Parliament Passes Income Tax Act 2025 to Replace Old Tax Law

In recent notification of the government, the Income Tax Act, 2025 that received the assent of President Droupadi Murmu on Wednesday, will come into effect on April 1, 2026.

The Income Tax Department posted on X (Previously known as Twitter) that ‘The Income tax Act, 2025 has received the Hon’ble President’s approval on August 21, 2025, to substitute the 1961 Act.’

The main motive of this move is to make a simpler, transparent and compliance-friendly direct tax regime.

This new law will replace the old Income Tax Act, 1961, with a new and simpler version to increase ease of agreement. The Lok Sabha passed the bill on August 11 and the Rajya Sabha returned the bill without any changes the next day.

Finance Minister Nirmala Sitharaman, while discussing legislation in the Rajya Sabha on August 12, added, the new income tax bill does not offer any change in tax rates, as it aims to clarify the language and bring clarity which would help anyone understand it without any difficulty.

She added, ‘There are no new rates being brought in here, no tax issues which are being brought in here.’ she also said, soothingly, that the government would tinker with tax rates.

The finance minister repeated the government’s commitment to stable tax policy, saying, ‘From 2019 onwards, Honorable Prime Minister Shri Narendra Modi had given clear instructions – covid or no covid, we should not increase the tax burden on people.’

And explaining the simplification of taxation law, she said by eliminating inessential provisions and archaic (old) language, they have reduced the number of sections from 819 earlier to just 536. FM reduced the number of chapters from 47 to 23. The number of words has been reduced from 5.12 lakh to 2.6 lakh.

FM introduced 39 new tables and 40 new formulae to substitute heavy text using modern structured formats to increase clarity.

She further added, ‘The new income-tax bill was drafted within a time of six months and introduced in the budget session in February 2025.’ The Draughting connected nearly 75,000 person-hours.

On August 8, the government withdrew the original bill that was launched in the Lok Sabha on February 13 to include recommendations of the committee. A new version of the bill was relaunched on August 11.

Apart from the Income Tax Bill 2025, the House also returned the Taxation Laws Amendment Bill 2025.