India will implement its new Income Tax framework from April 1, 2026, replacing the 1961 law to simplify provisions and modernise compliance. Announced by Finance Minister Nirmala Sitharaman, the overhaul aims to align taxation with India’s evolving economic landscape.
NEW DELHI: Tax laws are fundamental to influencing a country’s economic framework, determining how individuals and businesses contribute to government revenues, and shaping overall fiscal policy. Over the years, India has adapted its tax system multiple times to keep pace with global standards and address the changing dynamics of its economy.
During the Union Budget 2025–26 presentation in Parliament, Finance Minister Nirmala Sitharaman declared that the government would introduce a new Income Tax Bill to replace the long standing Income Tax Act, 1961, to simplify provisions, modernize tax administration, and enhance ease of compliance.
The new Income Tax framework, set to be implemented on April 1, 2025, represents a significant change in this evolution.
As India embarks on this significant transformation, grasping the details and consequences of these reforms will be crucial for both taxpayers and businesses.
Following this announcement, the New Income Tax Bill, 2025 was formally introduced in the Lok Sabha on February 13, 2025, marking a major milestone in reforming India’s tax law after more than sixty years.
OBJECTIVES OF THE NEW INCOME TAX ACT, 2025
The New Income Tax framework for 2025 has been introduced with following objectives,
- To simplify India’s tax system while promoting fairness and transparency.
- To eliminate the previous complicated array of exemptions and deductions, making tax compliance more accessible for average citizens.
- A key focus is to provide significant relief to the middle class by implementing progressive tax slabs and increased rebates, which can enhance disposable income and support household budgets.
- To foster voluntary tax compliance by establishing trust through clarity, reduced litigation, and predictable regulations.
- To ensure digital governance, the initiative intends to streamline processing, minimize human intervention, and enhance administrative efficiency.
MAJOR CHANGES BROUGHT BY THE NEW INCOME TAX ACT
1) Basic exemption limit is relaxed:
- Under the New Income Tax system 2025, the basic exemption threshold has been increased to Rs 4 lakh. This change provides substantial relief to lower and middle income earners, helping them save more while strengthening overall financial security.
2) No tax liability Up to Rs 12 Lakh
- Under the new regime, individuals earning up to Rs 12 lakh (taxable income) will not be required to pay any income tax.
- This relief is enabled through an enhanced rebate under Section 87A.
- With the inclusion of the Rs 75,000 standard deduction, salaried individuals may effectively enjoy tax-free income of nearly Rs 12.75 lakh, depending on salary structure.
- Filing of Income Tax Return (ITR) remains necessary to claim this benefit.
3) Simplified and Progressive Tax Slabs
- The new regime continues with a structured, progressive slab system.
- It has been made the default option, while taxpayers may still choose the old regime if beneficial.
4) Rationalised Deductions
- The standard deduction of Rs 75,000 continues for salaried taxpayers.
- Only select deductions are retained, including Employer’s contribution to NPS and Interest deduction on housing loans for let-out properties
- Broader exemptions like 80C, HRA, and 80D largely remain unavailable unless opting for the Old Regime.
5) Enforcement of the New Income Tax Act, 2025
- The new law replaces the six decade old Income Tax Act, 1961.
- It focuses on clearer language, reduced ambiguity, and minimizing legal disputes.
- Several outdated provisions have been removed.
6)Timelines Updated Returns (ITR-U) and Limits for TDS TCS
- Timelines for filing Updated Returns (ITR-U) was extended from 12 months to 48 months from the end of the relevant assessment year.
- TDS and TCS limits have been revised to prevent unnecessary deductions.
- Rules related to capital gains and specific financial products have been clarified to avoid confusion.
COMPARISION TABLE:
| Income Range | Tax Rate FY 2025-26 | Earlier Income Range (FY 2024-25) | Tax Rate FY 2024-25 | Change Made |
|---|---|---|---|---|
| Up to Rs 4 lakh | Nil | Up to Rs 3 lakh | Nil | Slab increased by Rs 1 lakh |
| Rs 4 lakh – Rs 8 lakh | 5% | Rs 3 lakh – Rs 7 lakh | 5% | Slab increased by Rs 1 lakh |
| Rs 8 lakh – Rs12 lakh | 10% | Rs 7 lakh – Rs 10 lakh | 10% | Slab increased by Rs 2 lakh |
| Rs12 lakh – Rs16 lakh | 15% | Rs 10 lakh – Rs 12 lakh | 15% | Slab increased by Rs 4 lakh |
| Rs16 lakh – Rs20 lakh | 20% | Rs 12 lakh – Rs 15 lakh | 20% | Slab increased by Rs 5 lakh |
| Rs20 lakh – Rs24 lakh | 25% | Above Rs 15 lakh | 30% | New separate slab introduced |
| Above Rs24 lakh | 30% | Above Rs 15 lakh | 30% | Split of old 30% slab |
The implementation of the New Income Tax Act, 2025 updates long standing provisions, minimizes legal disputes, and fosters a clearer, more compliance driven tax framework.
Overall, the revised system enhances financial stability, increases disposable income, promotes a culture of sincere tax compliance, and advances India’s vision of a modern, efficient, and progressive taxation regime.
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