Income-tax Act, 2025: A New Era in India’s Taxation System

India has taken a historic step by replacing its 68 years old Income-tax Act, 1961 with new Income Tax Act 2025 The new law, which was recently passed by Parliament and received Presidential assent on 21^st August 2025. Major aim of introduction of new Act is to simplify tax system also to modernize, and digitize India’s direct tax system.

Legislative Timeline & Key Milestones:

• Introduction of the original Bill

Firstly, Income-tax Bill, 2025 was introduced in the Lok Sabha on February 13, 2025. It needed to replace the existing Income-tax Act, 1961, primarily aiming to simplify language and remove redundancies. Most provisions, definitions, tax rates, and penalties remained unchanged, and amend only complex tax structure.

• Selection Committee review & withdrawal

The Bill was referred to a parliamentary selection committee led by MP Baijayant Panda, which submitted its report on July 21, 2025. In this report they included over 285 recommendations. Based on feedback, the government withdrew the Bill on August 8, 2025.

• Revised Bill introduced and passed

• • The revised Income-tax (No. 2) Bill, 2025 was introduced and passed on 11^th August, 2025 in the Lok Sabha.
  • And same passed by Rajya Sabha on August 12, 2025.
• Presidential assent

The Bill received Presidential assent on August 21, 2025, at which point it officially became the Income-tax Act, 2025.
The government formally notified the Income Tax Act, 2025 on August 22, 2025, via a Gazette issued by the Ministry of Law and Justice.

Simplified timeline of how the Income-tax Bill 2025 Became Law:

• 13^th February, 2025 – The original Income-tax Bill, 2025 was introduced in the Lok Sabha.
• 21^st July, 2025 – A parliamentary selection committee submitted its report along with recommendations.
• 8^th August, 2025 – The original Bill was withdrawn for revisions purpose.
• August 11, 2025 – The Income-tax (No. 2) Bill, 2025 was introduced and on same time bill passed in the Lok Sabha.
• And 12^th August, 2025 – The Bill was also passed by the Rajya Sabha.
• On 21^st August 21, 2025, Income Tax Bill, 2025 officially become the Income-tax Act, 2025 i.e. The Bill received Presidential assent.
• 22^nd August, 2025 the Act was notified in the Gazette of India.
• April 1, 2026 – is the effective date of new law will come into force, replacing the old Act from FY 2026-27 onwards.

Key Features of the Income-tax Act, 2025:

1.Simplification of Structure

• Old Act has 819 sections, many redundant.
• New Act come with 536 sections, 23 chapters, and 16 schedules.
• Clearer and simpler language, making compliance easier for individuals as well as businesses. In short to simplify Complex tax structure of India.

2. Digital-First Approach

• Emphasis on faceless assessments to reduce corruption and human interface.
• Focus on Digital platforms that will handle most communication between taxpayers and Tax Authority i.e. Income Tax Department.

3. Introduction of “Tax Year”

• The confusing terms in old Income Tax Act “Assessment Year” and “Previous Year” are replaced with a single Tax Year for better clarity and avoid confusion between two tax year.

4. Taxpayer-Friendly Measures

• ₹12 lakh annual exemption limit retained to give relief to general public.
• Provision for TDS refund even after the ITR filing due date.
• Advance notice is mandatorily required before taking legal action or initiating any proceeding by authorities.

5. Stronger Oversight of Digital Assets

• As per new Act, grant expanded access on social media like emails, social media accounts, and trading platforms during tax evasion investigations.
• It ensure stricter check on hidden digital assets but it also trigger privacy concerns.

6. Regulation of Donations

• More stricter rules/ provision on anonymous donations, especially donations to religious and charitable institutions.

Why This Matters?

The Income-tax Act, 2025 is not just a new law—it’s a reshape the India’s tax system. For taxpayers, it means:

• Easier understanding of provisions, More transparency in tax law and in dealings with the tax department more transparently.
• Hussle free digital compliance, and lower compliance load with better tax planning.

For businesses and professionals, the simplified structure reduces compliance burden and it indirectly helps to increases predictability.

Effective Date:

The new  Income Tax Act 2025 will be effective from April 1, 2026. This means the financial year 2026-27 onwards will be governed by Income Tax Act, 2025, however the existing Income-tax Act, 1961 will continue in force until March 31, 2026.

Conclusion:

New  Income Tax Act 2025 marks the beginning of a new chapter in India’s direct taxation history. This focusing on simplification, digitalization, and taxpayer oriented, and the government aims to build a more transparent and future ready system.

It comes into effective on 1^st April, 2026 and it is right time for individuals, taxpayers and businesses to understand and familiarised and adapt to the new change for smooth compliance.

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