The Income Tax Act 2025 has been officially notified by the Indian government, marking a significant overhaul of the nation's direct tax regime. The Act, which received the President's assent on August 21, 2025, is set to replace the Income Tax Act of 1961 on April 1, 2026. This new legislation aims to modernize the tax system, enhance transparency, and streamline compliance while broadening the tax base.

The Income Tax Act 2025 was passed by the Parliament during its monsoon session. The Ministry of Law and Justice has since published the Act in the Official Gazette. According to Finance Minister Nirmala Sitharaman, the new Act primarily simplifies the language of the previous law and removes redundant provisions. The number of sections has been reduced from 819 to 536, and the number of chapters has decreased from 47 to 23.

Key Highlights of the Income Tax Act 2025

• Uniform Applicability: The Act extends to the whole of India.
• Consolidation of Provisions: It replaces and restructures various provisions of the Income Tax Act, 1961.
• Updated Definitions: Comprehensive definitions have been introduced for terms like assessee, capital asset, business trust, virtual digital asset, advance tax, amalgamation, demerger, and short-term and long-term capital gains.
• Digital Era Recognition: The Act includes electronic records, cloud-based storage, and digital assets such as cryptocurrencies and NFTs under the scope of taxation.
• Clarity on Agricultural Income: Only genuine agricultural operations and related income are exempt. The Act restricts misuse through land or building rentals.
• Simplified Capital Gains: The new law provides clearer rules on the classification of short-term and long-term assets, with specific timelines and inclusions/exclusions.
• Taxation of Virtual Digital Assets (VDA): Cryptocurrencies, NFTs, and other digital tokens are explicitly defined and brought under the tax net.
• Modified Residency Rules: There are new provisions for determining the tax residency of Indian citizens, NRIs, and companies based on management control and duration of stay.
• Recognition of Business Structures: The Act includes explicit provisions for amalgamation, demerger, slump sale, business trusts, infrastructure funds, and co-operative banks.

Impact and Implementation

The Income Tax Act 2025 will come into effect from April 1, 2026, applying to all taxpayers, including individuals, corporations, and institutions, from the financial year 2026-27. The new Act aims to modernize India's direct tax regime, bring clarity to digital and international transactions, and streamline compliance while broadening the tax base.

Tax experts anticipate that the new codification may initially increase compliance requirements for taxpayers but will eventually reduce ambiguity and litigation. The Finance Ministry is expected to release detailed rules and compliance guidelines before the law takes effect.

The Income Tax Act 2025 is drafted as Bill No. 104-F of 2025 and has been enacted in the seventy-sixth year of the Republic of India. The legislation marks a comprehensive tax overhaul, introducing provisions to align the taxation framework with a digital and globalized economy. It reduces the complexity of the previous law, which had over 4,000 amendments. The new law with 536 sections, aims to be leaner and more efficient.