Centre Notifies Income Tax Act, 2025; Here Are Key Takeaways For Taxpayers

The government has now officially notified the Income Tax Act, 2025, which is a sweeping rewrite of India’s direct tax framework that replaces the more than six-decade-old Income Tax Act of 1961. The new law, cleared by Parliament earlier this month and after receiving the President’s assent on August 21, will come into effect from April 1, 2026.

Unlike major tax reforms in the past, this one does not change rates or introduce new levies. Its focus is instead on simplification, consolidating provisions, cutting down legal clutter, and reducing litigation by making the language easier to understand.

According to the gazette notification issued by the Ministry of Law and Justice, the new Act trims the number of sections from 819 to 536, and chapters from 47 to 23. Word count has also dropped from over 5.1 lakh to 2.6 lakh.

Finance Minister Nirmala Sitharaman called this tax overhaul a ‘leaner, more focused law which intends to make compliance easier and reduce disputes’ while presenting it in the Parliament.

Let’s look at the key features of the Income Tax Act 2025, especially those that affect individual taxpayers:

- One of the most significant changes is the introduction of a single ‘tax year’ which replaces the existing framework of assessment based on ‘previous year’ and ‘assessment year.'

- There are also some structural changes in the new Act wherein scattered provisions are combined and the sections are put into tables and formulae, thereby doing away with the archaic explanation that has often led to multiple interpretations.

Many changes were brought in the Income Tax Bill 2025 (which is now Income Tax Act 2025) upon the recommendations of the Parliamentary Select Committee. The government accepted all of its suggestions, the key ones include:

- Tax refunds can now be claimed even in revised or belated returns, and enforcement actions will require prior notice, giving taxpayers more procedural fairness.

- Tax-free commutation of pension from approved funds has now been extended to all classes of pensioners, and not just salaried employees.

- All residents, regardless of age, can now claim a Nil Tax Deduction certificate for certain incomes, correcting earlier inconsistencies.

- As per the changes accepted in ITA 2025, pre-construction interest deduction will no longer be restricted to self-occupied property; it now covers let-out properties as well.

For salaried taxpayers, the basics of tax structure are still unchanged, but procedures will now be better streamlined. For small businesses and professionals, presumptive taxation rules have been consolidated into a single section covering residents and non-residents alike.

Simplification Overhaul

The Act also revises the way deductions are listed. For instance, Section 80C benefits are now consolidated in a single schedule, and Section 80G on donations has been reorganised to clearly separate 100 per cent and 50 per cent deduction categories.

What Lies Ahead

The new Income Tax Act will apply beginning April 2026 (i.e., next financial year), giving taxpayers, businesses, and professionals over a year to familiarise themselves with the updated framework. While the core taxation concepts remain intact, the government hopes the cleaner drafting and structural clarity will cut down litigation and improve voluntary compliance.