Income-tax Act, 2025: An Overview
On August 21, 2025, the Ministry of Law and Justice notified the Income-tax Act, 2025, effectively repealing the 64-year-old Income-tax Act, 1961. This new Act consolidates and restructures all provisions in a more coherent sequence and is set to come into force on April 1, 2026.
Legislative Process
The Income-tax (No.2) Bill, 2025, was introduced on August 11, 2025, and passed by the Lok Sabha without debate. It received approval from the Rajya Sabha the following day. The President assented to the bill on August 21, 2025.
Structural Reforms
The Income-tax Act, 2025, has streamlined the tax framework by reducing the number of sections from over 800 to 536, chapters from 47 to 23, and introducing 16 schedules. Key features include:
- Introduction of the Tax Year, a digital-first and faceless administration, and faster returns for late filings, including the removal of penalties for late filers.
Main Effects of Repealing the Income-tax Act, 1961
- Reference Context: Any reference regarding tax years in the Income-tax Act, 2025, that commences on or before April 1, 2025, will be interpreted within the context of the repealed Act.
- Continued Applicability: Previous operations, rights, privileges, obligations, or liabilities under the repealed Act remain unaffected.
- Pending Proceedings: Provisions of the repealed Act will apply to pending proceedings as of April 1, 2026, and for proceedings initiated after this date concerning any tax year prior to April 1, 2026.
- Penalties: Proceedings for penalties related to tax years before April 1, 2026, will be initiated under the repealed Act.
- Refunds and Defaults: Refunds due after April 1, 2026, and defaults occurring after that date will be governed by the Income-tax Act, 2025.
Protective Clause
If the deadline for filing any application, appeal, reference, or revision has expired on or before April 1, 2026, the Income-tax Act, 2025, will not revive or reopen those expired opportunities.
Key Features of the Income-tax Act, 2025
Tax Year
- The Act introduces the concept of a Tax Year, meaning a 12-month period starting from April 1 each year.
- For new businesses or professions, the tax period begins on the date of inception.
Charge of Income-tax
- Income-tax will be computed on the total income for each tax year, which includes additional income tax.
- Income-tax can be deducted at the source or paid in advance.
Scope of Total Income
- Resident: Total income includes income received, accrued, or arising in India and specific foreign income.
- Non-resident: Taxed only on income received or deemed to be received in India.
Income Deemed to Accrue or Arise in India
- Income derived from assets, properties, or business connections in India is deemed to arise in the country.
Heads of Income
- Salary
- Income from house property
- Profits and gains of business or profession
- Capital gains
- Income from other sources
Tax Slabs Under the New Regime
As detailed in Section 202 of the Income-tax Act, 2025:
| Total IncomeRate of Tax | |
|---|---|
| Up to ₹400,000 | Nil |
| ₹400,001 to ₹800,000 | 5% |
| ₹800,001 to ₹1,200,000 | 10% |
| ₹1,200,001 to ₹1,600,000 | 15% |
| ₹1,600,001 to ₹2,000,000 | 20% |
| ₹2,000,001 to ₹2,400,000 | 25% |
| Above ₹2,400,000 | 30% |
Deductions
Deductions are available for various payments, including contributions to retirement schemes and health insurance.
Faceless Assessment
The concept of Faceless Assessment has been introduced to conduct assessment proceedings electronically. It aims to:
- Eliminate direct interaction between tax authorities and taxpayers.
- Optimize resource utilization through specialization.
- Enable concurrent jurisdiction over multiple areas or classes of persons.
The Income-tax Act, 2025, marks a significant shift in how income tax is administered in India, aiming for greater clarity, reduced complexities, and enhanced taxpayer experience.