Income Tax Act 2025 - 10 Frequently Asked Questions

The Income Tax Act 2025 will be effective from 1 April 2026 and replaces the six decade old Income Tax Act 1961. The new Act simplifies tax provisions, introduces a single “Tax Year” concept, and retains both the New and Old Tax Regimes with updated income tax slabs and rebate provisions.

Income Tax Act 2025 - Key Highlights

• Replaces the Income Tax Act 1961, effective 1 April 2026
• Introduces a single Tax Year concept replaces Financial Year & Assessment Year
• New Regime: zero tax up to Rs. 12 lakh after rebate
• Old Regime: zero tax up to Rs. 5 lakh after rebate

1. When will the Income Tax Act 2025 come into effect?

The Income Tax Act 2025 will come into effect from 1 April 2026. It replaces the Income Tax Act 1961 and introduces a simplified structure for income tax provisions while continuing the New and Old Tax Regimes.

2. What are the key changes introduced in the Income Tax Act 2025?

Some of the major changes under the Income Tax Act 2025 include:

• Introduction of the Tax Year concept replacing Financial Year and Assessment Year
• Simplified structure and clearer language
• Reorganised sections for easier interpretation
• Continuation of New and Old Tax Regimes
• Updated tax slabs and rebate limits

3. What is “Tax Year”?

“Tax Year” means a period of 12 months commencing from 1st April and ending on 31st March of the following year.

4. What is the Slab Rate in Income Tax Act 2025?

The Slab Rates are the rates at which the income of the taxpayer will be taxed. India follows a progressive tax rate scheme i.e., the slab rate of tax increases with an increase in the income. This ensures that the individuals earning higher income pay higher taxes.

There are two tax regimes in India; 

• The New Tax Regime (Default Tax Scheme)
• The Old Tax Regime (Optional Tax Scheme)

A. The New Tax Regime (Default Tax Regime)

The Income Tax Slab Rates for The New Tax Regime is provided under section 202 of the Income Tax Act 2025 as follows:

B. The Old Tax Regime (Optional Tax Regime)

The Slab Rates under The Old Tax Regime is provided in the Income Tax Act 2025 as follow:

5. What is the Rebate Limit in The Income Tax Act 2025?

The Rebate Limit in the Income Tax Act are as follows:

• New Tax Regime: A person filing a tax return under the New Tax Regime can claim a rebate if his income is not more than Rs. 12,00,000 i.e., you can get a tax rebate of up to Rs. 60,000.
• Old Tax Regime: A person filing a tax return under the Old Tax Regime can claim a rebate if his income is not more than Rs. 5,00,000 i.e., you can get a tax rebate of up to Rs. 12,500.

6. Will the Old Tax Regime still continue under the Income Tax Act 2025?

Yes, the old tax regime will continue as an optional regime under the Income Tax Act, 2025. However, the new tax regime continuous to be the default tax regime. Taxpayers can opt for the old tax regime if it is more beneficial for them. 

7. The Income Tax Act 1961 v/s The Income Tax Act 2025

The Income Tax Act 2025 will replace the Income Tax Act 1961. However, not much has changed. The Income Tax Act 2025 is seen as shorter in length and less complex when compared to the Income Tax Act 1961, but the number of sections have increased significantly. One of the prominent changes might be the introduction of Tax Year in the Income Tax Act 2025 which looks like it will replace the concepts of Financial Year and Assessment Year of the Income Tax Act 1961. 

8. Will deductions like Section 80C continue under the Income Tax Act 2025?

Yes, deductions such as Section 80C and will continue under the Old Tax Regime. However, under the New Tax Regime, most deductions and exemptions are not available, similar to the existing tax structure.

9. Why was the Income Tax Act 1961 replaced?

The Income Tax Act 1961 was replaced by the Income Tax Act 2025 to simplify and modernise India’s tax laws. Over time, the 1961 Act became lengthy and complex due to numerous amendments.

10. Does the Income Tax Act 2025 change the tax filing process?

The Income Tax Act 2025 does not significantly change the tax filing process. Taxpayers will still be required to file their Income Tax Return (ITR) annually. However, the new Act simplifies the structure of tax provisions and introduces the Tax Year concept, which replaces the earlier Financial Year and Assessment Year terminology.