Quick Answer
22 min read|Updated: Apr 1, 2026|Income-tax
Quick Answer
The Income Tax Act 2025 is India's new direct tax statute that replaces the six-decade-old Income-tax Act, 1961. It simplifies the tax code from 298 sections and 23 chapters into a leaner, more coherent framework.
8. Head 5 — Income from Other Sources
This is the residual head that captures all income not classifiable under the other four heads. The 2025 Act consolidates the provisions while retaining the scope of taxable items.
Key Items Taxable Under This Head
- Interest income (bank FDs, bonds, loans, NSC)
- Dividend income (from domestic and foreign companies)
- Gifts received — value exceeding ₹50,000 (cash, immovable property, movable property) is taxable, subject to exemptions for gifts from relatives, on marriage, by will/inheritance
- Rental income from machinery, plant, or furniture (not building)
- Winnings from lottery, crossword puzzles, horse races, and online games
- Income from letting out agricultural land for non-agricultural purposes
- Key money and non-compete fees (where not taxable under other heads)
Taxation of Gifts and Property Received Without Consideration
The 2025 Act retains the anti-abuse provision (erstwhile Section 56(2)(x)): where any person receives money or property exceeding ₹50,000 in aggregate without consideration (or for inadequate consideration), the difference is taxable as income from other sources. This applies to shares received below fair market value, immovable property received below stamp duty value, and other specified assets. Exemptions continue for gifts from relatives, on occasion of marriage, under will or inheritance, and from specified trusts.
Note for startups: The erstwhile “angel tax” provision under Section 56(2)(viib) of the 1961 Act was abolished with effect from AY 2025-26. The 2025 Act does not reintroduce any angel tax provision. However, share allotment at a premium still requires a proper valuation report for FEMA and Companies Act compliance. See our guide on angel tax abolition and residual issues.
9. Tax Rates, Slabs, Surcharge & Cess
For a detailed breakdown of every slab, surcharge band, and effective rate at each income level, see our Income Tax Slabs 2026-27 — New vs Old Regime guide.
The tax rate structure under the 2025 Act has two regimes — the new regime (default) and the old regime (opt-in). The new regime offers lower rates but fewer deductions. The old regime preserves all traditional deductions but at higher rates.
New Tax Regime — Individual/HUF (Default)
| Total Income (₹) | Tax Rate |
|---|---|
| Up to 4,00,000 | Nil |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Rebate under Section 87A equivalent: Individuals with total income up to ₹12,00,000 receive a rebate of ₹60,000, making income up to ₹12 lakh effectively tax-free under the new regime.
Old Tax Regime — Individual/HUF (Opt-In)
| Total Income (₹) | Tax Rate |
|---|---|
| Up to 2,50,000 | Nil |
| 2,50,001 – 5,00,000 | 5% |
| 5,00,001 – 10,00,000 | 20% |
| Above 10,00,000 | 30% |
Corporate Tax Rates
| Company Type | Tax Rate | Equivalent of 1961 Act Section |
|---|---|---|
| Domestic company (opted for concessional rate) | 22% + surcharge + cess | Section 115BAA |
| New manufacturing company (set up after 1 Oct 2019) | 15% + surcharge + cess | Section 115BAB |
| Domestic company (not opted for concessional rate) | 25% (turnover up to ₹400 crore) / 30% | Normal rates |
| Foreign company | 40% | Schedule I rates |
| Firms & LLPs | 30% | Schedule I rates |
Surcharge and Health & Education Cess
- Surcharge (individuals): 10% on income above ₹50 lakh; 15% above ₹1 crore; 25% above ₹2 crore; the highest surcharge rate on income other than capital gains is capped at 25% (reduced from the earlier 37%).
- Surcharge (companies): 7% on income above ₹1 crore; 12% above ₹10 crore. Companies opting for concessional rates: 10%.
- Health and Education Cess: 4% on tax plus surcharge — applicable universally.
