New Income Tax Act, 2025

Syllabus: GS2/ Governance, GS3/ Economy

Context

• The Income Tax Act, 2025 replaces the Income Tax Act, 1961 with effect from April 1, 2026, with the objective of enhancing transparency, predictability, and ease of compliance.

Key Features of the Act

• Introduction of ‘Tax Year’: The Act replaced the terms ‘Assessment Year’ and ‘Previous Year’ with a single, unified concept called the ‘Tax Year’. It has been defined as the twelve-month period of the financial year commencing on the 1st April.
• Power to Frame Schemes: The Act empowers the Central Government to introduce schemes for faceless assessments and efficient tax administration.
• Simplified Compliance: The provisions related to Tax Deducted at Source (TDS), which were earlier distributed across multiple sections, have now been streamlined and grouped under a single section – Section 393.
• Digital-First Framework: The Act defines “Virtual Digital Space” to include digital platforms such as email, cloud servers, online investment and trading accounts, and websites for tax enforcement purposes.
  • It also expands the definition of Virtual Digital Assets (VDAs) to include cryptocurrencies and tokenised assets, reflecting evolving economic realities.
• The Act incorporates General Anti-Avoidance Rules (GAAR) under, designed to curb tax avoidance by disregarding arrangements lacking commercial substance.
• Structural changes in Act: The new Act reduces the number of Sections from 819 to 536 and Rules from 511 to 333.
• The number of forms has been significantly reduced from 390 to 190, which lowers the compliance burden on taxpayers. The number of Schedules has been rationalised from 14 to 16.

Key Benefits for Individuals

• Introduction of Unified Form 121: The new Act merges Form 15G and Form 15H into a single unified Form 121. Under this all eligible resident individuals, Hindu Undivided Families (HUFs), and specified entities can use Form 121 irrespective of age.
  • The form allows taxpayers to declare that their estimated income is below the taxable limit, thereby preventing unnecessary deduction of Tax Deducted at Source (TDS).
• Transformation of Form 26AS into Form 168: Form 168 integrates data from the Annual Information Statement (AIS) to provide a consolidated view of the taxpayer’s financial activities.
  • It captures details such as salary income, rent payments, stock market transactions, mutual fund investments, and high-value expenditures.
• Reduction in Tax Collected at Source (TCS): Under the Reserve Bank of India’s Liberalised Remittance Scheme, TCS rates have been rationalised.
  • The TCS rate on remittances for education and medical purposes exceeding ₹10 lakh has been reduced from 5% to 2%.
  • The TCS rate on overseas tour packages exceeding ₹10 lakh has also been reduced from 5% to 2%.
• Introduction of FAST-DS (Foreign Assets Disclosure Scheme, 2026): The Act introduces the FAST-DS scheme as a time-bound compliance window to enable voluntary disclosure of undisclosed foreign assets and income.

Concluding remarks

• The Income Tax Act, 2025 represents a transformative step toward building a more transparent, efficient, and taxpayer-friendly direct tax system in India. 
• By simplifying legal structures, embracing digital processes, and aligning with global standards, the Act lays the foundation for a modern fiscal framework.

Source: TH