The Income Tax Act, 2025: A Modern Framework for a New Era
The enactment of the Income Tax Act, 2025 marks a transformative milestone in India’s direct tax landscape. Effective from 1 April 2026, this new legislation replaces the 64-year-old Income Tax Act, 1961, with a streamlined, modernized, and taxpayer-friendly framework. Designed to simplify compliance, reduce litigation, and align with global best practices, the Act ushers in a new era of clarity and efficiency for businesses and individuals alike.
Key Structural and Procedural Reforms
One of the most significant changes introduced by the Income Tax Act, 2025 is the replacement of the dual system of “Previous Year” and “Assessment Year” with a unified concept of the “Tax Year.” This 12-month period, running from 1 April to 31 March, will apply uniformly to all taxpayers, making it easier for new businesses and professionals to align their tax obligations with their actual income generation.
The Act also consolidates and restructures provisions, reducing the number of sections from 819 to 536 and chapters from 47 to 23. This simplification removes obsolete clauses, improves logical organization, and enhances ease of reference. The use of plain language and clearer definitions aims to minimize ambiguity, reduce disputes, and foster voluntary compliance.
Additionally, the Act introduces digital reforms, empowering tax authorities to inspect virtual digital spaces during search and seizure operations. This reflects the government’s commitment to keeping pace with technological advancements and ensuring robust compliance in the digital era.
Revised Tax Regime and Slabs
The new regime under the Income Tax Act, 2025 retains the existing tax rates but introduces a more structured and simplified slab system. The revised slabs are as follows:
- Up to ₹4 lakh: Nil
- ₹4 lakh – ₹8 lakh: 5%
- ₹8 lakh – ₹12 lakh: 10%
- ₹12 lakh – ₹16 lakh: 15%
- ₹16 lakh – ₹20 lakh: 20%
- ₹20 lakh – ₹24 lakh: 25%
- Above ₹24 lakh: 30%
For salaried taxpayers, a standard deduction of ₹75,000 has been introduced, raising the effective tax-free income to ₹12.75 lakh. The Act also preserves the existing rebate under Section 87A, ensuring that eligible taxpayers with income up to ₹12 lakh incur no tax liability.
Capital gains tax rules and other special rate incomes remain unchanged, providing continuity for investors and professionals. The Act also clarifies the treatment of cryptocurrencies and other virtual digital assets, formally including them as taxable capital assets.
Enhancements in Presumptive Taxation and Compliance
The Income Tax Act, 2025 brings significant improvements to the presumptive taxation scheme, making it more accessible for small and medium businesses and professionals. The concept of “Profit claimed to have been actually earned” is now integrated into the computation of business income, simplifying compliance for those opting for presumptive taxation.
Turnover thresholds have been raised, allowing businesses with total turnover or gross receipts up to ₹20 million (₹30 million if cash transactions do not exceed 5% of total turnover) to avail the scheme. For professionals, the limit has been increased from ₹5 million to ₹7.5 million, with a requirement to declare 50% of gross receipts as income.
These changes reduce the need for maintaining detailed books of accounts, enabling more taxpayers to leverage the presumptive taxation scheme. The Act also removes ambiguities in the definition of “business connection” and refines the scope of “associated enterprise,” further streamlining compliance for businesses operating in India.
In summary, the Income Tax Act, 2025 represents a comprehensive modernization of India’s tax framework. By simplifying structure, clarifying definitions, and embracing digital reforms, the Act lays the foundation for a more transparent, efficient, and taxpayer-friendly direct tax system.
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