10. Deductions, Exemptions & Rebates
For the complete section-by-section list of all deductions with limits and regime availability, see our Income Tax Deductions 2026-27 — Complete List.
The deduction framework is the most significant area where the new regime and old regime diverge. The 2025 Act makes the new regime the default, meaning taxpayers must actively opt into the old regime to claim traditional deductions.
Deductions Available Under the New Regime
- Standard deduction of ₹75,000 (salary/pension income)
- Employer contribution to NPS (equivalent of Section 80CCD(2)) — up to 14% of salary for Central Government employees, 10% for others
- Family pension deduction — ₹15,000 or one-third, whichever is lower
- Deduction for employment of new employees (equivalent of Section 80JJAA)
- Section 87A equivalent rebate — up to ₹60,000 for income up to ₹12 lakh
Deductions Available Only Under the Old Regime
| Section (1961 Act Reference) | Deduction | Maximum Amount |
|---|---|---|
| 80C | Life insurance, PPF, ELSS, tuition fees, home loan principal | ₹1,50,000 |
| 80CCD(1B) | Additional NPS contribution | ₹50,000 |
| 80D | Health insurance premium | ₹25,000 (₹50,000 for senior citizens) |
| 80E | Interest on education loan | No limit (8 years) |
| 80G | Donations to specified funds/charities | 50% or 100% of donation (subject to limits) |
| 80TTA / 80TTB | Interest on savings account / senior citizen deposits | ₹10,000 / ₹50,000 |
| 80-IAC | DPIIT-recognised startup tax holiday | 100% of profits for 3 consecutive years out of 10 |
| 24(b) | Home loan interest (self-occupied property) | ₹2,00,000 |
| HRA (Section 10(13A)) | House Rent Allowance exemption | Least of actual HRA, 50%/40% of salary, or rent minus 10% of salary |
11. TDS & TCS Provisions
For the full TDS rate chart with every section and threshold, see TDS Rate Chart 2026-27. For TCS provisions, see TCS Rates & Provisions 2026-27.
Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) form the backbone of India’s tax collection machinery. The 2025 Act rationalises the scattered TDS/TCS provisions of the 1961 Act into a cleaner framework with reduced rates and simplified thresholds.
Key TDS Rates Under the 2025 Act
| Section (1961 Ref) | Nature of Payment | Rate | Threshold |
|---|---|---|---|
| 192 | Salary | Slab rates | Basic exemption limit |
| 194A | Interest (other than securities) | 2% | ₹50,000 (senior) / ₹40,000 (others) |
| 194C | Contractor payments | 1% (individual/HUF) / 2% (others) | ₹30,000 single / ₹1,00,000 aggregate |
| 194H | Commission / brokerage | 2% | ₹15,000 |
| 194I | Rent | 2% (machinery) / 2% (land/building) | ₹2,40,000 p.a. |
| 194J | Professional / technical fees | 2% | ₹30,000 |
| 194IA | Transfer of immovable property | 1% | ₹50,00,000 |
| 194Q | Purchase of goods | 0.1% | ₹50,00,000 |
| 194S | Virtual digital assets (crypto) | 1% | ₹50,000 (specified) / ₹10,000 (others) |
Higher TDS for non-filers: Non-filers of income tax returns face TDS at the higher of: (a) twice the rate specified, (b) twice the rate in force, or (c) 5%.
12. Advance Tax & Self-Assessment Tax
Every person whose estimated tax liability for the year exceeds ₹10,000 (after TDS) is required to pay advance tax. The 2025 Act retains the quarterly instalment schedule.
Advance Tax Due Dates
| Instalment | Due Date | Cumulative % of Tax |
|---|---|---|
| First | 15 June | 15% |
| Second | 15 September | 45% |
| Third | 15 December | 75% |
| Fourth | 15 March | 100% |
Exception: Taxpayers under presumptive taxation (Section 44AD/44ADA equivalents) may pay their entire advance tax in a single instalment by 15 March.
