Budget 2026: FM announces New Tax Act to come into effect from April 1

Budget speech

• Income Tax Act, 2025 replaces the 1961 Act, effective April 1, 2026
• New law introduces a single Tax Year and consolidates TDS provisions
• Act aims to simplify tax rules and improve clarity for taxpayers

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Finance minister Nirmala Sitharaman has proposed to implement the New Tax Act, 2025 from April 2026 while presenting the Union Budget 2026-27 in the Lok Sabha, marking her ninth consecutive budget presentation.

“I announced a comprehensive review of the Income Tax Act, 1961 in July 2024. This has been completed in record time. The Income Tax Act, 2025 will come into effect from April 1, 2026… simplified rules & forms will be notified shortly,” said Finance Minister.

What is Income Tax Act 2025

The Income Tax Act, 2025 is a comprehensive law that lays down the framework for the levy, administration, collection and recovery of direct taxes in India. Spread across more than 600 pages, it comprises 536 sections, 23 chapters and 16 schedules, covering virtually every aspect of taxation. The Act came into force on August 21, 2025, following the approval of the Income Tax Bill, 2025 by Parliament.

Income Tax Act 2025 key Changes

The Income Tax Act, 2025 marks a structural shift from the long-standing Income Tax Act, 1961, with the objective of simplifying tax law and improving clarity for taxpayers. While the 1961 Act has been in force since 1 April 1962, the new legislation is proposed to come into effect from 1 April 2026.

One of the most visible changes is in the overall framework: the older law is lengthy, highly detailed, and layered with multiple cross-references, whereas the 2025 Act adopts simpler language, a reorganised layout, and more concise provisions, even though the number of sections has increased.

A key conceptual change is the replacement of the dual framework of “Previous Year” and “Assessment Year” with a single Tax Year, running from 1 April to 31 March. Under the new law, income earned in a tax year will be assessed in the succeeding tax year, reducing confusion caused by parallel year references.

In terms of tax regimes, the policy direction remains unchanged, with the new tax regime continuing as the default option, similar to Section 115BAC under the 1961 Act, now reflected in Section 202 of the new law.

Another important change relates to tax deduction at source (TDS). Earlier, TDS provisions were scattered across multiple sections ranging from Sections 192 to 194T. The 2025 Act consolidates these provisions under a single section—Section 393—without altering existing rates or thresholds. Overall, while the Income Tax Act, 2025 does not radically change tax rates or core principles, it aims to significantly reduce complexity by streamlining structure, modernising terminology, and making the law easier to navigate for taxpayers and administrators alike.