Income Tax Act 2025 notified, gets President’s approval, replaces six-decade-old law

The Ministry of Law and Justice, Government of India, has notified the Income Tax Act 2025 in the Official Gazette. The Act will be effective from April 1, 2026. In its notification, the Ministry confirmed that the Income Tax Act 2025, passed by Parliament, received the assent of the President on August 21, 2025. According to the Gazette, the Income Tax Act 2025 consolidates and revises the law relating to income tax. The new Act, which will come into force from April 1, 2026, replaces the Income Tax Act, 1961. Its stated aim is to simplify India’s existing income tax framework.

The new Bill is shorter, clearer, and more concise, though it brings in some fresh provisions that could pose challenges. The Income Tax Act, 1961, had become outdated after decades of frequent amendments, making India’s tax laws complex and confusing for ordinary taxpayers. It also allowed wide discretion to tax officers, often leading to harassment. The new legislation reduces chapters to 23 from 47 in the 1961 Act, and Sections to 536 from 819, aiming for simplicity and greater clarity.

New additions and tax slabs

The Income Tax Act 2025 retains the existing slab rates for salaried individuals, businesspersons, professionals, and all taxpayers. However, one major reform is the removal of confusion between assessment year (AY) and financial year (FY) by introducing a unified term — “Tax Year.”

New Tax Regime (Clause 202(I) of the Act)

For individuals, Hindu Undivided Families (HUFs), and others:

Total Income (₹)    Rate of Tax
Up to ₹4,00,000    Nil
₹4,00,001 – ₹8,00,000    5%
₹8,00,001 – ₹12,00,000    10%
₹12,00,001 – ₹16,00,000    15%
₹16,00,001 – ₹20,00,000    20%
₹20,00,001 – ₹24,00,000    25%
Above ₹24,00,000    30%
Old Tax Regime (unchanged)

General Citizens (below 60 years):

Up to ₹2,50,000 – Nil

₹2,50,001 – ₹5,00,000 – 5%

₹5,00,001 – ₹10,00,000 – 20%

Above ₹10,00,000 – 30%

Senior Citizens (60 to

Up to ₹3,00,000 – Nil

₹3,00,001 – ₹5,00,000 – 5%

₹5,00,001 – ₹10,00,000 – 20%

Above ₹10,00,000 – 30%

Super Senior Citizens (80+ years):

Up to ₹5,00,000 – Nil

₹5,00,001 – ₹10,00,000 – 20%

Above ₹10,00,000 – 30%

> The government has retained the contentious definition of “virtual digital space”, allowing income tax authorities to access data during surveys, searches, and seizures. This covers email servers, social media accounts, online trading and banking platforms, remote/cloud servers, and digital apps. Finance Minister Nirmala Sitharaman stated that the tax department will issue a standard operating procedure (SOP) for handling seized personal digital data.

Changes for corporate taxpayers

The Bill addresses several drafting issues impacting corporate taxation. It corrects provisions related to inter-corporate dividend deductions for companies opting for concessional tax rates. The scope of Alternate Minimum Tax (AMT) for LLPs has been aligned with the current Income-tax Act by removing the earlier expanded coverage. This ensures that LLPs not availing specific tax benefits are no longer subjected to the higher 18.5% rate and can continue under the concessional 12.5% rate.

Taxpayers with no income-tax liability can now obtain a nil-TDS certificate.

The Bill also clarifies rules on transfer pricing, carry-forward and set-off of losses, and brings Section 79 in line by removing references to “beneficial owner.” Further, it confirms the 30% standard deduction (post municipal tax deduction) while computing house property income.

On donations, the anomaly highlighted by the Select Committee has been resolved. Non-profit organisations (NPOs) can now claim exemption for 5% of total donations, instead of being limited to 5% of only “anonymous” donations as under the existing Act.

Return filing and TCS under LRS

In the February draft, Clause 263(1)(a)(ix) had restricted taxpayers from claiming refunds unless returns were filed before the due date. This marked a major shift from the existing position where refunds could still be claimed through belated filings. Recognising the hardship and ambiguity this would cause, the clause has been completely dropped in the final Bill. The Bill also clarifies that no TCS will apply on LRS remittances for education, provided they are financed by a recognised financial institution. This clarification reinstates a provision that was missing in the earlier draft.