New Income Tax Act from 1st April 2026: Key Changes you Need to Know
The New Act modernized the framework for direct taxation focusing on clarity, simplified compliance, and enhanced transparency.
India's Income Tax Act of 2025 will take effect on April 1, 2026, and will bring about significant changes to how tax is collected and paid. This Act is intended to be a more modern, less complicated tax regime than that provided by the Income Tax Act of 1961. The goal of this new legislation is to make it easier for taxpayers to follow their obligations, and for them to be able to understand what their obligations are, leading to fewer disputes over taxes owed.
Structural Reform
The notable change is that the ‘Tax Year’ will now replace the dual system of ‘Previous Year’ and ‘Assessment Year’, with a single Record (April 1st - March 31st). This single Tax Year format shall help to eliminate confusion and simplify tax administration. The New Act will also consolidate various provisions improving ease of access and compliance.
Simplification of TDS Provisions
The New Act brings revision of the administration structure of the Tax Deduction at Source (TDS), consolidating all rules into one comprehensive section - Section 393. In order to reduce the risk of errors by taxpayers and tax deductors and speed up compliance, the new regulatory framework utilizes easily understandable tables that allow taxpayers and their representatives to identify their applicable tax rates, thresholds, and exemptions based on whether payments were made by residents, non-residents, or where TDS is not required.
Digital Integration and Compliance
The New Act has focused heavily on digital compliance and automation, including faceless assessments and automatic digital monitoring, to help minimise the opportunity for manual interference and limit the amount of corruption. In addition, the Central Board of Direct Taxes (CBDT) will create rules that fit the digitally-enabled economy, thus supporting the momentum towards a virtually paperless, transparent tax system.
The scope of the Income Tax Act, 2025 is determined by the residential status of the taxpayer, which defines the extent of tax liability on global and Indian income. The Act categorizes taxpayers as Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), and Non-Resident (NR), with varying tax implications for each category.
| Income Type | Resident and Ordinarily Resident (ROR) | Resident but Not Ordinarily Resident (RNOR) | Non-Resident (NR) |
| Income received or deemed to be received in India | Taxable | Taxable | Taxable |
| Accrued income in India | Taxable | Taxable | Taxable |
| Income from outside India, business/profession set up or controlled from India | Taxable | Taxable | Non-taxable |
| Income from outside India, business/profession set up or controlled from outside India | Taxable | Non-taxable | Non-taxable |
| Untaxed past foreign income remitted (brought back) to India | Non-taxable | Non-taxable | Non-taxable |
Tax Regime and Slab Structure
Both the tax regime will coexist to provide taxpayers preference of treatment under the new or old regime. The basic exemption limit has been increased and all taxpayers will have the option to receive a tax rebate up to INR 60,000, provided they meet the eligibility criteria. In addition to the two revised tax systems outlined above, the government has created an updated tax bracket system.
| Income Tax Slab (₹) | Old Regime (Individuals < 60) | New Regime (Section 115BAC) |
| Up to 2,50,000 | Nil | Nil |
| 2,50,001 – 5,00,000 | 5% | Nil (up to 4,00,000) |
| 5,00,001 – 10,00,000 | 20% | 5% (4,00,001 – 8,00,000) |
| 10,00,001 – 50,00,000 | 30% | 10% (8,00,001 – 12,00,000) |
| 50,00,001 – 1,00,00,000 | 30% (with 10% surcharge) | 15% (12,00,001 – 16,00,000) |
| 1,00,00,001 – 2,00,00,000 | 30% (with 15% surcharge) | 20% (16,00,001 – 20,00,000) |
| 2,00,00,001 – 5,00,00,000 | 30% (with 25% surcharge) | 25% (20,00,001 – 24,00,000) |
| Above 5,00,00,000 | 30% (with 37% surcharge) | 30% (above 24,00,000) |
New Provision
This Act establishes the legal foundation for the regulation of cryptocurrency and digital assets as capital assets subject to tax. In addition, this Act creates an established tax treatment of digital assets, closing a gap in regulation regarding the digital world and creating a basis for establishing a digital asset tax policy. Further, the General Anti-avoidance Rules (GAAR) have been enhanced to provide additional protections against aggressive tax planning and corporate tax avoidance methods.
Impact on Individuals and Business
The objective of the new act will be to eliminate ambiguity and complexity from litigation by clarifying laws and simplifying the process for resolution of tax disputes between businesses (especially MSMEs) and the government. The new act will also benefit taxpayers by aligning definitions across all taxes and by having less compliance burden for small businesses. Taxpayers should be sure to evaluate whether they qualify for exemptions or deductions because of the changes made in the new act; this includes non-resident taxpayers and those with multiple sources of income.
Conclusion
The Income Tax Act, 2025 will improve clarity in tax law, facilitate digital compliance, and provide taxpayer-friendly reforms. As a result, it will help to make India more efficient and transparent. Therefore, this Act has the potential to change the way taxes are levied and collected while providing a more equitable way of collecting income taxes from all stakeholders in India.Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
