Income Tax Act, 2025 – An Overview

The Income-tax Act, 2025 replaces the 1961 law, effective from 1 April 2026, with the stated aim of simplification, modernisation, and digital alignment. It introduces a single “Tax Year”, logical reorganisation of provisions, removal of redundant clauses, and greater use of tables and formulae. The Act codifies faceless governance, modernises residence rules, streamlines assessment timelines, strengthens dispute resolution, and consolidates deductions and retirement benefits. It explicitly taxes Virtual Digital Assets (VDAs) and empowers authorities to access digital space during searches. While the Act improves readability and aligns with global practices, critics argue it largely preserves old complexities. Transitional provisions on losses, MAT credits, and incentives may trigger litigation. Key pain points—complex TDS/TCS rules, refund delays, weak taxpayer rights, and lack of automatic indexation—remain unresolved. Thus, the Act represents progress in design and digital readiness but is viewed as a missed opportunity for deeper structural reform.

The Income-tax Act, 2025(‘Act’) is introduced as a significant legislative reform in India’s direct tax landscape, replacing the six and a half decade old Income-tax Act, 1961(‘ITA’). While the core principles of taxation and the scheme of taxation of income remain broadly the same, the 2025 legislation has the objective of introduci