New Tax Law to Replace Six-Decade-Old Income Tax Act
Finance Minister Nirmala Sitharaman on Sunday announced that the Income Tax Act, 2025 will be implemented from April 1, marking a major overhaul of India’s direct tax framework. The new law will replace the Income Tax Act of 1961, which has governed taxation in the country for more than six decades.The finance minister said that the rules and income tax return forms under the new legislation will be notified shortly, giving taxpayers sufficient time to understand and adapt to the revised system.
Budget 2026-27 Changes to Be Built Into New Legislation
Presenting the Union Budget 2026-27 in the Lok Sabha, Sitharaman stated that all changes announced in the latest Budget relating to direct taxes will be incorporated into the Income Tax Act, 2025.She noted that the direct tax code was completed in record time and confirmed that the new Act will take effect from April 1, 2026, alongside the notification of simplified income tax rules and redesigned return forms.
Simplified Forms and Reduced Litigation Focus
According to the finance minister, the income tax return forms have been redesigned to ensure that ordinary citizens can comply with tax requirements without difficulty. The new law is revenue neutral, with no changes in tax rates, and focuses solely on simplifying direct tax provisions.The Income Tax Act, 2025 reduces the overall text and number of sections by around 50 per cent compared with the 1961 law. It aims to remove ambiguities in tax provisions, thereby lowering the scope for disputes and litigation.
Single Tax Year Framework Introduced
A key structural change under the new law is the removal of the distinction between assessment year and previous year. This will be replaced with a single “tax year” framework, simplifying compliance and understanding for taxpayers.The new Act also allows taxpayers to claim refunds of tax deducted at source even if income tax returns are filed after the prescribed deadlines, without any penal charges. This provision is expected to ease compliance pressures and improve taxpayer convenience under the revised regime.
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