New Income Tax Act 2025 — Key Changes & Comparison with 1961 Act

Updated: 3 June 2026

Quick Answer: The Income Tax Act, 2025 replaces the Income Tax Act, 1961 and is effective from April 1, 2026 (FY 2026-27 / AY 2027-28). It is a simplification and recodification — no new taxes, same rates, same deductions. The 1961 Act still governs FY 2025-26 filings.

Apr 2026

The new Act takes effect from April 1, 2026. Returns you file in July 2026 for FY 2025-26 are still under the 1961 Act. The 2025 Act applies starting FY 2026-27.

Background — Why Was the 1961 Act Replaced?

The Income Tax Act, 1961 was a landmark law when enacted, but over 60+ years it accumulated over 800 sections, hundreds of sub-sections, explanations, provisos, and cross-references. Finance Acts added and modified provisions every year. The law became difficult to navigate for taxpayers, tax professionals, and even courts.

The idea of a Direct Tax Code (DTC) to replace the 1961 Act was first mooted in 2009. Multiple drafts — in 2009, 2010, 2013, and a revised version in 2019 — were prepared but not enacted. After the 2019 draft, a new Expert Committee was formed and the Income Tax Act, 2025 is the result of that process — finally enacted after 15+ years of deliberation.

Key Structural Changes in the Income Tax Act 2025

Sections renumbered and reorganised: The 800+ sections of the 1961 Act have been consolidated, redundant provisions removed, and the law restructured into logical chapters.
Plain language drafting: Complex legal drafting (proviso upon proviso) replaced with simpler, clearer sentences and tables where appropriate.
Obsolete provisions removed: Dozens of provisions that applied to past years or were no longer relevant (e.g., references to pre-1962 assessment years) have been deleted.
No new taxes or rates: The recodification exercise did not introduce any new tax, change any rate, or alter any major deduction or exemption.
New regime as default retained: The new tax regime (Section 115BAC in the 1961 Act) continues as the default for individuals and HUFs under the 2025 Act as well.

Key Section Mapping: 1961 Act vs 2025 Act

The following table shows how major provisions of the 1961 Act map to the new 2025 Act. Note that while section numbers may change, the substance of each provision remains the same.

Provision	1961 Act Section	2025 Act Equivalent	Change?
Exemptions (agriculture, HRA, LTA etc.)	Section 10	Retained; reorganised into sub-chapters	No substantive change
Deductions (80C, 80D, 80G, etc.)	Chapter VIA (Sec 80A–80U)	Retained; reorganised	No change in limits or conditions
New tax regime (default slabs)	Section 115BAC	Simplified; default regime chapter	Same rates; clearer structure
Income from salary	Section 15–17	Retained in salary chapter	No change
Capital gains	Section 45–55A	Retained; Finance Act 2024 rates apply	No new change
TDS framework	Section 192–206CCA	Retained; TDS chapter reorganised	No change in rates or thresholds
Return of income / ITR filing	Section 139	Filing provisions chapter	No change in due dates
Advance tax	Section 207–219	Retained	No change
Presumptive taxation (44ADA, 44AD)	Section 44AD, 44ADA	Retained	No change in limits or rates
Assessment / search / seizure	Section 143–153	Retained; reorganised	No substantive change

Transition: What Applies When

Financial Year	Assessment Year	Governing Act	ITR Filing Deadline
FY 2024-25	AY 2025-26	Income Tax Act, 1961	July 31, 2025 (individuals)
FY 2025-26	AY 2026-27	Income Tax Act, 1961	July 31, 2026 (individuals)
FY 2026-27	AY 2027-28	Income Tax Act, 2025	July 31, 2027 (individuals)

Existing assessments, pending refunds, appeals, and tax demands initiated under the 1961 Act will continue and be disposed of under the 1961 Act provisions (or their 2025 Act equivalents as specified in transition clauses).

Relationship to Direct Tax Code (DTC)

The Income Tax Act, 2025 is the culmination of India's long-running Direct Tax Code project. The first DTC draft (2009) proposed a completely new framework with a fresh start. Subsequent drafts modified this approach. The final 2025 Act takes a more conservative path — it retains all existing provisions (tested by decades of jurisprudence and litigation) but rewrites them in cleaner language.

This approach means taxpayers and practitioners do not need to relearn tax law from scratch — established interpretations and case law from the 1961 Act era will continue to guide interpretation of equivalent provisions in the 2025 Act.

Frequently Asked Questions

When does the new Income Tax Act 2025 come into effect?

The Income Tax Act, 2025 is effective from April 1, 2026. This means it first applies to FY 2026-27 (Assessment Year 2027-28). For FY 2025-26 (AY 2026-27), the old Income Tax Act, 1961 (with all its amendments up to Finance Act 2025) continues to apply. Taxpayers filing returns in July 2026 for FY 2025-26 will still use the 1961 Act framework.

Does the new Income Tax Act 2025 change anything for ordinary taxpayers?

No new taxes have been introduced. The new Act is primarily a consolidation and simplification exercise — it reorganises 60+ years of amendments into a cleaner, easier-to-read law. The tax rates, slabs, deductions (Section 80C, 80D, etc.), exemptions (Section 10), TDS rules, advance tax, and capital gains provisions all remain substantively the same. The key change is structural: clearer language, fewer cross-references, and better-organised chapters.

Are ITRs filed under the old Act (1961) still valid under the new Act?

Yes. All income tax returns filed under the Income Tax Act, 1961 remain valid. The transition to the new Act does not invalidate past filings, refunds, pending assessments, or existing tax demands. The Income Tax Department will honour all proceedings initiated under the 1961 Act; they will simply continue under the new Act's equivalent provisions from FY 2026-27 onwards.

Are deductions like Section 80C, 80D, and HRA still available under the new Act?

Yes. All major deductions and exemptions — Section 80C (investments up to ₹1.5 lakh), Section 80D (health insurance), HRA, LTA, standard deduction, home loan interest (Section 24), and others — are retained in the new Income Tax Act, 2025. They are renumbered and reorganised into new chapters but the substance, limits, and conditions remain the same. The new regime (formerly Section 115BAC) also continues as the default.

Are capital gains tax rates the same under the Income Tax Act 2025?

Yes. The capital gains tax rates introduced by the Finance Act 2024 (which revised STCG and LTCG rates) are carried forward into the new Act. Short-term capital gains on equity (STCG @ 20%), long-term capital gains on equity above ₹1.25 lakh (LTCG @ 12.5%), and other capital gains provisions remain the same. No new capital gains changes were introduced as part of the 2025 Act recodification.

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