Interest on shortfall: Simple interest at 1% per month applies for shortfall in advance tax (equivalent of Section 234B) and for deferment of individual instalments (equivalent of Section 234C).
13. Return Filing — Due Dates, Forms & Procedures
For step-by-step filing instructions and form selection, see ITR Filing 2026-27 Guide.
The return filing framework under the 2025 Act retains the familiar due dates but introduces simplified forms and enhanced electronic filing capabilities.
Return Filing Due Dates
| Category | Due Date |
|---|---|
| Individuals (not requiring audit) | 31 July of AY |
| Companies & audit cases | 31 October of AY |
| Transfer pricing cases | 30 November of AY |
| Belated return | 31 December of AY |
| Revised return | 31 December of AY (or before assessment is completed) |
| Updated return | Within 24 months from end of AY (additional tax: 25% if filed within 12 months, 50% if filed between 12-24 months) |
Late Filing Fee
- ₹5,000 if return is filed after the due date but before 31 December of the AY
- ₹1,000 if total income does not exceed ₹5,00,000
- Late filing also results in loss of ability to carry forward certain losses (business loss, capital loss) and interest under Section 234A equivalent at 1% per month
14. Assessment Types, Notices & Appeals
The 2025 Act modernises the assessment framework with faceless proceedings as the default, clearer time limits, and a streamlined appeal hierarchy.
Types of Assessment
- Self-assessment: Taxpayer computes tax, files return, and pays any balance due
- Faceless scrutiny assessment: Computer-selected cases processed by a centralised unit; no face-to-face interaction with the AO
- Best judgment assessment: Where the taxpayer has not filed a return despite notice
- Income escaping assessment: Where income has escaped assessment — time limit of 3 years from end of AY (extendable to 10 years for undisclosed income exceeding ₹50 lakh)
Appeal Hierarchy
- Commissioner of Income Tax (Appeals) — CIT(A) — first appellate authority (faceless)
- Income Tax Appellate Tribunal (ITAT) — second appellate authority (quasi-judicial)
- High Court — on substantial questions of law
- Supreme Court — final appellate authority
The 2025 Act encourages pre-litigation resolution through the Dispute Resolution Committee (for small taxpayers with disputed income up to ₹10 lakh) and references to the Board for Advance Rulings (replacing the erstwhile AAR).
15. Penalties, Interest & Prosecution
The penalty framework under the 2025 Act replaces the multiple, overlapping penalty sections of the 1961 Act with a rationalised, graduated structure.
Key Penalty Provisions
| Default | Penalty | 1961 Act Reference |
|---|---|---|
| Late filing of return | ₹5,000 (₹1,000 if income below ₹5 lakh) | Section 234F |
| Under-reporting of income | 50% of tax payable on under-reported income | Section 270A |
| Misreporting of income | 200% of tax payable | Section 270A |
| Failure to maintain books of account | ₹25,000 | Section 271A |
| Failure to get accounts audited | 0.5% of turnover or ₹1,50,000, whichever is less | Section 271B |
| Failure to deduct/collect TDS/TCS | Equal to the amount not deducted/collected | Section 271C/271CA |
Interest Provisions
- Late filing of return (Section 234A equivalent): 1% per month on tax due from due date to filing date
- Shortfall in advance tax (Section 234B equivalent): 1% per month on shortfall from April of AY to date of assessment
- Deferment of advance tax instalment (Section 234C equivalent): 1% per month for 3 months for each instalment shortfall
16. Special Provisions — Companies, LLPs, Startups & NRIs
Companies
For detailed startup provisions, see Income Tax for Startups 2026-27. For NRI taxation, see NRI Taxation India 2026-27.
Domestic companies opting for the concessional rate of 22% (or 15% for new manufacturing) forgo most deductions and exemptions (including MAT credit). The concessional rate is irrevocable once opted for. Companies not opting for concessional rates continue to pay MAT at 15% of book profits.
