Income-Tax Bill, 2025 on August 21, marking the formal enactment of a law that seeks to replace the six-decade-old Income-tax Act of 1961. The new legislation, notified as the Income-Tax Act, 2025, will come into effect from April 1, 2026.
The new law is aimed at consolidating and simplifying India’s tax regime. The Act reduces the total number of sections from 819 to 536 and chapters from 47 to 23, a move that is likely to ease compliance, reduce litigation and align tax administration with modern practices.
The Act also introduces the concept of a ‘Tax Year’, replacing the current system of “Assessment Year” and “Previous Year,” which had often caused confusion among assessees. The change is aimed to make the tax system easier to understand for ordinary taxpayers.
The new legislation is positioned as a modernised tax code with simplified language, structured processes, and a reduced scope for disputes, aligning with the government’s broader agenda of easing compliance for taxpayers.
Deductions for salaried taxpayers, including standard deduction and full deduction on commuted pensions, have been retained.
The journey of the Bill has been closely watched since it was first tabled in February. It underwent detailed examination by a parliamentary select committee, which made over 280 recommendations. Following feedback, the government withdrew the earlier draft on August 8 and brought in a revised version, which was passed swiftly in both Houses of Parliament. The President’s assent on August 21 has now given the law its final shape.
The Income-Tax Act, 1961 had been amended over 4,000 times.
The reform also comes at a time when the government is pushing to simplify direct tax alongside the Goods and Services Tax (GST).
With the Income-Tax Act, 2025 now in place, the next challenge lies in ensuring a smooth transition before it becomes operational in April 2026.
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