Few important changes with respect to the Income Tax Act 2025 (ITA 2025) in comparison to Income Tax Act 1961 (ITA 1961)
Summary: The Income Tax Act, 2025 introduces structural changes while largely retaining core principles from the 1961 law. The depreciation regime continues with the Written Down Value method and block of assets concept unchanged, ensuring a seamless transition where closing WDV as on 31 March 2026 becomes opening WDV without recomputation. A key shift appears in provisions relating to unexplained assets, where the scope expands from assets “owned by” to those “owned by or belonging to” the taxpayer, allowing authorities to examine real ownership, control, and benefit, including virtual digital assets. Another major reform is in buyback taxation, which moves from dividend-based taxation to a capital gains framework, taxing only net gains instead of gross receipts. While non-promoters are taxed under standard capital gains rules, promoters face higher effective rates and a specific surcharge. Overall, the changes emphasize continuity in computation but broaden scope and align taxation with economic substance.
Depreciation Regime Redefined, Not written again: Seamless transition to the Income-tax Act, 2025
Section 41 of ITA 2025 and Section 32 of ITA 1961
Section 2(17) of ITA 2025 and Section 2(11) of ITA 1961
With effect from 1st April 2026, the Income-tax Act, 2025 replaces the erstwhile 1961 legislation, marking a structural overhaul without disturbing core computational principles governing depreciation.
Continuity of Law
The substantive framework remains intact. Earlier, depreciation clause was governed by Section 32 of the Income-tax Act, 1961 and now it is governed by Section 34 of the Income-tax Act, 2025. The foundational concepts—block of assets, Written Down Value (WDV) method, and allowance mechanics—continue unchanged.
Written Down Value (WDV):
WDV as per Sec 41 is the value of an asset or block of assets after deducting depreciation allowed in previous years. It represents the base value on which depreciation is calculated for tax purposes, typically defined as (Opening WDV + Cost of New Acquisitions – Sale Proceeds of Assets Sold).
Seamless Transition:
A key facilitative provision ensures that closing WDV as on 31st March 2026 automatically becomes the opening WDV for Tax Year 2026–27, with no step-up, re-computation, or transitional adjustment required. This eliminates any disruption in depreciation claims.
Rates: Status Quo Maintained
Depreciation rates remain unchanged, reinforcing legislative intent to ensure stability and avoid interpretational or computational friction during migration.
Block of assets (no change):
Under Section 2(17) of the Income-tax Act, 2025 (replacing Sec 2(11) of the 1961 Act), a block of assets is a group of assets falling within a class—tangible assets (like buildings, machinery, plant, furniture) or intangible assets (like technical know-how, patents, copyrights, etc.)—that share the same rates of depreciation, excluding goodwill. So the definition of block of assets has also not undergone any change.
Practical Takeaway
The shift is largely codificatory rather than substantive—taxpayers can continue applying existing depreciation principles without recalibration, ensuring continuity in tax positions and litigation stance.
Section 104 of ITA 2025 and Section 69A of ITA 1961
Sections 104 of Income-tax Act (2025) – The Expanded Scope of “Belonging to”
Introduction:
A subtle yet significant shift in the statutory language—from assets “owned by” a taxpayer to those “owned by or belonging to”—marks a decisive move towards taxing substance over form.
What has changed?
Traditionally, provisions like Section 69A operated on the premise of legal ownership—i.e., assets standing in the name of the assessee.
The 2025 framework broadens the scope by including assets that may not be legally owned but “also belong to” the taxpayer.
Both provisions cover money, bullion, jewellery, and other valuable articles. However, Clause 104 expands the scope by explicitly including virtual digital assets, indicating an adaptation to contemporary asset classes.
Clause 104 reflects an evolution in legislative drafting by incorporating modern asset classes. In contrast, Section 69A, while comprehensive, does not explicitly mention digital assets, possibly necessitating interpretative guidance or amendments to address this gap.
Why this matters
The expression “belonging to” is inherently wider and enables the tax authorities to look beyond documentation to examine:
Source of funds – Who actually financed the asset
Control and dominion – Who exercises decision-making power
Beneficial enjoyment – Who derives economic benefit
Key takeaway
This amendment reinforces a consistent judicial trend—taxability follows real ownership, not ostensible title.
