Union Budget 2026: New Income Tax Act to come into force from April 1, says FM Sitharaman

Income Tax Act 2025: Finance Minister Nirmala Sitharaman on Sunday announced that the Income Tax Act, 2025 will come into effect from April 1, 2026, replacing the six-decade-old Income Tax Act of 1961. Presenting the Union Budget 2026–27 in the Lok Sabha, Sitharaman said all direct tax changes proposed in the Budget would be incorporated into the new legislation, marking a major overhaul of India’s income tax framework.

“This direct tax code has been completed in record time, and the Income Tax Act, 2025, will come into force from April 1, 2026,” the finance minister said. She added that simplified income tax rules and redesigned return forms would be notified shortly, giving taxpayers sufficient time to familiarise themselves with the new requirements. According to Sitharaman, the revised forms have been structured so that ordinary citizens can comply without difficulty, reinforcing the government’s push towards ease of compliance and voluntary tax adherence.

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Tax experts have welcomed the move, calling it a long-overdue reform. 

Sanjiv Bajaj, Joint Chairman & Managing Director, Bajaj Capital, said: "The rollout of the Income Tax Act, 2025, reduced TCS on overseas transactions, extended timelines for return revisions, and clearer treatment of cross-border investments collectively ease compliance, improve transparency and strengthen trust between taxpayers and the system. These measures reduce friction for individuals, NRIs and businesses, while reinforcing the formal financial ecosystem. Equally important is the focus on deepening capital markets. Initiatives to strengthen the corporate bond market, encourage large issuances and improve market-making mechanisms will help channel long-term capital into infrastructure, manufacturing and innovation. A stable and predictable tax and regulatory environment is essential for patient capital, and the Budget moves decisively in that direction."

Manmeet Kaur, Partner at Karanjawala & Co, said the rollout of the new Act signals a decisive shift towards taxpayer-friendly administration. “Over decades, the Income Tax Act had become increasingly complex due to numerous amendments. Simplification was a long-pending need. Clearer language, redesigned forms and streamlined procedures could significantly reduce administrative burden and improve voluntary compliance,” she said.

Importantly, the Income Tax Act, 2025 is revenue-neutral, with no changes to existing tax rates or slabs. Instead, the focus is on simplifying the law, removing ambiguities and reducing the scope for disputes. The new legislation cuts the overall text volume and number of sections by nearly 50% compared with the 1961 Act, aiming to make the law easier to interpret for taxpayers as well as tax officials.

Major changes in Income Tax Act 2025

One of the most notable structural changes is the introduction of a single “tax year” concept, which replaces the long-standing distinction between the “previous year” and the “assessment year”. This is expected to reduce confusion, particularly among first-time taxpayers, and bring India closer to global best practices in tax administration.New Income Tax Act 2025

The new law also introduces significant relief on timelines and refunds. Taxpayers will be allowed to claim TDS refunds even if income tax returns are filed after the due date, without facing penal charges. The deadline for revising returns has been extended from December 31 to March 31, providing additional flexibility for taxpayers to correct errors or omissions.

In keeping with the digital transformation of the economy, the Act clearly defines Virtual Digital Assets (VDAs) and aligns tax provisions with evolving digital business models. At the same time, compliance burdens are expected to ease through clearer drafting, fewer cross-references and reduced litigation risk.

The government has also proposed a one-time, six-month foreign asset disclosure window for small taxpayers such as students, technology professionals and NRIs, allowing them to voluntarily declare foreign income or assets below a specified threshold. This move is aimed at improving compliance while offering immunity from prosecution in eligible cases.

Budget 2026–27

Several tax relief measures announced in Budget 2026–27 will operate alongside the new Act. While tax slabs remain unchanged, individuals earning up to ₹12 lakh annually under the new tax regime are generally not required to pay income tax. For salaried employees, the standard deduction of ₹75,000 effectively raises the tax-free income threshold to ₹12.75 lakh.

Other changes include a reduction in TCS to 2% on overseas tour packages and on remittances for education and medical purposes under the Liberalised Remittance Scheme. For property transactions involving non-residents, TDS can now be deducted using the buyer’s PAN-based challan instead of requiring a TAN, simplifying compliance for one-time transactions.

Overall, the implementation of the Income Tax Act, 2025 from April 1, 2026 marks one of the most significant reforms in India’s direct tax history, with the government betting that simplicity, clarity and digital-first design will strengthen trust, reduce disputes and improve tax compliance over the long term.