Income Tax Act 2025 - Key Features, Slabs, Rates, Deductions, and Implementation Dates 2026

The Income Tax Act 2025 marks a major step in modernising India’s direct tax framework. From 01 April 2026, taxpayers will move from the long-standing Income Tax Act 1961 to a new system designed to be clearer and easier to follow. While the structure of the law has been simplified, existing tax rates remain unchanged, ensuring continuity for individuals and businesses during the transition.

This new legislation focuses on improving readability and reducing confusion that developed over decades of amendments. It aims to make compliance smoother by removing complex legal language and unnecessary overlap between provisions. The intention is to help taxpayers understand their obligations without relying heavily on technical interpretation.

A key reform under the new framework is the introduction of a single tax Year concept. The earlier distinction between “previous year” and “assessment year” has been removed to simplify filing timelines and reduce misunderstanding.

Another taxpayer-friendly feature allows refunds of tax deducted at source (TDS) even if returns are filed late, offering relief to many individuals. Overall, the new law seeks to modernise administration while maintaining stability in tax rates and compliance practices.

Union Budget 2026: What is the New Income Tax Act 2025 coming on April 1

During the Union Budget 2026, the government announced that the Income Tax Act, 2025 would come into effect from 01 April 2026. The announcement was made by Nirmala Sitharaman, who explained that the purpose of the reform is not to increase taxes but to simplify how tax laws are written and applied. The existing tax structure will continue, but the overall framework has been reorganised for better clarity.

The new law replaces the six-decade-old system and introduces simplified income tax rules intended to reduce confusion for taxpayers. According to the government, this reform is part of a broader attempt to create a more accessible direct tax code that reflects modern economic practices and digital compliance systems. Tax forms and rules will be issued separately, giving taxpayers adequate time to adjust.

One of the most noticeable changes is the introduction of a single tax year, replacing older terminology that often caused misunderstandings. This shift is expected to make return filing timelines easier to understand and reduce procedural errors. Provisions related to advance tax and TDS are also being updated to fit the new structure.

The Act has been designed to reduce legal disputes by cutting down overlapping provisions and unnecessary complexity. The number of sections has been significantly reduced compared with the earlier law, making it easier to navigate for individuals, businesses, and professionals alike.

Parliament passed the law in August 2025, and it later received approval from Droupadi Murmu. Tax authorities are now preparing updated rules and forms to support implementation. The reform follows previous attempts to overhaul the tax system, including earlier efforts to introduce a direct tax code, which did not become law.

Overall, the Income Tax Act, 2025 aims to provide a simpler legal framework while preserving stability in taxation. The focus is on better clarity, smoother compliance, and a framework aligned with current economic realities rather than introducing new tax burdens.

No change in tax rates

The Income-tax Act 2025 is designed to be revenue neutral. This means that Tax slabs and rates continue to be decided every year through the Finance Act presented with the Union Budget. Under Budget 2026-27, there has been no change to personal income tax rates, so the current income tax slabs continue to apply for the year 2026-27 as well.

Current income tax slabs (New Regime; both FY26 and FY27)

Income slab	Tax rate
Rs 0 – 4,00,000	Nil
Rs 4,00,001 – 8,00,000	5%
Rs 8,00,001 – 12,00,000	10%
Rs 12,00,001 – 16,00,000	15%
Rs 16,00,001 – 20,00,000	20%
Rs 20,00,001 – 24,00,000	25%
Above Rs 24,00,000	30%

A major benefit in the new regime is that individuals earning up to Rs 12 lakh effectively pay zero tax due to the rebate available under Section 87A.

Old tax regime slabs (both FY26 and FY27)

Income slab	Tax rate
Up to Rs 2,50,000	Nil
Rs 2,50,001 – Rs 5,00,000	5%
Rs 5,00,001 – Rs 10,00,000	20%
Above Rs 10,00,000	30%

Old regime advantages

The old regime continues to attract taxpayers who prefer deductions and exemptions, including:

• Section 80C deduction up to Rs 1.5 lakh
• Health insurance deduction under Section 80D
• Home loan interest deduction up to Rs 2 lakh

Basic exemption limits

Category	Exemption limit
Below 60 Years	Rs 2,50,000
60–80 Years	Rs 3,00,000
Above 80 Years	Rs 5,00,000

The new Act keeps these structures intact, ensuring that taxpayers face minimal disruption while benefiting from clearer rules.

Understanding the Income Tax Act, 2025

The introduction of the Income Tax Act, 2025 represents a major step towards building a tax system that is simpler, more transparent, and better suited to today’s economic realities. Passed by Parliament after extensive debate, the Act reflects India’s commitment to revamping its tax structure so that it aligns with global standards while meeting domestic needs. By simplifying tax slabs, reducing unnecessary exemptions, and incorporating digital tools for smoother compliance, the Act aims to lower administrative hurdles and encourage taxpayers to comply willingly.

