- The Income Tax Act, 2025 will take effect from April 1, 2026, announced Finance Minister Nirmala Sitharaman
- The new act replaces the 1961 tax framework with simplified rules and fewer provisions
- It retains tax rates but simplifies the law to reduce disputes and legal cases
The Income Tax Act, 2025 will come into force from April 1, Finance Minister Nirmala Sitharaman said Sunday. It will replace the six-decade-old tax framework, with rules and tax forms to be notified soon, giving taxpayers time to familiarise themselves with the changes, she said in her Budget 2026 speech.
"This (direct tax code) was completed in record time and the Income Tax Act 2025 will come into effect from April 1, 2026. The simplified income tax rules and forms will be notified shortly, giving adequate time to taxpayers to acquaint themselves with its requirements,” the Finance Minister said.
What Is The Income Tax Act, 2025?
The Income Tax Act, 2025 does not change tax rates, but makes the law much simpler and easier to understand. It removes confusing sections, reduces the number of provisions by about half compared to the old 1961 law, and aims to cut down disputes and court cases.
A key change is replacing the old “previous year-assessment year” system with a single tax year. Taxpayers can also claim TDS refunds even if they file their returns late, without any penalties.
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The rules to implement the new law are being prepared and will be announced soon after the Budget. Any changes in taxation for individuals, companies, and Hindu Undivided Families (HUFs) will be included in the Act.
The law was passed by Parliament on August 12, 2025, and received the President's approval on August 21 that year. Tax authorities are now finalising forms for Advance Tax and TDS, which will be notified shortly.
Historically, attempts to replace the 1961 law have been made. The Direct Taxes Code Bill, 2010, for instance, lapsed due to a change in government, while a committee formed in 2017 to redraft the law submitted its report in August 2019.
