New Delhi, Jan 11 (PTI) Beginning April 1, the Income Tax Act, 2025, will come into force replacing the six-decade old tax law and the changes made in tax laws in 2026-27 Budget will be incorporated in the new legislation.

The 2025 I-T law is revenue neutral with no change in tax rates. It has only made direct tax laws simple to understand, removed ambiguities thus reducing scope for litigations. It reduces text volume and sections by about 50 per cent vis-a-vis the 1961 income tax act.

The new law simplifies the tax timeline by doing away with the distinction between the assessment year and the previous year, replacing it with a single 'tax year' framework. It also allows taxpayers to claim TDS refund even when ITRs are filed after deadlines, without any penal charges.

Any changes with regard to taxation of individuals, corporates, HUFs and others, which are announced in the Budget for 2026-27 on February 1 will be incorporated in the new I-T Act, 2025.

The rules to implement the new Income Tax law are being framed and likely to be notified after the presentation of the FY27 Budget.

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

The rules relating to the Income Tax Act, 2025, are being worked out, while the various tax return forms like those relating to payment of Advance Tax, TDS, will be notified thereafter.

Following is an explainer about the Income Tax Act, 2025.

Q. Why the Income Tax Act, 1961, was reviewed? A. Income tax law was enacted 64 years ago in 1961 and since then a lot of changes have taken place in the society, in the way people earn money and companies do business. The 1961 Act was framed at a time when Indian republic was young and faced challenges peculiar to those times. Over the time, as the country progressed, the Act was amended to keep pace with changing times.

In view of the technological advancement and changes in the socio-economic fabric of the country, there was a pressing need to completely overhaul the archaic Income Tax Act which has become bulky on account of hundreds of amendments in the law. It has become almost impossible for the common man to comprehend the law and multiple references to different sections, sub-sections, and provisos.

Q. What the new Income Tax Act proposes to do? A. The new law is leaner and more reader-friendly. The intention of the government is to halve the volume compared to the old law and make the language simpler so that taxpayer can know his exact tax liability. It would also help in reducing litigations and thereby cut down on disputed tax demands.

Q. How will the new law be leaner? A. The Income Tax Act, 1961 deals with imposition of direct taxes -- personal I-T, corporate tax, securities transaction tax, besides gift and wealth tax. The Act has about 298 sections and 23 chapters. Over the time, the government has abolished various levies including wealth tax, gift tax, fringe benefit tax and banking cash transaction tax. Several sections have been amended, added, removed or have become obsolete over the last 6 decades. The new Act will be free of all the amendments and sections which are no longer relevant.

Q. How the new law will affect tax liability of individuals and others? A. Any tweak in income tax rates is usually done through Finance Act which is part of the Union Budget presented in Parliament every year on February 1. All amendments announced in the upcoming Budget will be incorporated in the new Bill.

Q. Have governments in the past attempted to replace the 1961 income tax Act? A. In 2010, 'The Direct Taxes Code Bill, 2010' was introduced in Parliament. It was referred to the Standing Committee for scrutiny. The Bill, however, lapsed because of the change in government in 2014. In November 2017, the government had set up a six-member committee to redraft the Income Tax Act. The panel had submitted its report to finance minister in August 2019. PTI JD ANU

Income Tax Act 2025 simplifies direct tax law, creates a single tax year and permits TDS refunds after late ITRs. The Income Tax Act, 2025 is a revenue-neutral replacement of the 1961 Act that halves textual volume, removes obsolete provisions, and consolidates direct tax rules. It replaces the assessment/previous year regime with a single tax year and permits TDS refunds even when returns are filed late without penal charges. Implementation depends on rules and return forms to be notified after the FY27 Budget, which will also supply any rate or substantive amendments to be incorporated into the Act.