The journey towards this new law began with the government’s decision to reassess the Income-tax Act, 1961, which had become outdated after six decades. This led to the drafting of the Income-tax Bill, 2025, which was then examined by a Select Committee for detailed review. After receiving wide-ranging feedback from experts, industry bodies, and the public, the government chose to withdraw the initial draft and present an improved version known as the Income-Tax (No. 2) Bill, 2025. This revised Bill incorporated most recommendations from the committee and introduced clearer, better-structured legal language. Both Houses of Parliament approved the Bill during the monsoon session, making it the cornerstone of India’s modern tax framework.

Main objectives of Income Tax Act 2025Simplified tax provisions with clearer language

The Act aims to create a tax code that is far easier to read, interpret, and apply. By simplifying legal wording and removing unnecessary sections, taxpayers can understand their obligations without confusion.

Reduced tax rates and higher rebate benefits

One of the major goals is to lower income tax rates so that individuals have more disposable income. With more money in hand, taxpayers may spend or save more, boosting demand for goods and services and supporting overall economic growth.

With reduced tax liabilities and more disposable income, many individuals are now considering investing in property ownership. Whether you are planning to purchase your first home or upgrade to a larger space, understanding your home loan eligibility can help you make informed financial decisions. Check your home loan eligibility with Bajaj Finserv to explore competitive interest rates starting at 7.15%* p.a. and loan amounts up to Rs. 15 Crore*. You may already be eligible, find out by entering your mobile number and OTP.

Fewer legal disputes through better clarity

By eliminating vague provisions and streamlining the system, the Act intends to reduce the number of tax-related disputes. It also strengthens the resolution process, making it easier for taxpayers to seek clarifications or solutions.

Improved ease of compliance

With reduced content and a cleaner structure, the Act makes it simpler for individuals and businesses to file returns and follow tax rules. This is expected to encourage timely filings and discourage practices that lead to tax evasion.

Recognition of Virtual Digital Assets (VDAS)

The Act expands the definition of Virtual Digital Assets to cover cryptocurrencies and similar digital instruments. This broader definition aims to bring clarity and consistency to the taxation of such assets in a rapidly evolving digital economy.

Features of the Income Tax Act 2025

• Income tax is a direct tax that must be paid by the person earning the income and cannot be passed on to someone else.
• The authority to regulate and enforce income tax rests entirely with the Central Government of India.
• The definition and scope of Virtual Digital Assets have been widened to include more forms of digital holdings.
• Stronger mechanisms for digital compliance and improved dispute resolution systems have been introduced.
• Income tax slabs have been made more relaxed for many taxpayers.
• A progressive tax structure ensures that individuals with higher incomes pay tax at higher rates.
• Certain deductions are available only up to a specified limit each financial year.

Why the old Income Tax Act is being replaced

The earlier tax law, introduced in 1961, was created for a very different economic environment. Over decades, repeated amendments added layers of complexity, making the law difficult to interpret for ordinary taxpayers as well as professionals. The growth of digital transactions and changing business models highlighted the need for a more modern legal framework.

The new Act removes outdated provisions, merges related sections, and reduces the overall size of the legislation by nearly half. This restructuring aims to make the law easier to read, reduce ambiguity, and lower the number of disputes arising from interpretation issues.

Draft income tax rules 2026: Major proposed changes

The Central Board of Direct Taxes has released draft rules intended to replace the existing framework, with public feedback invited until February 22, 2026. These proposed rules support the implementation of the new law and focus on simplifying compliance while improving transparency.

1. PAN rules expanded

The requirement for PAN is proposed to be widened. PAN may be needed for annual cash deposits or withdrawals above Rs 10 lakh, property transactions above Rs 20 lakh, vehicle purchases above Rs 5 lakh including two-wheelers, hotel or event spending above Rs 1 lakh, and all insurance premiums regardless of amount. This shifts monitoring from individual transactions to yearly totals.

2. Cash transaction reporting tightened

Instead of checking daily cash limits, reporting will rely on an annual aggregate threshold of Rs 10 lakh. This helps authorities monitor large cash usage while reducing unnecessary compliance for routine transactions.

3. HRA benefits expanded

Cities such as Bengaluru, Pune, Ahmedabad, and Hyderabad may be added to the metro category for HRA calculations. If approved, eligible employees could claim exemptions up to 50% of salary instead of 40%, offering potential tax savings.

4. Crypto reporting tightened

Digital asset reporting requirements are expected to become stricter. Crypto exchanges may have broader obligations to share transaction details, improving transparency and helping curb tax evasion in this growing sector.

5. CBDC recognised as payment mode

The draft rules officially acknowledge Central Bank Digital Currency, or the Digital Rupee, as a recognised electronic payment method. This integrates digital currency usage into mainstream tax compliance practices.

