Sitharaman said the new law will replace the six-decade-old Income Tax Act of 1961, with all changes announced in the current Budget being incorporated into the fresh legislation
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Finance Minister Nirmala Sitharaman on Sunday announced that the Income Tax Act, 2025 will come into force from April 1, marking a major overhaul of India’s direct tax framework. She said the accompanying rules and redesigned income tax return (ITR) forms will be notified shortly to give taxpayers adequate time to familiarise themselves with the new system.
Simplified rules and ITR forms to be notified soon
Speaking in the Lok Sabha during her Union Budget 2026 address, Sitharaman said the new law will replace the six-decade-old Income Tax Act of 1961, with all changes announced in the current Budget being incorporated into the fresh legislation. “This direct tax code was completed in record time, and the Income Tax Act, 2025 will take effect from April 1, 2026. The simplified rules and forms will be notified soon,” she said.
Revamped ITRs designed for easier taxpayer compliance
The Finance Minister emphasised that the revamped ITR forms have been redesigned with the ordinary taxpayer in mind, enabling easier compliance without procedural complexity. According to her, the reform is focused on clarity and simplicity rather than altering tax rates.
Revenue-neutral law cuts sections by nearly 50 per cent
She clarified that the new Income Tax Act is revenue-neutral, with no change in existing tax slabs or rates. Instead, it aims to simplify the law, remove ambiguities and significantly reduce litigation by making provisions easier to understand. Notably, the legislation cuts down the overall text and number of sections by nearly 50 per cent compared to the 1961 Act.
Single ‘tax year’ concept, late filers allowed TDS refunds
One of the key structural changes introduced under the new law is the simplification of the tax timeline. The long-standing distinction between the “previous year” and the “assessment year” has been removed and replaced with a single “tax year” concept, making compliance more straightforward for taxpayers.
In another taxpayer-friendly move, Sitharaman said the new framework will allow individuals to claim refunds of tax deducted at source (TDS) even if income tax returns are filed after the due date—without attracting any penal charges.
The Finance Minister said these reforms are intended to make India’s direct tax system more transparent, predictable and citizen-centric, while also improving ease of compliance and reducing disputes between taxpayers and the tax administration.
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