New Income Tax Act 2025

Table of Content

1. New Income Tax Act 2025: Key Highlights

2. Why Was the New Income Tax Act Introduced?

3. Structure and Chapters of the New Income Tax Act 2025

4. Revised Income Tax Slabs and Rates Under the 2025 Act

5. Key Changes Introduced Under the New Income Tax Act 2025

6. What Remains Unchanged Under the New Income Tax Act 2025?

7. Objectives and Guiding Principles of the 2025 Act

8. Transition from the Income-tax Act, 1961

9. Deductions and Exemptions Under the New Income Tax Act 2025

10. Understanding the Income-tax Act, 1961

11. Income-tax Act 1961 vs New Income Tax Act 2025

12. Conclusion

13. FAQs about Income Tax Act 2025

The Income Tax Act 2025 is India’s modernised direct tax law. It was introduced to simplify tax laws, improve clarity and make tax compliance easier for taxpayers, while preserving the core framework of India’s income tax system intact. The Act applies to persons, businesses, companies, firms, trusts and other taxpayers covered under the income tax laws of India.

Although the legislation has been rewritten and reorganised in a simpler language and a more structured format, many of the fundamental tax principles remain, such as the taxation of different types of income and taxpayer obligations.

For example, although the wording of the law has been revised, taxpayers still have to calculate their taxable income, claim eligible deductions and exemptions, and file income tax returns in accordance with the law.

The Income-tax Act, 2025, which came into force on 1 April 2026, replaced the Income-tax Act, 1961 for tax years governed by the new Act, marking a significant reform in India’s direct tax framework. The new Act reorganises provisions, simplifies legal language and strengthens tax administration while providing transition rules for earlier tax years and pending proceedings.

As tax rates, exemptions, procedural requirements and compliance rules are subject to change by the annual Finance Act or notifications issued by the government, you must refer to the latest official notifications and circulars issued by the Income Tax Department for the most current implementation details.

New Income Tax Act 2025: Key Highlights

The key highlights of the new IT Act include reducing the number of sections from over  819 to 536. The table below summarises some key facts of the new Income Tax Act 2025:

Why Was the New Income Tax Act Introduced?

India’s 65-year-old Income-tax Act, 1961, is replaced by this new Act because of numerous reasons. Let us understand them more clearly:

• Evolution of the Income-tax Act, 1961

The Income-tax Act of 1961 was passed on 13 September 1961 and commenced on 1 April 1962, which succeeded the Income-tax Act of 1922. The main objective of this Act was to consolidate and amend the income tax law in India.

During the next six decades, this Act has been subjected to many amendments in various Union budgets, thus becoming very lengthy and complicated to understand.

In view of changing trends in doing business and transactions using digital mediums, a simpler and well-structured tax law became a necessity. Therefore, the Income-tax Act of 2025 was formulated.

Reasons Behind Replacing the Earlier Tax Law

1. Extensive Amendments

According to the Press Information Bureau (PIB), the Act has undergone approximately 4,000 amendments/provisions modified through 19 different Taxation Laws Amendment Bills and yearly Finance Acts in these six decades. Despite the fact that these modifications were meant to maintain the law's applicability, they greatly lengthened and complicated it.

2. Increased Litigation

The tax base was greatly diminished by the many exemptions and incentives. These led to a rise in litigation, more administrative expenses, and more responsibilities associated with compliance.

3. Traditional Legal Language

The IT Act of 1961 was difficult for the typical taxpayer to grasp because it was written in traditional legal language, which is marked by lengthy phrases, many provisos, and thorough explanations.

4. Outdated Provisions

A disjointed structure resulted from the accumulation of additions and changes. The existence of antiquated provisions that were no longer in use added to this intricacy.

5. Numerous Deductions and Exemptions

The Act has undergone several amendments over the years to incorporate a variety of exclusions and deductions to promote socioeconomic objectives. These include fostering social fairness, balanced growth, export growth, and savings.

These clauses included funding for rural development, investments in certain industries or areas, and rewards for export revenue.

