We know that from 1st April 2026, the Income-tax Act, 2025 has become applicable, and there is now no doubt about its implementation. The Income-tax Act, 2025 has been enacted to provide a streamlined, simplified, and modern tax code with a reduced compliance burden, consolidated provisions, and clearer definitions and explanations.
Over the last 65 years, the Income-tax Act, 1961 has accumulated numerous amendments, provisos, explanations, and changes, making the law highly complex and difficult to navigate. The objective of the Income-tax Act, 2025 is to present the same tax policy in a more logical, accessible, reader-friendly, and easy-to-understand format.
The new Act further advances a taxpayer-centric approach by simplifying compliance, promoting ease of doing business, and aligning the Indian tax system with contemporary global standards.
Since 1st April 2026, the Income-tax Act, 2025 has come into force, and the Income-tax Act, 1961 stands repealed. However, to avoid disruption in pending matters and to ensure a smooth transition, certain transitional provisions provide for the continuation of proceedings under the 1961 Act wherever necessary.
It is important to note that the Income-tax Act, 2025 does not impose any new taxes. The intent behind replacing the Income-tax Act, 1961 with the Income-tax Act, 2025 was clearly explained during the Union Budget Speech delivered on 23rd July 2024 by Finance Minister Nirmala Sitharaman. She stated that the purpose of this comprehensive review was to make the Act concise, clear, and easier to read and understand. The aim was also to reduce disputes and litigation and provide taxpayers with greater tax certainty.
The major objectives behind replacing the Income-tax Act, 1961 with the Income-tax Act, 2025 are:
- Simplifying the language so that everyone can understand it easily
- Improving structural clarity
- Reducing interpretational disputes and litigation
- Aligning the drafting style with modern legislative standards
- Enhancing voluntary compliance
If we compare the Income-tax Act, 2025 with the Income-tax Act, 1961, the new Act has reduced nearly 50% of the overall content. The number of sections and subsections has been reduced from 819 to 536. The number of schedules has increased from 14 to 16, while the rules have been reduced from 511 to 333 and the prescribed forms from 399 to 190.
From these figures, it is evident that the law has become easier for taxpayers, Chartered Accountants, tax consultants, and advocates to understand and apply in practice.
The applicability of the Income-tax Act, 2025 from 1st April 2026 does not mean that pending matters up to 31st March 2026 will automatically be governed by the new Act. The repeal of the Income-tax Act, 1961 does not disturb anything relating to tax years prior to 1st April 2026.
For example, if a taxpayer’s assessment for Assessment Year 2024–25 was completed under the Income-tax Act, 1961, that assessment will continue to remain valid even after the Income-tax Act, 2025 comes into force. Similarly, any pending proceedings relating to earlier years will continue in accordance with the relevant transitional provisions.
“TAX YEAR” VS. “ASSESSMENT YEAR”
A “Tax Year” is a period of twelve months contained within a financial year. It replaces the term “Previous Year” used in the Income-tax Act, 1961.
The concept of “Tax Year” is applicable from 1st April 2026, i.e., for income earned during Financial Year 2026–27 onwards. This period will be referred to as “Tax Year 2026–27” under the Income-tax Act, 2025.
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