The government has notified the Income-tax Act, 2025, consolidating and amending the existing income tax framework to replace the Income Tax Act, 1961, which has been in force for over sixty years. The Act received the President’s assent on August 21, as per a gazette notification issued by the Ministry of Law and Justice, and will come into effect from April 1, 2026.
The new legislation does not alter tax rates but focuses on simplifying the language of the law to make it easier to understand and implement. It removes redundant provisions and archaic expressions, reducing the number of sections from 819 in the 1961 Act to 536 and the number of chapters from 47 to 23. The total word count has been cut from 5.12 million to 2.6 million.
Finance Minister Nirmala Sitharaman told Parliament that the changes represent a new, simplified approach to tax administration, making the law leaner, more focused, and easier to read. She noted that the dense and complex structure of the 1961 Act had led to multiple interpretations and avoidable disputes, not because of tax rates but due to the language, resulting in mounting litigation. The verbose drafting style accumulated over decades had made the law tedious to use.
The Income Tax Bill, 2025, was passed by the Lok Sabha on August 11 after the Finance Minister tabled a revised version incorporating most recommendations of the Parliamentary Select Committee. The Rajya Sabha returned the Bill on August 12, completing the legislative process. The government has positioned the new Act as a modern, streamlined legal framework aimed at reducing disputes and improving compliance through clarity and simplicity.