Besides the above challenges, the Income Tax Act 2025 is designed to structure the provisions in a more organised manner and will facilitate more e-taxation in the administration of taxes.

Through simplification of the language used in the law, reduction of redundancy, and structuring the law, the above reforms are expected to enhance compliance and make the law clearer.

Timeline of the New Income Tax Act

Here is the complete timeline of the new Income Tax Act, including its introduction, developments, and approval:

• February 13, 2025: The Income Tax Bill 2025 was introduced in the Lok Sabha, the lower chamber of the Indian Parliament and was sent to a select committee.

• July 21, 2025: The select committee submitted its report to the Parliament.

• August 8, 2025: The Income Tax Bill 2025 was withdrawn in Lok Sabha.

• August 11, 2025: The Lok Sabha passed and approved the Income-tax (No. 2) Bill, 2025. 

• August 12, 2025: The Rajya Sabha considered and passed the Income-tax (No. 2) Bill, 2025.

• August 21, 2025: The Income-tax (No. 2) Bill, 2025, received Presidential assent, making it an Act

• April 1, 2026: The Income Tax Act 2025 came into force.

Structure and Chapters of the New Income Tax Act 2025

In contrast with the previous Income Tax Act, the Income Tax Act 2025 has a more systematic approach and thus makes it easier to understand. This Act has 536 sections, 23 chapters, and 16 schedules. Its provisions have been arranged in such a way that the logic of the whole Act becomes more understandable.

This Act has consolidated dispersed provisions, incorporated difficult provisos in the body of the Act, simplified alphabetical suffix of section numbers with numbers, and has 39 in-built tables and 40 formulae.

The table below highlights all 23 chapters:

Revised Income Tax Slabs and Rates Under the 2025 Act

The table below highlights the tax slabs applicable from Tax Year 2026-27 under new tax regime in section 202(1)of the Income-tax Act, 2025, as amended by the Finance Act, 2026., and operate under the Income Tax Act 2025.

Understanding the Impact of the Revised Tax Slabs

The new tax structure of the New Tax Regime in India reduces the tax burden on lower and middle classes. Let us understand them in more detail:

• Tax Implications for Lower-Income Individuals

Under the new tax regime, the slab rate prescribed under Section 202(1) of the Income Tax Act, 2025 (corresponding to Section 115BAC of the Income Tax Act, 1961) provides thatlower-middle-class taxpayers in India can enjoy complete tax exemption on the first ₹4 lakh of their taxable income along with a higher rebate under section 156(2) of Income Tax Act, 2025  for tax year 2026-27, making sure that no taxes are paid by any qualifying taxpayer whose taxable income is up to ₹12 lakh under the respective tax regime.

The salaried class also enjoys the advantage of getting a standard deduction of ₹75,000 under Section 19(1), Table Sl. No.2 of Income Tax Act,2025  (corresponding to Section 16 of the Income Tax Act, 1961) which makes the total tax-exempt income of ₹12.75 lakh..

• Impact on Middle-Income Taxpayers

The Income Tax Act 2025 helped in restructuring India’s direct tax law. Thus, under the new tax regime, annual income of up to ₹12 lakh is free from any form of tax due to the rebate under Section 156(2). In case of salary-based income, the amount of tax-free income increases to ₹12.75 lakh owing to the standard deduction of ₹75,000 under Section 19 This change could lower the tax liability of middle-class earners.

Nevertheless, taxpayers must make a comparison between the two tax regimes before deciding.

• Impact on Higher-Income Taxpayers

The Finance Act, 2025 and Income Tax Act, 2025 have brought changes in the tax slabs by making 25% a smooth slab for taxable income ranging from ₹20,00,001 to ₹24,00,000.

With such a change, the maximum 30% tax slab will come into effect only after taxable income crosses ₹24 lakh.

While computing their overall tax liability, high-income taxpayers must consider the effect of any surcharge, health and education cess, and possible deductions or exemptions under the selected tax regime.

