Income-tax Act, 1961 vs 2025: Paradigm Shift in India’s Direct Tax Law

Income-tax Act, 1961 vs Income-tax Act, 2025 – A Paradigm Shift in India’s Direct Tax Framework

Introduction

The Income-tax Act, 1961 has governed India’s direct tax regime for more than six decades. Over time, frequent amendments, exemptions, provisos, explanations, and judicial interpretations have made the Act voluminous, complex, and litigation-prone.

Recognising these challenges, the Government has proposed a new simplified Income-tax law (commonly referred to as the Income-tax Act, 2025) with the objective of simplification, clarity, reduced litigation, and ease of compliance, without substantially altering the core tax policy.

This article attempts to provide a comparative analysis between the existing Income-tax Act, 1961 and the proposed Income-tax Act, 2025.

1. Philosophy and Objective

2. Structure and Drafting

Income-tax Act, 1961

• Contains hundreds of sections, sub-sections, provisos, explanations, and exceptions
• Heavy dependence on:
  • Judicial precedents
  • Circulars & notifications
• Difficult for:
  • Small taxpayers
  • First-generation professionals

Income-tax Act, 2025

• Re-drafted using simple language
• Reduces:
  • Cross references
  • Multiple explanations
• Logical grouping of provisions
• Easier interpretation without excessive reliance on case laws

3. Exemptions and Deductions

1961 Act:

• Numerous exemptions and deductions under:
  • Sections 10, 80C to 80U
• Complex conditions
• High scope for disputes

2025 Act:

• Rationalisation of exemptions
• Preference towards:
• • Lower rates
  • Fewer deductions
• Alignment with new tax regime philosophy

4. Litigation and Interpretational Issues

The 1961 Act has resulted in large pendency before ITATs, High Courts, and Supreme Court, mainly due to ambiguous drafting.
The proposed Act aims to pre-empt disputes through clarity.

5. Compliance and Administration

Under the 1961 Act:

• Frequent notices
• Technical defaults
• Procedural complexity

Under the 2025 Act:

• Better integration with:
  • Digital systems
  • Faceless assessments
• Simplified compliance
• Reduced discretionary powers

6. Impact on Tax Professionals

1961 Act:

• Heavy reliance on:
  • Case law research
  • Interpretational skills

2025 Act:

• Shift towards:
  • Advisory role
  • Compliance planning
  • Risk management
• Less interpretational litigation, more strategic tax planning

7. Transition Challenges

While the new Act is conceptually welcome, certain challenges are expected:

• Transition from settled jurisprudence
• Initial interpretational issues
• Need for re-training professionals
• Transitional provisions for pending matters

However, these challenges are temporary and inevitable in any major legislative overhaul.

Conclusion

The Income-tax Act, 2025 represents a structural and philosophical shift rather than a mere amendment. While the Income-tax Act, 1961 served the nation well for decades, the changing economic landscape, digitisation, and global best practices necessitate a simpler and clearer tax law.

If implemented effectively, the new law has the potential to:

• Reduce litigation
• Increase voluntary compliance
• Improve taxpayer confidence
• Strengthen India’s tax ecosystem

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Disclaimer

This article is intended solely for academic and informational purposes. The views expressed are personal and based on publicly available information and policy discussions. This write-up does not constitute legal or tax advice. Readers are advised to refer to the relevant statutory provisions, rules, notifications, and professional guidance before taking any decision. The author assumes no responsibility for any action taken based on this article.