New Income Tax Act 2025: What Changed and What Remains Unchanged?

The new Income Tax Act, 2025 received the president's assent on 21st August, 2025. The purpose of this act is to simplify the complex Income Tax Act of 1961. The new laws aims at simplification of tax provisions, removal of redundant sections, and keep pace with the evolving technology and economic environment. The new Income Tax Act 2025 come into force from 1st April 2026.

Key Takeaways

• The new Income Tax Act, 2025 is published after president's assent on 21st August, 2025.
• The new law aims at simplification income tax provisions. (for example, introduction of tax year)
• Provisions are updated to match today's economy. (for example, broadening the scope of virtual digital assets) 

Purpose of the New Income Tax act

In the Budget Speech of 2024, Finance Minister Nirmala Sitharaman revealed the government's intention to scrutinise the Income Tax Act, 1961 in totality. Through this scrutiny, the Act was to be made more concise so that the taxpayers could easily read and understand it.

The primary objective mentioned by the Minister is to reduce disputes and litigation involving the tax system. The government would thereby enhance tax certainty with the promise of offering clarity and ease of compliance for taxpayers. 

After the announcement, the Income Tax Department launched a public consultation process where taxpayers could propose changes they would like to see in the new law. This move showed the interest of the government in public input and a more inclusive approach to tax reform.

The Finance Minister in the 2025 Budget had assured that the new Income Tax act would be brought soon. She further said it would embody the same philosophy of Nyaya that was at the heart of Bharatiya Nyaya Sanhita. The law had repealed the Indian Penal Code of 1860 from July 2024. It is a commitment of the government to reform, fairness, and justice.

Key Updates - Income Tax act 2025 v/s existing Act

The new Income Tax Act 2025 spanning over 600 pages, 536 sections, 23 chapters and 16 schedules has provisions which are extensive yet easier to understand and aims at improving the compliance procedure. Being easier to read and understand for taxpayers and tax authorities alike, it is set to give more certainty to taxation and reduce litigation between taxpayers and the revenue authority. 

The following are the changes in the new income tax act:

• Ease of Compliance: 
  • The new Income Tax Act will make compliance easier for the taxpayers and the income tax authorities. It has a more structured and streamlined tax administration process and includes the use of modern compliance mechanisms.
• Concept of Tax Year: 
  • The tax year means the period of twelve months of the financial year commencing on 1st April. This is seen to replace the concept of Financial Year and Assessment Year reducing confusion.
• Virtual Digital Asset: 
  • The Income Tax Act 2025 gives a more broader definition of Virtual Digital Assets. 
  • The definition now includes crypto-assets, non-fungible tokens or any other digital asset as the Government may specify.
• Access to Electronic Data on Search Cases: 
  • As the transactions and asset accumulation in the digital space is more common in the present times, the act has included additional provisions under search operations.
  •  As per the proposed act, the assessee should provide access to any virtual space search officer. He should also provide other assistance as necessary which will help the officer to undertake search operation. 
  • This includes social media accounts, email servers, cloud storage data and access to any trading or investment accounts.
• Undisclosed Income: 
  • In the new act, undisclosed income also includes Virtual Digital Asset.
• Tax Recovery and Appeal: 
  • The act provides provisions which bring reforms to the tax recovery and appeal processes. 
• Reference to Dispute Resolution Panel: 
  • The assessee, when not satisfied with the draft assessment order, he can refer the case to the Dispute Resolution Panel if the assessment order relates to Non-Residents, foreign companies and transfer pricing cases. 
  • All the provisions related to Dispute Resolution Panel is retained in the new act also. 
  • But a new provision is inserted stating that the dispute resolution panel should issue directions, stating the points of determination, decisions arrived and reasons for such decisions.  
• Reduced Content and Easier to Understand: 
  • The Income Tax Act 2025 even though with more sections and same number of chapters, is shorter in terms of content and words when compared to the Income Tax Act 1961. 
  • The aim is to simplify the content and make it much easier to understand.

What Remains Unchanged in The act?

Most of the provisions and rules remain unchanged in the Income Tax Act 2025  with change in Section numbers with removal of explanations and provisos. All the proposed changes in the Budget 2025 have been inculcated accordingly in the act. The scope of income, criteria to determine residential status, tax slab rates, capital gains and other limits and rates remain the same or have been changed to those made in the Budget accordingly.

However, all provisions related to tax deductions at source and as such have been grouped and mentioned under the same section. 

Benefits of New Income Tax Act 

• Reduced Complexity: The new income tax act is expected to simplify the tax structure by minimising the number of deductions and exemptions available to taxpayers.
• Increased Compliance: It will streamline tax laws and reduce legal ambiguities.
• Liberal Tax Rates: The act provides for a relieved tax structure which ensures more money saved in the hands of the taxpayer.
• Minimised Legal Disputes: The simplification of tax laws is expected to reduce litigation burdens for individuals and businesses significantly.

Impact of the New Act

For individuals

• Tax authorities will keep a closer eye on digital financial transactions.
• People utilizing offshore accounts, cryptocurrency exchanges, or social media trading are advised to expect heightened examination.

For Businesses

• Businesses must assure full digital compliance in their financial reporting.
• The expenses for legal and digital record maintenance might rise.

For Tax Authorities

• The act grants increased authority to tax officials for probing undisclosed digital transactions.
• It synchronizes Indian tax regulations with the worldwide digital economy.

Final Word

In conclusion, the Income Tax Act 2025 is reformative with an effort to bring a change in the direct taxation landscape of the country. However, note that the provisions of the act will only come into effect after it is passed by both the houses of the parliament and is assented by the President. It come into force from 1st April 2026.