Key Changes Introduced Under the New Income Tax Act 2025

The new Income Tax Act 2025 brings down the total sections from 819 to 536 and reduces the word count from 5 lakh to 2.6 lakh words. Below are some of the key changes introduced under the Income Tax Bill 2025:

1. Increased Standard Deduction for Salaried Taxpayers

According to PIB, the standard deduction has been increased from ₹50,000 to ₹75,000 for those earning salaries as well as pensioners who qualify for the new tax system. The deduction is automatic and helps reduce their taxable income before the tax calculation, thereby making the burden of tax lighter for them.

Along with the rebate under Section 156(2), it can make income below the stipulated limit tax-free for those qualified. However, under the section 16(ia) of old tax system of Income Tax Act,1961, the standard deduction remains ₹50,000, with a condition if opted for Old tax regime. Under the New Tax Regime the standard deduction is increased to ₹75000.

Apart from becoming accustomed to the new slabs, taxpayers should look into the top tax savings methods in India.

2. Revised Tax Treatment of Unit Linked Insurance Plans (ULIPs)

Based on the new model that has been endorsed in Budget 2025 and is in line with the Income Tax Act, 2025, ULIPs which have an aggregated premium that exceeds ₹2.5 lakh each year are classified as capital assets , provided they do not qualify for any exemptions from taxation in Section 11 read with Schedule II  of Income Tax Act, 2025.

3. Introduction of the 25% Income Tax Slab

Where a ULIP does not qualify for the Schedule II exemption, profits or gains arising from receipt of any amount, including bonus, are chargeable under the head “Long Term Capital gains” at the rate of 12.5% for the gains exceeding ₹1.25 lakh in a tax year. . Introduction of the 25% Income Tax Slab

The Union Budget has brought about an additional tax slab of 25%, applicable to incomes in the range of ₹20,00,001 to ₹24,00,000 as prescribed in section 202(1), under the newly revised tax regime for the financial year starting from 2025-26.

The new tax slab would serve as an intermediate level between the already existing tax slabs of 20% and 30%, and hence provide relief to taxpayers within this income range due to reduced tax liability.

4. Updated TDS and TCS Provisions

The Income Tax Act of 2025 brings together all of the tax deducted at source (TDS) and tax collected at source (TCS) provisions into sections 392 to 394, which were previously spread across 69 different sections, into just three sections of the Act. These are:

1. Section 392 for TDS on Salary and accumulated balance due to an employee (corresponding to Section 192 of the Income-tax Act, 1961)

2. Section 393 for TDS on Payments Other than Salary  (corresponding to various TDS provisions under the Income-tax Act, 1961)

3. Section 394 for Tax Collected at Source (TCS) (corresponding to Section 206C of the Income-tax Act, 1961)

Although there is no change in the tax rates or policies, the new Act adopts new section numbers and new forms as well. The thresholds, if any, relating to TDS or TCS are as per the relevant Finance Act and Notifications.

5. Tax Exemption on National Savings Scheme Withdrawals

As per the provisions of the Income Tax Act, eligible withdrawals of principal and interest from the National Savings Scheme (NSS) accounts from 29th August, 2024 onwards shall be exempt from income tax, but only in the case of individual assessees. However, the deposits made were eligible for deduction under Section 80CCA(2)(a) of the Income Tax Act, 1961, the New Income Tax Act, 2025 do not carry forward NSS as a fresh deduction-eligible instrument, no new deposits under NSS would qualify for deduction under the new law.

Additionally, in case of an assessee being an individual, CBDT Notification No. 27/2025 ensures that there is no TDS on such eligible withdrawals made from 4th April 2025 onwards as per Section 393(3) Table Sl No. 6 of the Income Tax Act, 2025 (corresponding to Section 194EE of the Income Tax Act, 1961). These measures will help eligible investors withdraw their savings in a more efficient manner along with the reduction of tax liability.

6. Extended Time Limit for Filing Updated Tax Returns

Updated returns can now be filed up to 48 months from the end of the relevant assessment year (or corresponding tax year under the new Income Tax Act,2025 under section 263(6)), subject to applicable conditions. This allows taxpayers to make necessary corrections to report unreported income or rectify any error in their previous tax return.