6. Structural simplification of rules

Administrative simplification is a major focus:

Category	Earlier	Proposed
Total rules	511	333
Total forms	399	190

Many provisions are grouped by subject, making the rules easier to navigate and reducing duplication.

7. Property and asset reporting changes

The reporting threshold for property transactions may rise from Rs 10 lakh to Rs 20 lakh. The scope also expands to include gifts, joint development agreements, and stamp-value transactions, reflecting current property market realities.

8. Objective: simpler law, fewer disputes

The overall aim of the reform is clarity and ease of compliance. By removing outdated provisions and simplifying legal language, the government expects fewer disputes, faster processing, and improved trust in the taxation system. The Income Tax Act 2025 is therefore focused on modernising the system rather than altering tax burdens, marking one of the most significant direct tax reforms in recent decades.

Income Tax Act 2025 key changes - A table overview

The Income Tax Act, 2025 introduces a refreshed and more organised approach to tax law, aiming to make the rules easier for people to read, understand, and follow. The table below outlines how the new law differs from the long-standing Income Tax Act, 1961:

Aspect	Income Tax Act, 1961	Changes made in the Income Tax Act, 2025
Effective date	Active since 1 April 1962	Expected to come into force from 1 April 2026 after approval
Overall structure	The law is long, detailed, and contains complicated wording, which often makes navigation difficult	The structure has been reorganised with clearer language, shorter sentences, and more methodical grouping of sections; although the number of sections has increased, each one is easier to understand
Concept of year	Uses “Previous Year” (year of earning) and “Assessment Year” (year of taxation)	Introduces a single expression, “Tax Year”, which runs from 1 April to 31 March; removes the need for separate references by bringing in the term “Succeeding Tax Year”
Default regime	The new tax regime under Section 115BAC was introduced as default in recent years	The new tax regime—now referred to under Section 202—continues to remain the default option for taxpayers
TDS provisions	Spread across a wide set of sections from 192 to 194T, making it hard to locate all related rules	All TDS-related rules have been combined under Section 393 for ease of reference, while keeping rates and thresholds exactly the same
Complexity level	High, due to many cross-links between provisions and multiple terms that no longer match current usage	Reduced significantly through clearer drafting, updated terminology, and removal of overlapping language

Chapters of the new Income Tax Act 2025

The table below outlines the 23 chapters of the Income Tax Act. It is important to note that some of these chapters have subparts.

Chapter	Overview
Chapter I	Preliminary
Chapter II	Basis of charge
Chapter III	Incomes which do not form part of total income
Chapter IV	Computation of total income
Chapter V	Income of other persons, included in the total income of the assessee
Chapter VI	Aggregation of income
Chapter VII	Set off, or carry forward and set off of losses
Chapter VIII	Deductions to be made in computing total income
Chapter IX	Rebate and reliefs
Chapter X	Special provisions relating to avoidance of tax
Chapter XI	General anti-avoidance rule
Chapter XII	Mode of payment in certain cases
Chapter XIII	Determination of tax in special cases
Chapter XIV	Tax administration
Chapter XV	Return of income
Chapter XVI	Procedure for assessment
Chapter XVII	Special tax provisions for certain persons.
Chapter XVIII	Appeals, revision and alternate dispute resolution.
Chapter XIX	Collection and recovery of tax
Chapter XX	Refunds
Chapter XXI	Penalties
Chapter XXII	Offences and prosecution
Chapter XXIII	Miscellaneous

Scope of Income Tax Act 2025

The Income Tax Act, 2025 defines the taxability of different types of income based on the taxpayer’s residential status. The table below explains how income is taxed for Residents, Resident but Not Ordinarily Residents (RNOR), and Non-Residents (NR):

Income type	Resident and ordinarily resident (ROR)	Resident but not ordinarily resident (RNOR)	Non-Resident (NR)
Income received or deemed to be received in India	Taxable	Taxable	Taxable
Income accrued in India	Taxable	Taxable	Taxable
Income earned outside India where the business or profession is set up in India or controlled from India	Taxable	Taxable	Non-taxable
Income earned outside India where the business or profession is set up or controlled from outside India	Taxable	Non-taxable	Non-taxable
Un-taxed foreign income brought back to India	Non-taxable	Non-taxable	Non-taxable

This framework ensures clarity on how global and domestic income is treated for each category of taxpayer.

