India Overhauls Tax Law: New Act Simplifies Rules From April 1, 2025
Overview
India's Income Tax Act, 2025, takes effect April 1, replacing the 64-year-old 1961 legislation. The revenue-neutral reform significantly simplifies direct tax laws, reduces legal volume by half, and removes ambiguities to curb litigation. A single 'tax year' framework replaces assessment and previous years, while TDS refunds become accessible even for late ITR filings without penalties.
New Income Tax Act 2025 Effective April 1
The Income Tax Act, 2025, officially comes into force on April 1, ushering in a new era for direct taxation in India. This landmark legislation supersedes the Income Tax Act, 1961, a law that has governed the nation's tax system for over six decades. The new act incorporates changes announced in the 2026-27 Budget, aiming for a comprehensive update.
Simplification Drive
This overhaul is revenue neutral, meaning there are no changes to existing tax rates. The primary objective is simplification. The volume of text and number of sections have been reduced by approximately 50 percent compared to the 1961 Act. This aims to make direct tax laws more accessible and understandable for the common taxpayer, thereby reducing scope for disputes and litigation.
Key Changes
The legislation introduces a streamlined 'tax year' framework, eliminating the distinction between the assessment year and the previous year. This simplifies the tax timeline significantly. Furthermore, taxpayers will now be able to claim Tax Deducted at Source (TDS) refunds even if they file their Income Tax Returns (ITRs) after the stipulated deadlines, without incurring penal charges.
Historical Context
The Income Tax Act, 1961, enacted when India was a young republic, has undergone numerous amendments over its 64-year history. Rapid technological advancements and socio-economic shifts necessitated a complete overhaul of the increasingly bulky and complex law. Previous attempts to replace it, including the Direct Taxes Code Bill in 2010 and a committee-led redrafting in 2017, did not culminate in new legislation until now.
The new Income Tax Act, 2025, received parliamentary approval on August 12, 2025, and Presidential assent on August 21, 2025. Rules for its implementation, along with updated tax return forms, are expected to be notified following the presentation of the FY27 Budget.
