Income Tax Act, 2025: What Are the New Income Tax Rules Effective from April 1, 2026?

The Income Tax Act, 2025, is set to take effect from April 1, 2026, replacing the six-decade-old Income Tax Act, 1961. This new Act focuses on introducing a simple, modern and taxpayer-friendly framework. The other key objectives include reducing tax disputes, improving transparency, and easing compliance for the taxpayers. Let us understand what has changed.

Ending Confusion With the Introduction of Tax Year Concept

The current income tax act uses the Previous Year and the Assessment Year. The previous year is the financial year in which the income is earned, and the assessment year is the year in which this income is calculated and paid by the taxpayer. This often creates confusion and doubts among the taxpayers. Therefore, the New Act has brought the concept of “Tax Year” by replacing the concepts of “Previous Year” and “Assessment Year.” Tax Year is a 12-month period that starts from April 1 and ends on March 31 of the following year.

Reduced Number Section and Chapters

The Income Tax Act 2025 has reduced the number of sections from 819 to 536. The chapters have been cut from 47 to 23, and the number of words has been reduced from 5.12 lakhs to 2.6 lakhs. These changes are meant to simplify the law.

Further, the new Act uses 39 tables and 40 formulas instead of long paragraphs, making it easier to understand and reducing the confusion and disputes that were common under the old Act.

Restructuring of Sections

The Income Tax Act 2025 uses a new numbering system. Some familiar sections have been shifted. For example, earlier known as Section 80C, it is now known as Section 123. The restructuring aims at making the new law easier to navigate and more logical in the long run. The taxpayer may need some time to adjust to these changes.

Faceless Assessments

The 2025 Act focuses on reducing human intervention using technology-driven and faceless processes. This will speed up the processes and give clear timelines. Further, it will reduce disputes and make the Indian tax system more transparent.

Simplified Framework for Digital and Global Income

The law has revised the definition for virtual digital assets and income from global sources to align with the evolving economy. These updates aim to clearly cover new types of income while giving taxpayers certainty and avoiding confusion.

What Do These Changes Mean for Taxpayers

Here are the changes for the individual taxpayers under the Income Tax Act 2025:

• Income Tax Relief: The revised income tax regime allows individuals earning up to Rs 12 lakh to pay no tax at all because of the increased rebates. Salaried taxpayers also benefit from a higher standard deduction, which increases their take-home pay.
• Reduced Disputes: The law also aims to minimise confusion and disputes between taxpayers and the tax authorities. By using clearer language, restructuring deductions, and combining presumptive schemes, it aims to reduce litigation and interpretation-related disputes. This is expected to lower the number of disputes and litigation cases.
• Simpler ITR Filing: From the next financial year, taxpayers may see simplified Income Tax Return (ITR) forms. The new forms will have clearer instructions, fewer disclosures, and a smoother structure, making it easier for individuals and businesses to report their income correctly.

What Should Taxpayers Do?

Here is what the taxpayers must do:

• Check the latest slabs and rebates for Financial Year 2025-26.
• Be ready for the new changes to ensure a smoother transition.
• Keep an eye on the CBDT notifications and draft rules as the new act is implemented.