Section 69 of ITA 2025 and Section 46A, Section 115QA, Section 10(34A) of ITA 1961
Buyback Taxation under Finance Act, 2026
The Finance Act, 2026 marks a fundamental shift in the taxation of share buybacks. The earlier regime—in which buyback of shares were taxed as deemed dividends in the hands of shareholders—has been replaced as a capital gains-based framework.
This change aligns taxation with the true economic character of a buyback, i.e., a transfer resulting in extinguishment of shares.
Pre-2013, the buy-back of shares was treated as a transfer and gains thereon were taxed as capital gains. However, in 2013, this classical style of taxation was modified significantly through the introduction of a Buy-back distribution tax. Buy-back distribution tax was similar to dividend distribution tax, whereby the Indian companies undertaking buyback were subject to paying buy-back tax on the distributed income/reserves.
In 2024, the buy-back distribution tax was abolished and replaced with taxation of buy-back as a dividend. In effect, buy-back proceeds were entirely taxed as dividends and at the slab rate applicable to the recipient shareholder. At the same time, the legislators acknowledged the fact that the shares bought back got extinguished and hence provided that the cost of shares shall be allowed as a loss by deeming the sale consideration of buy-back as nil for computation of capital gains. In a way, this meant that gross buy-back proceeds were taxed as dividends, while the cost of the share was allowed as a capital loss to be carried forward.
Core Change in Tax Treatment:
With effect from 1 April 2026, consideration received on buyback is no longer treated as dividend income. Instead, it is taxed under the head “Capital Gains.”
This is a critical conceptual correction. Under the earlier regime, the entire buyback consideration was taxed, leading to taxation of gross receipts. Now, only the real income component (i.e., gains after deducting cost of acquisition) is brought to tax.
Computation Mechanism:
The computation follows normal capital gains principles:
Full value of consideration = the Buyback consideration/ price received
Less: Cost of acquisition
Balance amount/ Result = Capital gains (short-term or long-term depending on holding period)
Applicable Tax Rates:
For non-promoter shareholders, the standard capital gains regime applies:
Long-term capital gains are taxed at concessional rates (currently ~12.5%)
Short-term gains are taxed at applicable rates (typically 20% for listed shares, subject to conditions)
Special Regime for Promoters (Anti-Avoidance Design):
There is a separate, harsher framework for promoters.
Wherein:
The Promoters are subject to a higher effective tax rate
Additional levy and surcharge mechanisms push the effective rate to:
~22% for corporate promoters
~30% for non-corporate promoters
Further, a specific surcharge (recently clarified around 12% on the additional tax component) ensures that the tax arbitrage gets neutralised.
This effectively places promoters in a position closer to dividend taxation, while still allowing capital gains treatment in form.
Finance Bill, 2026 – 12% Surcharge on Buyback Gains: Limited to Promoters
1. Introduction:
The Government has introduced an important amendment to the Finance Bill, 2026 regarding taxation of capital gains arising on buyback of shares under Section 68 of the Companies Act, 2013.
2. Core Issue
There was ambiguity on whether the 12% surcharge applies universally to all shareholders or only to promoters.
3. Legal Position:
Applicability restricted to promoters:
The amendment to Sec 69 of the Income Tax Act provides that the 12% surcharge applies only to promoters on additional income-tax payable on capital gains arising from buyback.
Nature of levy – not on income, but on tax
The 12% surcharge is NOT on capital gains. It has been clarified by the official X Handle of Income Tax that section 69 of the Income-tax Act, 2025 provides for tax rates only in respect of additional income tax on promoters in respect of capital gains on such buyback.
Backing provision – Section 69, Income-tax Act, 2025:
Section 69 governs tax rates on such buyback-related gains. Specifically, Section 69(2)(b) deals with promoters. The surcharge mechanism operates within this framework
Non-promoters – no special surcharge;
For non-promoter shareholders: there is no 12% special surcharge. Normal surcharge provisions apply (based on income thresholds) in such cases.
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