The deadline helps to increase voluntary compliance in terms of tax payment through submission of the required form in accordance with the provisions of the Income Tax Act.

7. Simplified Tax Administration Framework

The Income Tax Act of 2025 simplifies the process of tax filing and decreases the number of sections from 819 to 536. Additionally, its reorganised tax provisions and improved accessibility have made the filing simpler for ordinary taxpayers.

What Remains Unchanged Under the New Income Tax Act 2025?

Although the Income Tax Act 2025 new regime has changed and simplified a lot of sections, there are some rates and sections that still remain unchanged. Have a look at them:

1. Continuation of the Old Tax Regime

Although the new tax regime is the default regime for eligible taxpayers under Section 202 of the Income-tax Act, 2025 (corresponding to Section 115BAC of the Income-tax Act, 1961), taxpayers may opt out of the new tax regime and choose the old tax regime. Taxpayers having income from business or profession are required to exercise this option by filing Form 10-IEA within the prescribed due date under Section 280 of the Income-tax Act, 2025. 

By opting for the old tax regime, taxpayers may claim eligible deductions and exemptions under chapter VIII of Income Tax Act, 2025, such as deductions under Sections 123,124, and 126 (corresponding to Sections 80C, 80CCD and 80D of the 1961 Act), exemption for House Rent Allowance (HRA) etc. subject to the fulfillment of applicable conditions.

Taxpayers must compare the two tax systems considering their income and tax liability before opting for any one of the two tax systems.

2. Corporate Tax Rates Continue

Corporate taxes have not undergone any major change under the Income Tax Act 2025. Existing domestic companies that have not migrated out of the standard corporation tax regime will pay the basic rate of 30% of income, along with surcharges and a 4% health and education cess.

The main intention of the new tax law seems to be consolidation of tax provisions rather than changing corporate taxes.

3. Existing Tax Deductions and Exemptions

In the Income Tax Act of 2025, changes in corporate tax rates have been minimal. This is because most of the reforms involve the reorganization of provisions and simplification of the language of the Act without changing the taxation of corporations.

Additionally, most of the tax exemptions like agricultural income, life insurance maturity proceeds and deductions have been retained without much change, subject to the taxpayer's chosen tax regime.

Taxpayers could also look into the different types of life insurance tax benefits options in India for understanding the manner in which eligible life insurance policies can be used to optimize their taxation strategy.

4. Tax Administration and Compliance Framework

In the Income Tax Act 2025, the main procedures in tax administration include filing of returns, assessment procedures, and notices. Other procedures relating to compliance will take place in much the same manner as before, with some procedural changes that will enhance efficiency in the administration of tax.

Objectives and Guiding Principles of the 2025 Act

India's objective of aligning with international best practices, enhancing business convenience, and promoting a trust-based tax environment is reflected in the change. The new Income Tax Bill 2025 essentially aims to improve the tax experience by making it more efficient, predictable, and digitally enabled rather than changing tax rates.

Some of its objectives are:

1. Simplification: Use clear and contemporary legal language in place of outdated terminology and superfluous clauses.

2. Taxpayer-Centric Approach: Boost transparency, decrease litigation, and make filing easier.

3. Digital Integration: To minimize human interaction and corruption, enable digital compliance and faceless assessments.

4. Global Alignment: Consider current economic realities, such as worldwide income and the taxation of digital assets.

The simplification process adhered to three guiding principles to recast the framework of income tax law. These are:

1. Simplifying the text and structure will increase coherence and clarity.

2. To maintain continuity and stability, there are no significant changes to tax policy.

3. There are no changes to tax rates, giving taxpayers certainty.

Transition from the Income-tax Act, 1961

1. Treatment of Pending Assessments and Appeals

According to the Income Tax Act, 2025, under Section 536(2)(e), any assessment, re-assessment, or appeal which is pending as on 1 April 2026 will not lapse. However, these will be completed in accordance with the provisions of the Income-tax Act, 1961 as if no new legislation has been brought about.

