India Gets New Income Tax Act, 2025: Old Law Replaced After Six Decades, To Be Effective From April 2026

The Ministry of Law and Justice has notified the Income Tax Act, 2025, in the Official Gazette after it received the President’s assent on Thursday.

The Act, passed by Parliament on August 12 during the monsoon session, will replace the six-decade-old Income Tax Act, 1961, and come into effect from April 1, 2026.

Aim: Simplification, Not New Taxes

Finance Minister Nirmala Sitharaman, while piloting the bill in the Rajya Sabha, said the new law does not impose any fresh taxes but aims to simplify and modernise the tax framework.

The 2025 Act reduces the number of sections from 819 in the old law to 536 and the number of chapters from 47 to 23.

The word count has been cut nearly in half, from 5.12 lakh words to 2.6 lakh words. For the first time, 39 new tables and 40 formulas replace dense text to make provisions clearer and easier to understand.

“These changes are not merely superficial; they reflect a new, simplified approach to tax administration. This leaner and more focused law is designed to make it easy to read, understand and implement,” Sitharaman said.

She emphasised that Prime Minister Narendra Modi had given clear instructions that the tax burden should not be increased, even during the Covid-19 period.

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Record Drafting Effort

The drafting of the new law was completed within a record six months, involving nearly 75,000 person-hours of work by the Income Tax department.

Alongside, the Taxation Laws (Amendment) Bill, 2025 was also passed, which makes changes in block assessment for search cases and provides tax benefits to public investment funds of Saudi Arabia.

Implementation Plan

The Finance Ministry has said that FAQs and information memoranda will be issued soon, and rules under the new law will also be simplified. 

Since the new Act will take effect from April 2026, the income tax department’s IT systems will need to be upgraded to implement the changes.

Expert Reactions

However, experts believe the reform is more structural than substantive. CA Gaurav Makhijani pointed out that while the new law improves clarity, deeper reforms were possible.

“This could have been used as an opportunity to bring significant change in law, in addition to language and structure simplification to make it more impactful.”

He highlighted specific areas that could have been considered, “Tax regime options, provisions relating to residential status, and tax rates for LLPs being higher than corporates are a few examples.”

On the taxpayer experience, he said simplification must go beyond drafting, “Tax compliance procedures and reporting forms also require simplification to ease the burden on taxpayers.”

Makhijani also stressed the importance of better administration, “The most important area is the improvement of tax administration. Effective mechanisms for alternate dispute resolution and a more robust advance ruling framework will be critical to strengthening efficiency and reducing litigation.”

He concluded that while the Act is a step forward, many see it as “Old wine in a new bottle.”

The Road Ahead

With the Income Tax Act, 2025, the government has taken the first step towards a more concise, lucid, and taxpayer-friendly legal framework.

The coming months will determine how effectively it translates into better compliance and reduced litigation for India’s taxpayers.