New Income Tax Act, 2025 Effective From April 1: Here’s What Will Not Change; How It Replaces The 1961 Law?

The decades-old Income Tax Act of 1961 has been officially replaced with the New Income Tax Act, 2025, which represents a significant change in India's fiscal policy. The Act is slated to go into effect on April 1, 2026, even though it was passed and signed into law in August 2025. The Simplified Income-tax Act, 2025, which is meant to replace the current Income-tax Act, 1961 and is intended to tie together the tax structure with the government's broader goal of improving ease of compliance, is a critical milestone in India's direct tax reform journey.

By abolishing outdated provisions, streamlining specialized legal terms, and bringing the framework into line with the 21st-century digital economy, this reform aims to modernize the tax system. The main objective of the new Act is to lessen the bulky component of the previous law, which had accumulated over 800 sections as a result of frequent revisions. This is streamlined into around 536 sections in the 2025 Act, which makes it much more legible and simpler for the regular taxpayer.

"The primary objective of the Simplified Income-tax Act, 2025 is to rationalise and modernise the tax law by reducing complexity, eliminating outdated provisions, and streamlining the statutory language. Over the years, the Income-tax Act, 1961 had become increasingly voluminous due to frequent amendments, multiple explanations, provisos, and cross-references. The new Act seeks to address these challenges by adopting clearer drafting, fewer provisos, simplified definitions, etc. making the law easier to understand and interpret for taxpayers as well as tax administrators," said CA (Dr.) Suresh Surana.

"One of the most visible changes is the restructuring and renumbering of provisions. Multiple sections, explanations, and provisos that were earlier scattered across the Income-tax Act, 1961 have been consolidated and logically regrouped under thematic chapters. For instance, provisions relating to salary income rules are now arranged in a sequential and intuitive manner, reducing the need for constant cross-referencing. Lengthy sections containing multiple provisos and explanations have been broken down into shorter, principle-based provisions expressed in simpler language," stated CA (Dr.) Suresh Surana.

He further added that, "Another notable change is the simplification of definitions and terminology. Several definitions that were earlier repetitive or overly technical have been rationalised, and commonly used terms are defined once and applied consistently across the Act. Obsolete references, transitional provisions from past reforms, and provisions that had lost relevance over time have been removed, thereby reducing clutter and interpretational ambiguity."

While the substantive thresholds and principles remain broadly unchanged, the presentation has been simplified to improve readability and administrative efficiency.
Importantly, the Simplified Income-tax Act, 2025 includes comprehensive transitional provisions to ensure a smooth shift from the Income-tax Act, 1961. These provisions clarify that income earned prior to 1 April 2026 will continue to be governed by the old law for the purposes of assessment, reassessment, rectification, appeal, revision, and penalty proceedings.

"Ongoing assessments, pending appeals, and litigation initiated under the 1961 Act will not abate merely because of the enactment of the new law and will be concluded in accordance with the provisions applicable at the relevant time. Further, rights, obligations, approvals, registrations, exemptions, and proceedings validly created or initiated under the Income-tax Act, 1961 are expressly protected under the transitional framework," commented CA (Dr.) Suresh Surana.

This ensures legal continuity and avoids unintended consequences for taxpayers who have undertaken transactions or compliance actions based on the existing law. Thus, the Simplified Income-tax Act, 2025 focuses on structural simplification rather than substantive tax policy changes. The intent is not to alter tax rates or fundamentally change the tax base, but to restate the law in a more coherent and user-friendly manner.