Treatment of capital gains

The Income Tax Act, 2025 maintains the core concepts of Capital Gains taxation but rewrites the provisions in simpler, clearer language. The rules are now located under Clauses 67, 196, 197, and 198. The table below provides a quick overview of these clauses:

Clause	Description
Clause 67	Defines what qualifies as Capital Gains
Clause 196	Covers short-term Capital Gains on equity shares, equity-oriented mutual funds, and units of business trusts
Clause 197	Covers long-term Capital Gains from non-equity assets held for the required period
Clause 198	Covers long-term Capital Gains from equity shares, equity mutual funds, and units of business trusts

In addition, the earlier Section 47 (from the 1961 Act) has been redrafted, and certain older exemptions—such as those related to transfers of land from industrially sick companies or stock exchange demutualisation—have been removed from the list of exceptions.

A major clarity-enhancing change is the formal categorisation of cryptocurrencies and other virtual digital assets as taxable capital assets. This removes earlier uncertainties and ensures that gains arising from digital assets are taxed in a structured manner.

As you plan your investments and asset allocation under the new tax framework, owning a home remains one of the most stable and rewarding long-term investments. Real estate not only provides shelter but also builds equity over time. If you are ready to take the next step towards homeownership, Bajaj Finserv offers flexible home loan solutions tailored to your needs. Check your home loan offers with Bajaj Finserv and benefit from hassle-free processing, approval within 48 hours*, and flexible repayment tenure up to 32 years. You may already be eligible, find out by entering your mobile number and OTP.

From complexity to clarity: Rationale behind the new Income Tax Act

The Income Tax Act, 1961 replaced the 1922 law and was shaped by the recommendations of the Law Commission (1958) and the Direct Tax Administration Enquiry Committee. Over time, however, several factors made the Act difficult for the average taxpayer to interpret. Key reasons for its complexity include:

Repeated amendments over several decades

The 1961 Act has been amended almost 65 times through Finance Acts and numerous Taxation Laws Amendment Bills. These frequent updates—more than 4,000 individual changes—expanded the legislation considerably, leaving taxpayers navigating a vast and scattered collection of provisions.

Large number of exemptions and incentives

To fulfil social and economic goals, a variety of deductions and exemptions were added over time. These included benefits for export earnings, incentives for investments in targeted sectors, and provisions promoting rural development, savings, and equitable growth. While necessary, they made the law increasingly complex.

Shrinking tax base and growth in litigation

Multiple incentives reduced the overall tax base, which ultimately contributed to higher litigation, increased paperwork, and greater administrative effort for both taxpayers and tax authorities.

Traditional legal drafting style

The Act relied heavily on dense legal phrasing, long sentences, frequent provisos, and elaborate explanations. This language style made it challenging for ordinary taxpayers to interpret rules without expert help.

Outdated and fragmented structure

Over several decades, many provisions became outdated or duplicated. With additions layered over older language, the Act became structurally fragmented and harder to navigate.

The new Income Tax Act, 2025 aims to resolve these issues by offering a cleaner, logically arranged, and more user-friendly framework.

Reform process for the new tax legislation

In July 2024, the Finance Minister announced a complete restructuring of the Income Tax Act, 1961, focusing on simplification, clarity, and removal of outdated provisions. To carry this forward, the Central Board of Direct Taxes (CBDT) set up an internal committee to review the Act thoroughly. The committee consulted industry groups, tax professionals, and departmental officers, while also studying global tax models such as those in the UK and Australia. The reform was guided by three principles: simplifying language and layout, avoiding significant policy changes, and keeping tax rates intact. The drafting centred on clearer wording, removal of repetitive clauses, and logical reorganisation.

Rebate limit in the Income Tax Act 2025

The rebate limits available under the Income Tax Act, 2025 are:

New tax regime

Individuals choosing the New Tax Regime can claim a rebate if their total income does not exceed Rs. 12 lakhs. The maximum rebate available is up to Rs. 60,000.

Old tax regime

Individuals following the Old Tax Regime can avail a rebate when their taxable income is not more than Rs. 5 lakhs. The maximum rebate allowed in this case is up to Rs. 12,500.

Conclusion

The Income Tax Act, 2025 marks a major step towards creating a clearer, more efficient, and citizen-friendly tax structure in India. By reorganising complex rules, introducing wider digital systems, and keeping pace with global practices, the Act aims to make tax compliance far easier for individuals and businesses. It supports the government’s broader mission of strengthening transparency, boosting economic activity, and improving institutional accountability. Inspired by Prime Minister Narendra Modi’s vision for a progressive and inclusive nation, the new framework is designed to ensure smoother processes, fewer disputes, and a modern approach to managing direct taxes.

As India's tax system evolves to support financial growth and transparency, many individuals are seizing the opportunity to invest in their dream homes. With simplified tax rules and increased savings, homeownership has become more accessible than ever. Whether you are a first-time buyer or looking to upgrade, the right home loan can make your property goals achievable. Take the first step today – check your home loan eligibility with Bajaj Finserv, offering competitive rates, quick approvals, and loans up to Rs. 15 Crore*. You may already be eligible, find out by entering your mobile number and OTP.