I-T Bill 2025 gets Presidential assent, new Act to be effective from April 1, 2026

In August 2025, the President Droupadi Murmu has given approval to the Income-Tax Act (I-T Act), 2025 and the same was notified by the Ministry of Law and Justice (MoLJ) through a gazette notification.

Background:

Drafting & Reintroduction: The new Income-Tax Bill was drafted in a record 6 months, involving nearly 75,000 person-hours, and first introduced during the Budget Session in February 2025.

• After the Government of India(GoI) withdrew the original Bill on August 8, 2025, it was reintroduced with 566 recommendations of the Select Committee.

Approval: The Lok Sabha passed the Bill on August 11, 2025, and the Rajya Sabha returned it the next day without any amendments.

About Income-Tax Act (I-T Act), 2025:

Implementation : The new law will come into effect from April 01, 2026.

• The new law will replace the decades old I–T Act, 1961, with a modern and simpler version to enhance ease of compliance.

Key Features: The new act does not impose any new tax rate and removes redundant provisions.

Structure: The number of sections reduced from 819 in I-T Act, 1961 to 536 and the number of chapters from 47 to 23.

Modern Tools: The total word count has been brought down from 5.12 lakh to 2.6 lakh.

• For the first time, the Act introduces 39 new tables and 40 new formulas for clarity and ease of reference.

Major Change: A major change in the I-T Act, 2025 is the renaming of the Assessment Year (AY) and Financial Year (FY) to ‘Tax Year’, to avoid confusions.

Key Provisions:

• Retains existing tax slabs (no rate changes), but structures them more logically.
• Introduces a Rs.12 lakh annual Basic Exemption Limit (BEL) with refined slab arrangements for middle-income taxpayers.
• Implements Faceless, Digital-First Assessments (FDFA) to minimize human interface.
• Provides clarifications on House Property (HP) deductions, Standard Deduction (SD), Pre-Construction Interest (PCI), Commuted Pension (CP), Tax Deducted at Source (TDS) certificates, taxation of Anonymous Donations (AD), and rules on Vacant Commercial Property (VCP).

About Income Tax in India:

Origin: Income tax was first introduced in India in 1860 by Sir James Wilson.

• A new Income Tax Act was passed in April 1918, introducing several changes. The 1922 Act became a milestone, shaping the modern tax structure. After numerous amendments, the Income Tax Act, 1961 was enacted in consultation with the Ministry of Law(MoL), providing a uniform framework for income taxation in India.

Constitutional Basis: Income tax in India is governed by Entry 82 of the Union List under the Seventh Schedule of the Constitution of India.

• This empowers the GoI to levy and collect taxes on non-agricultural income.

Administering Authority: The Central Board of Direct Taxes (CBDT), under the Department of Revenue(DoR), Ministry of Finance(MoF), is the administrative authority.

• It is responsible for policy formulation, administration, and enforcement of income tax laws.