LLPs and Firms
Partnership firms and LLPs are taxed at a flat rate of 30% plus surcharge and cess. Partners’ remuneration and interest on capital are deductible for the firm, subject to limits. AMT (Alternate Minimum Tax) at 18.5% of adjusted total income applies where the regular tax liability is less than AMT.
Startups (DPIIT-Recognised)
- Tax holiday (Section 80-IAC equivalent): 100% deduction of profits for 3 consecutive years out of 10 years from incorporation. Extended sunset dates apply under the 2025 Act. Available only under the old regime.
- ESOP perquisite deferral: Tax on ESOP perquisite can be deferred for up to 5 years or until sale/exit, whichever is earlier.
- No angel tax: The erstwhile Section 56(2)(viib) provision has not been carried forward in the 2025 Act.
- Carry-forward of losses: Losses can be carried forward and set off even where there is a change in shareholding exceeding 51%, provided the startup continues to hold eligible DPIIT recognition.
Non-Residents (NRIs) and Foreign Companies
- Taxed only on Indian-sourced income and income received/deemed received in India
- DTAA provisions provide relief from double taxation — tax credit or exemption as per treaty
- Tax Residency Certificate (TRC) required to claim DTAA benefits
- Foreign companies taxed at 40% plus surcharge and cess
- NRIs can opt for the new or old tax regime
- The deemed residency provision (income from Indian sources exceeding ₹15 lakh) applies to Indian citizens not tax-resident in any other country
17. Transitional Provisions — Moving From 1961 to 2025
The transition from the 1961 Act to the 2025 Act is facilitated by a comprehensive set of transitional provisions designed to protect existing positions and avoid disruption.
Key Transitional Rules
| Item | Transitional Treatment |
|---|---|
| Depreciation | WDV as per 1961 Act books on the date of transition carries forward. No recomputation required. |
| Capital gains — pre-Act assets | Cost of acquisition and holding period determined under 1961 Act rules. For assets acquired before 23 July 2024, taxpayers may elect the more favourable computation method. |
| Brought-forward losses | Losses determined under the 1961 Act continue to be eligible for set-off and carry-forward under the 2025 Act for the remaining period. |
| Ongoing assessments & appeals | Assessment and appeal proceedings initiated under the 1961 Act continue under the 1961 Act procedure until completion. |
| Advance rulings | Applications pending before the AAR/BFAR are preserved and continue. |
| Unabsorbed depreciation | Carried forward indefinitely under the 2025 Act, same as under the 1961 Act. |
| MAT credit | Existing MAT credit balance carried forward for set-off against future tax liability for the remaining period (up to 15 years from the year of credit generation). |
18. 1961 Act vs. 2025 Act — Key Comparison Table
| Feature | Income-tax Act, 1961 | Income Tax Act 2025 |
|---|---|---|
| Number of sections | 298 (with numerous sub-sections and provisos) | Significantly fewer (consolidated) |
| Default regime | Old regime (new regime is opt-in) | New regime (old regime is opt-in) |
| Basic exemption (new regime) | ₹3,00,000 | ₹4,00,000 |
| Nil-tax threshold (new regime, with rebate) | ₹7,00,000 | ₹12,00,000 |
| Standard deduction (new regime) | ₹50,000 (raised to ₹75,000 from July 2024) | ₹75,000 |
| Indexation for LTCG | Available (20% with indexation) up to July 2024 | Removed (12.5% flat rate) |
| LTCG on equity (rate) | 10% → 12.5% (from July 2024) | 12.5% with ₹1.25 lakh exemption |
| STCG on equity (rate) | 15% → 20% (from July 2024) | 20% |
| Assessment | Faceless (introduced as amendment) | Faceless (built-in as default) |
| Angel tax | Present (Section 56(2)(viib)) — abolished from AY 2025-26 | Not carried forward |
| Penalty for under-reporting | 50% (Section 270A) | 50% (rationalised) |
| Penalty for misreporting | 200% (Section 270A) | 200% (retained) |
| Updated return period | Within 24 months (Section 139(8A)) | Within 24 months (retained) |
| Max surcharge (individuals) | 37% (reduced to 25% from AY 2024-25) | 25% |
19. Expert Insight
Expert View — CA V. Viswanathan, FCA, ACS, CFE, IBBI Registered Valuer
The Income Tax Act 2025 is not a revolutionary departure — it is an evolutionary consolidation. The Government has wisely retained the fundamental architecture (five heads of income, assessment-year concept, TDS machinery) while cleaning up decades of accumulated complexity. For most taxpayers, the practical impact is positive: lower effective tax rates under the new regime, simpler compliance, and fewer penalty traps.