This simply implies that the taxpayer cannot be made to commence any ongoing proceedings afresh just because of the advent of the new Act.

2. Carry Forward of Losses and Unabsorbed 

The sections dealing with the carry-forward and set-off of losses are more or less the same as those of the Income Tax Act, 1961, barring very few minor changes. The principles are the same, but the sections themselves have been rearranged and have been allotted new section numbers in the restructured Act.

Hence, the taxpayers must refer to the appropriate sections of the new Act in this regard. The table below compares the major provisions under the previous Act and their corresponding sections under the new Act:

3. Existing Exemptions, Incentives, and Deduction Schemes

The New Income Tax Act 2025 allows most deductions and exemptions just like in the Income-tax Act, 1961, but the numbers of the sections have been reorganized.

The deductions and exemptions still exist in both tax systems, but the old tax system still has more tax-saving options like the Public Provident Fund (PPF) and the Sukanya Samridhi Yojana (SSY).

In case you want to maximise tax benefits from the old tax system, researching various types of investments and tax-saving insurance plans you must know about may be beneficial for you.

However, Deductions and exemptions can still be claimed depending on the regime chosen by the taxpayer. For the New Tax Regime, taxpayers have the option of availing themselves of the reduced tax rates, but most traditional deductions and exemptions, including HRA and Chapter VIII deductions, are not available to them.

On the other hand, for the Old Tax Regime, these can be availed of subject to qualifying conditions set out by the tax law.

The new tax regime is the default tax regime of the Income Tax Act, 2025, and is regulated by Section 202 instead of Section 115BAC of the Income-tax Act, 1961.

Some of the major continuing tax benefits in the Income Tax Act 2025 are:

1. Standard Deduction: Salaried individuals and pensioners will still be allowed to deduct under the provision of the Act provided under the standard deduction of ₹75,000 as per Section 19.

2. Family Pension Deduction: The deduction in respect of the family pension is allowed and would depend upon the restrictions provided by the Act upto ₹25,000 (under New Regime) and ₹15,000 (under Old Regime) as per Section 93 of the Income Tax Act, 2025.

3. NPS: The tax relief in respect of contributions made to the NPS by the employer is continued and would depend upon the restrictions provided under Section 124 of the Income Tax Act, 2025.

4. Exemption from Gratuity: The exemption in respect of gratuity received at the time of retirement or termination of service is continued as per the provisions of the Section 19(1) of the Income Tax Act, 2025.

5. Renumbering of Deductions under Various Sections: Deductions in the form of Sections 80C to 80U of the Income-tax Act, 1961 have now been renumbered to Sections 123 to 154 under chapter VIII of the Income Tax Act, 2025.

Although there has been a change in section numbers, many deductions are still available, especially for those who opt for the old tax system, provided that certain conditions have been met. Taxpayers should check whether they fall under the appropriate tax system or not.

Deductions and Exemptions Under the New Income Tax Act 2025

The New Income Tax Act 2025 maintains most of the deductions and exemptions in the Income-tax Act 1961, despite the fact that there is a new arrangement of the section numbers.

However, the old tax system still offers a broader array of tax savings benefits. Some of them are:

1. Section 123 (broadly corresponding to Section 80C) – Deduction for Specified Investments and Payments, including Life Insurance Premium, Provident Fund, etc., read with Schedule XV, subject to an overall limit of ₹1.50 lakh in a tax year.

2. Section 124(1B) (broadly corresponding to Section 80CCD(1B)) – Additional Deduction for Contributions to the National Pension System (NPS), subject to a maximum limit of ₹50,000

3. Section 126 (broadly corresponding to Section 80D) – Deduction for Health Insurance Premium, Medical Expenditure, etc., subject to the prescribed limits of up to ₹25,000 for self, spouse and dependent children (additional ₹25,000 if senior citizen) and ₹25,000 for dependent parents (additional ₹25,000 if senior citizen), totalling upto overall limit of ₹1 lakh in a tax year.

The legal structure has been simplified, but the conditions required for deductions and exemptions have not changed much. For instance, a salaried employee getting standard deduction still qualifies based on the specified requirements.

