Income Tax Act 2025: Key Changes You Should Know

The Income Tax Act of 2025 will replace the existing Income Tax Act of 1961, bringing several changes that could affect taxpayers. While the government aims to simplify tax rules, many taxpayers are still unsure about the impact of these modifications.

The 1961 Act has been revised 66 times through various budgets. The new law seeks to remove outdated provisions and streamline tax regulations. However, taxpayers must be aware of the major changes coming their way.

Here are 10 key changes in the 2025 Income Tax Bill that every taxpayer should know:

1. No Changes in Tax Slabs or Filing Deadlines

The tax slabs, capital gains rules, and ITR filing deadlines will remain unchanged under the 2025 Budget. This decision is intended to provide taxpayers with stability and certainty.

2. Bigger and More Detailed Tax Law

The new bill is much larger than the current tax law. It consists of 23 chapters, 536 sections, and 16 schedules, spanning over 600 pages. In contrast, the 1961 Income Tax Act had 298 sections and 14 schedules. This expansion aims to provide better clarity and structure.

3. No Modifications to Residency Rules

The rules for determining residency will remain unchanged. India will continue to classify taxpayers into three categories:

• Ordinary Residents
• Non-Ordinarily Residents
• Non-Residents

Although some tax experts believe the rules should be revised, the government has decided to keep them the same for now.

4. Simplified TDS Compliance

The Tax Deducted at Source (TDS) provisions will now be consolidated into a single section with tables for better clarity. While this change simplifies compliance, it will also require major updates to tax forms and reporting utilities.

5. Introduction of the ‘Tax Year’ Concept

To avoid confusion between assessment year and financial year, the government will introduce a single tax year concept. This change aims to help taxpayers better understand the tax period applicable when filing Income Tax Returns (ITR).

6. Removal of 300 Outdated Provisions

The new law will eliminate around 300 outdated tax rules that are no longer relevant. However, the existing income categories will remain the same.

7. Changes in Tax Sections

The new law will reorganize tax sections. For example, Income Tax Return (ITR) filing, which is currently under Section 139, will now fall under Section 115 BAC. This restructuring aims to simplify tax filing but will require taxpayers to learn the new section numbers.

8. Financial Year Remains Unchanged

Despite the introduction of a tax year, the financial year will continue to start on April 1 and end on March 31. Unlike some countries that follow the calendar year for taxes, India will maintain its current system.

9. Easier Tax Interpretation

The new law removes complex explanations and provisos to make tax rules more understandable. It also consolidates deductions such as:

• Standard deduction
• Gratuity
• Leave encashment

Additionally, depreciation calculations for businesses will now follow a clear formula.

10. When Will the New Law Be Implemented?

The new Income Tax Act will take effect from April 1, 2026, for the financial year 2026-27. Until then, taxpayers must continue following the existing Income Tax Act for FY 2024-25 and FY 2025-26.

Final Thoughts

While the Income Tax Act 2025 aims to simplify tax laws, taxpayers should stay informed and adapt to these changes. Keeping track of the new regulations will help ensure a smooth transition and avoid compliance issues.