Three areas require careful attention: (1) the permanent removal of indexation will disproportionately affect long-held real estate — taxpayers must plan capital gains transactions carefully, (2) the regime choice (new vs old) requires annual analysis — what works this year may not work next year if your deduction profile changes, and (3) transitional provisions must be studied before filing the first return under the 2025 Act to ensure that brought-forward losses, MAT credit, and depreciation are correctly migrated. At Virtual Auditor, we are advising all our clients to do a one-time “transition audit” before their first filing under the new Act.
20. Key Takeaways
- The Income Tax Act 2025 replaces the 1961 Act — a complete, enacted statute, not a draft.
- The new tax regime is the default: nil tax up to ₹12 lakh (₹12.75 lakh for salaried).
- Old regime is available only on opt-in; all traditional deductions (80C, 80D, HRA, etc.) continue under it.
- Indexation is permanently removed — flat 12.5% LTCG rate applies to all assets.
- TDS rates are rationalised across 15+ sections with reduced rates.
- Faceless assessment and appeals are the default, not the exception.
- Startups retain ESOP deferral, Section 80-IAC tax holiday, and no angel tax.
- Transitional provisions protect existing positions: losses, depreciation, MAT credit carry forward.
- Penalty structure is simplified: 50% for under-reporting, 200% for misreporting.
- The Act applies to all persons — individuals, companies, LLPs, firms, NRIs, foreign companies.
- CBDT notifications for chapter-wise appointed dates must be monitored — not all chapters may be effective simultaneously.
- A one-time “transition audit” is recommended before filing the first return under the new Act.
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Frequently Asked Questions
What is the Income Tax Act 2025?
The Income Tax Act 2025 is India’s new direct tax legislation that replaces the Income-tax Act, 1961. It simplifies the direct tax framework, reduces litigation, and modernises provisions that had accumulated over six decades of amendments. The Act consolidates and rationalises tax rates, deductions, and compliance requirements into a cleaner, more coherent statute.
When does the Income Tax Act 2025 come into effect?
The Income Tax Act 2025 received Presidential assent in March 2025. Its substantive provisions are expected to take effect from AY 2026-27 (FY 2025-26), subject to notified appointed dates for specific chapters. Taxpayers should monitor CBDT notifications for chapter-wise effective dates.
How is the 2025 Act different from the 1961 Act?
Key differences include: the new tax regime as the default, rationalised capital gains with no indexation, simplified TDS rates, faceless assessment as the norm, streamlined deduction framework, and a graduated penalty structure. The fundamental five-head structure is retained.
What are the income tax slabs under the 2025 Act?
Under the default new regime: Nil up to ₹4 lakh, 5% for ₹4-8 lakh, 10% for ₹8-12 lakh, 15% for ₹12-16 lakh, 20% for ₹16-20 lakh, 25% for ₹20-24 lakh, and 30% above ₹24 lakh. Old regime slabs remain at Nil/5%/20%/30% with thresholds of ₹2.5L/₹5L/₹10L.
Is income up to ₹12 lakh really tax-free?