The eligibility requirements for claiming the standard deduction have not changed despite the new organization of the pertinent rules under the Income Tax Act, 2025.

Understanding the Income-tax Act, 1961

Income-tax Act, 1961 has been the principal enactment regulating the taxation laws in India for over 65 years. It has provided the statutory provisions relating to the levying, collecting, administering, and enforcing the collection of income taxes on individuals, Hindu Undivided Families (HUF), companies, and other taxpayers.

For amendments made to the Income-tax Act, 1961 during different periods to suit the changing economic and tax policies, the Act has become quite lengthy and difficult to understand.

Therefore, the Income Tax Act, 2025 was enacted to simplify and organize the previous Act by retaining most of its tax laws. Studying the Income-tax Act, 1961 would be helpful to understand the changes made in the new Act.

Income-tax Act 1961 vs New Income Tax Act 2025

Conclusion

The Income Tax Act 2025 is a huge step forward in making the Indian direct taxation system simple through re-organization of the sections, updating of the language and structure of the tax statutes.

Even though there is an update in the number of sections and structure of the sections, it continues with all the fundamental taxation concepts, such as the provisions on calculation of income, tax exemptions and deductions, tax regimes, and others.

Taxpayers need to be familiar with the updated provisions, the tax regime applicable to them, and other eligibility criteria.

FAQs about Income Tax Act 2025

1. What is the new income tax slab in 2025?

Under the new tax regime for Tax year 2026-27, income up to ₹4 lakh attracts no tax, while rates gradually increase to 30% for income above ₹24 lakh. Eligible resident individuals with total income up to ₹12 lakh can have nil tax liability due to the rebate under section 156(2). For salaried individuals, the ₹75,000 standard deduction under section 19(1), Table Sl. No. 2 can effectively raise this threshold to ₹12.75 lakh, subject to the prescribed conditions.

2. What is new for income tax in 2025?

Recent tax reforms introduced through the Finance Acts of 2025 and 2026 include higher TDS thresholds for certain payments, removal of the higher TDS/TCS provisions applicable to specified non-filers, and rationalisation of TCS rates. From 1 April 2026, TCS on overseas tour programme packages is 2%. Other reforms include the abolition of the 6% Equalisation Levy and extension of the eligible incorporation period for certain start-ups to 1 April 2030.

3. What is the standard tax deduction for 2025?

The standard tax deduction for salaried earners and pensioners is ₹75,000 under the new tax regime under section 19(1), Table Sl. No. 2 and ₹50,000 under the old tax regime.

4. Is the tax slab going to change in 2026?

No, the slab rates of income tax did not change for the tax year 2026-27.

5. Are life insurance maturity proceeds exempt under the Income-tax Act, 2025?

Life insurance maturity proceeds may be tax-exempt under the Income-tax Act, 2025, subject to prescribed conditions as per Section 11 read with Schedule II of the Income Tax Act, 2025. Taxability depends on factors such as the policy’s issue date, premium-to-sum-assured ratio and applicable premium limits mentioned therein. Certain high-premium policies and specified ULIPs may not qualify for this exemption.

6. Is the death benefit from a life insurance policy taxable under the Income-tax Act, 2025?

No, the death benefit received from a life insurance policy is completely exempt from income tax under Schedule II, Table Sl. No. 2 in the hands of the nominee or legal heir. This exemption applies irrespective of the claim amount or the premium paid, subject to the applicable provisions of the income-tax law.

Note:
If assessee has opted for Old tax regime, assessee shall be eligible to claim deduction under Chapter VIII of the Income Tax Act, 2025 (corresponding to chapter VI-A (like Sections 80C, 80D, 80CCC, etc) of the Income Tax Act, 1961). If assessee has opted for New tax regime then only few deductions under Chapter VIII are available, specifically under Section 124(1) & (2), Section 125(2), and Section 146 of the Income Tax Act, 2025 (corresponding to Chapter VI-A such as Sections 80JJAA, 80CCD(2), 80CCH(2) of the Income Tax Act, 1961) are\ available.