Source: Times of India

By Sneha Chakraborty

Executive Summary

India’s income tax framework has undergone significant modernization through two major developments: first, the introduction of revised tax rates and relief for middle-income earners; second, the replacement of the Income Tax Act, 1961 with the new Income Tax Act, 2025. Core changes include a higher basic exemption (Rs. 4 lakh), enhanced tax rebates, and a raised threshold for the top tax rate bracket. The new law, effective April 1, 2026, improves clarity, structure, and digital adaptation, all while maintaining overall tax policy stability. These reforms aim to balance taxpayer-friendly simplification with ongoing government revenue requirements and economic growth expectations.

Context and Rationale

For over six decades, India’s Income Tax Act, 1961 shaped taxation policy, but continual amendments rendered it complex, lengthy, and hard to interpret. Legal jargon and outdated provisions made compliance difficult for citizens, boosting dependence on professionals and increasing administrative burdens. Recognizing these concerns, and inspired by global tax best practices, the government embarked on a twofold overhaul—simplifying direct taxes for both taxpayers and administrators, and modernizing the legal text for 21st-century realities.

Key Features of the Income Tax Act, 2025

1. Enhanced Exemptions and Rebates

1. The basic exemption limit was raised to Rs. 4 lakh, with a rebate up to Rs. 60,000 for incomes up to Rs. 12 lakh, creating zero effective tax liability for a large section of middle-income taxpayers.
2. The 30% slab now begins at Rs. 24 lakh (previously Rs. 15 lakh), providing further relief to professionals and salaried classes.

2. Structural Reorganization

1. Reduction in number of sections (over 700 in the old law to 536 in the new), with consolidation and logical sequencing (e.g., all TDS sections together). This will bring about transparency for people and also help them access the various legalities around the tax easily.
2. The “previous year” is now officially called “tax year” for clarity and alignment with global practice.

3. Language and Accessibility

1. Plain language and shorter sentences replace legalistic and archaic terminology. One of the better signs of policymaking has been
2. Complex sentences split into separate clauses, making the law easier to understand and apply for people without legal backgrounds.

4. Retention of Policy Continuity

1. Tax rates, thresholds, and most substantive rules remain unchanged, to ensure stability and continuity for taxpayers.
2. Definitions, offence provisions, and penalty structures are substantively retained. The law incorporates all amendments from Finance Bill 2025.

5. Digital Integration

1. Explicit recognition of faceless and digital assessments, appeals, and compliance checks.
2. Provides a robust framework for digital filings and automation, including adaptation for electronic records and notices.

6. Sector-Specific Innovations

1. Dedicated chapter introduced for taxation of non-profit organizations (NPOs).
2. Presumptive taxation schemes expanded, making compliance easier for small businesses and professionals, with simplified reporting norms and higher applicability thresholds.

7. Mapping and Transition Tools

1. A digital utility allows easy mapping between the old 1961 Act and the new 2025 Act, helping taxpayers and professionals transition smoothly.

Comparative Analysis: Income Tax Act 1961 vs. 2025

Key Issues and Criticisms

1. Dual-Regime Complexity

1. 1. Both the old and new regimes remain for taxpayers to choose between, requiring separate yearly assessment and increasing complexity.

2. Missed Opportunity for Deep Reform

1. 1. Tax base remains narrow; wealth taxation, agricultural income, and corporate tax disparities remain unaddressed.

3. Transition Burdens

1. 1. Taxpayers and preparers must familiarize themselves with new section numbers, formats, and transitional inconsistencies during the initial implementation year.

4. Substantive Continuity

1. 1. Many archaic and structural features persist; the reforms are viewed as “modernization” rather than fundamental rethinking.

5. Public Awareness and Education

1. 1. Significant awareness campaigns and taxpayer education will be needed to realize the act’s full benefits.

Policy Recommendations

1. Emphasize Taxpayer Education and Guidance:

1. There needs to be proper investment in information campaigns through schools, colleges, social media, and civic outreach.

2. Monitor Transition Closely:

1. The government should provide support for tax professionals and filers through digital mapping tools and helplines. Even as they have made attempts to

3. Strengthen Digital Inclusion:

1. The government has to ensure robust digital support for rural and digitally excluded sections of the population. The Bill does attempt to bridge the digital divide, but more efforts have to be made to build the digital gap between the rural and urban areas.

The Income Tax Act, 2025 represents a pragmatic step toward a modern, accessible, and transparent fiscal framework. While simplification and digital adaptation offer palpable benefits, deeper challenges such as dual-regime complexity and tax base narrowing persist. Thorough implementation, education, and ongoing reform will be essential to realizing the full gains of this legislative overhaul. For students and citizens alike, these reforms underscore the ongoing evolution of India’s tax landscape as the nation moves toward developed-economy standards.

References

https://www.pib.gov.in/PressNoteDetails.aspx?NoteId=155137&ModuleId=3
https://www.newsonair.gov.in/lok-sabha-passes-taxation-laws-amendment-bill-income-tax-no-2-bills-by-voice-vote/
https://www.thehindu.com/news/national/parliamentary-proceedings-lok-sabha-passes-two-tax-bills-introduced-by-nirmala-sitharaman/article69919442.ece

Bio:

Sneha Chakraborty is a student, who is currently pursuing her Masters in Social Work from Tata Institute of Social Sciences. Her research interests lie in gender, climate change and livelihood.