Yes, under the new regime. The Section 87A equivalent rebate of ₹60,000 wipes out the entire tax liability for individuals with total income up to ₹12 lakh. For salaried individuals, the ₹75,000 standard deduction raises the effective nil-tax threshold to ₹12.75 lakh in gross salary terms.
Has indexation been removed permanently?
Yes. The 2025 Act permanently removes indexation benefit for all capital gains. LTCG is taxed at a flat 12.5% without indexation. A transitional provision allows taxpayers to elect the more favourable method (old 20% with indexation vs new 12.5% without) for assets acquired before 23 July 2024.
Should I choose the new regime or old regime?
If your total deductions under the old regime (80C, 80D, HRA, home loan interest, etc.) exceed approximately ₹3.75-4.25 lakh, the old regime may still be more beneficial. For taxpayers with fewer deductions, the new regime with its lower slab rates and ₹12 lakh nil-tax threshold is typically better. The breakeven point varies by income level. We recommend computing tax under both regimes before choosing.
What deductions are available under the new regime?
Very few: standard deduction of ₹75,000, employer NPS contribution, family pension deduction, and the Section 87A equivalent rebate. All Chapter VI-A deductions (80C, 80D, 80E, etc.), HRA exemption, and LTA exemption are NOT available under the new regime.
How does the 2025 Act affect startups?
Positively. Angel tax is not carried forward, ESOP perquisite deferral continues, Section 80-IAC tax holiday is retained with extended sunset dates, and loss carry-forward rules are relaxed for startups with shareholding changes. Startups still need valuation reports for share allotment under FEMA and Companies Act.
What happens to my existing tax-saving investments (PPF, ELSS, etc.)?
The investments themselves continue to earn returns normally. The Section 80C deduction for these investments is only available if you opt for the old regime. If you choose the new regime, you lose the deduction benefit but still enjoy lower slab rates. The choice should be made holistically.
Are there transitional provisions for brought-forward losses?
Yes. Losses determined under the 1961 Act continue to be eligible for set-off and carry-forward under the 2025 Act for the remaining carry-forward period. Business losses can still be carried forward for 8 years, capital losses for 8 years, and unabsorbed depreciation indefinitely.
What is the penalty for late filing under the 2025 Act?
₹5,000 if the return is filed after the due date (reduced to ₹1,000 if total income is below ₹5 lakh). Additionally, interest at 1% per month under the Section 234A equivalent applies on any outstanding tax from the due date to the date of filing. Late filing also prevents carry-forward of certain losses.
How are NRIs taxed under the 2025 Act?
NRIs are taxed only on Indian-sourced income and income received or deemed to be received in India. DTAA provisions continue to provide double taxation relief. NRIs can choose between the new and old tax regime. The deemed residency rule for Indian citizens with Indian income above ₹15 lakh (who are not tax-resident anywhere) is retained.
Does the 2025 Act affect cryptocurrency taxation?
Yes. The provisions for Virtual Digital Assets (VDAs) are carried forward: 30% flat tax on gains (no deduction except cost of acquisition), 1% TDS on transfers, no set-off of losses against other income, and no carry-forward of VDA losses. These provisions are embedded in the 2025 Act as permanent features.
Where can I read the full text of the Income Tax Act 2025?
The full text is available on the Income Tax Department website (incometaxindia.gov.in) and the Legislative Department’s website (legislative.gov.in). CBDT circulars and notifications are published on the Income Tax Department website. For professional analysis, consult your Chartered Accountant or contact Virtual Auditor.
How can Virtual Auditor help with the transition to the 2025 Act?
Virtual Auditor provides a one-time “transition audit” covering: regime selection analysis (new vs old), migration of brought-forward losses and MAT credit, capital gains computation method election for pre-July 2024 assets, depreciation WDV reconciliation, and updated compliance calendar. Income tax return filing from ₹2,999, tax planning from ₹9,999, and comprehensive advisory for corporates and startups. Contact us at +91 99622 60333 or visit virtualauditor.in/contact-us.
