Income-tax Act, 2025 — Complete Guide to India’s New Direct Tax Code

Last Updated: 15 April 2026  |  Applicable From: Tax Year 2026-27 (1 April 2026 onwards)  |  Reference: Income-tax Act, 2025 (30 of 2025), as amended by Finance Act, 2026

The Income-tax Act, 2025 is India’s first wholesale rewrite of the direct tax code in six decades. It replaces the Income-tax Act, 1961, which governed Indian personal and corporate taxation from 1 April 1962 through tax year 2025-26. This guide is written for taxpayers, in-house tax teams, CA firm staff and finance professionals who need a single reliable reference that states what the new Act actually says, how it sits beside the repealed Act during the transition, and what practical steps must be taken before and after 1 April 2026. Every factual claim has been aligned with the authoritative PDF of the Act as amended by the Finance Act, 2026. Where a number or rule is widely reported but not yet section-pinned in the enacted text, the guide cites the Finance Act, 2026 rather than a speculative section number, so the article remains credible even as the Central Board of Direct Taxes issues rules and clarifications over the course of the first tax year.

Table of Contents

1. Enactment, assent date and commencement
2. Structural overview — 23 chapters, 536 sections, 16 schedules
3. The “tax year” — biggest terminology change
4. Basis of charge and five heads of income
5. Tax rates, slabs and rebate under the new regime
6. The old regime — still available on opt-out
7. Capital gains overhaul
8. Deductions and exemptions
9. TDS and TCS rationalisation
10. Return filing, due dates and updated returns
11. Assessment, reassessment and faceless procedure
12. Appeals and dispute resolution
13. Penalties and prosecution
14. Transitional provisions
15. Worked example — salaried taxpayer tax year 2026-27
16. Expert Insight
17. Key Takeaways
18. Frequently Asked Questions

Enactment, assent date and commencement

The Income-tax Act, 2025 is Central Act number 30 of 2025. It was passed by both Houses of Parliament and received the assent of the President of India on 21 August 2025. The Act was subsequently published in the Gazette of India, Extraordinary, Part II, Section 1. Commentaries sometimes claim the Act was assented to in March 2025 — this is incorrect. March 2025 is when the Bill was debated; the Act became law only on 21 August 2025.

Section 1(3) of the Act provides that it “shall come into force on the 1st day of April, 2026”. The commencement is single and unconditional. There is no provision for staggered, chapter-wise or subject-wise notification. Every chapter, section and schedule takes effect on the same date. The charging provisions, the procedural provisions and the penalty provisions therefore all switch over to the new Act on 1 April 2026.

This matters because several published commentaries say the government will “notify appointed dates chapter-wise”. That is a misreading. What the government will notify, as under any tax statute, is subordinate rules, forms and schemes under the general delegation powers in Chapter XXIII. The Act itself is already in force for tax year 2026-27.

The Act was amended by the Finance Act, 2026 before the first tax year even began, to align the rates, surcharges and thresholds with the 2025 Budget announcements. Practitioners should therefore cite the Act as “Income-tax Act, 2025 (30 of 2025), as amended by the Finance Act, 2026”.

Structural overview — 23 chapters, 536 sections, 16 schedules

The Act is contained in a 686-page enactment comprising 23 numbered chapters, 536 sections and 16 schedules. The 1961 Act it replaces had 298 sections. Articles that described the 2025 Act as “leaner with fewer sections” were incorrect. The increased section count is a function of splitting long, proviso-laden provisions into stand-alone sub-sections for readability. On a word count basis, the Act is roughly half the length of the consolidated 1961 Act with all finance-act amendments applied.

Chapter	Title	Subject
I	Preliminary	Short title, extent, commencement, definitions
II	Basis of Charge	Charging section, scope of total income, residence
III	Income not Forming Part of Total Income	Exempt incomes
IV	Computation of Total Income	The five heads
V	Clubbing	Income of other persons included
VI	Aggregation of Income	Unexplained cash credits, investments
VII	Set-Off and Carry-Forward of Losses	Head-wise and inter-head set-off
VIII	Deductions	Chapter VI-A equivalents
IX	Rebates and Reliefs	Sec 87A rebate and DTAA relief
X	Anti-avoidance	Transfer pricing, thin cap
XI	GAAR	General Anti-Avoidance Rule
XII	Mode of Payment	Cash transaction restrictions
XIII	Special Cases	Concessional regimes, NRs
XIV	Tax Administration	CBDT, assessing officers, jurisdiction
XV	Return of Income	Return filing and updated returns
XVI	Assessment	Faceless assessment, reassessment
XVII	Special Persons	Firms, LLPs, trusts, charities
XVIII	Appeals and ADR	CIT(A), ITAT, e-DRC
XIX	Collection and Recovery	TDS, TCS, advance tax
XX	Refunds	Refund procedure and interest
XXI	Penalties	Rationalised penalty grid
XXII	Offences and Prosecution	Criminal provisions
XXIII	Miscellaneous	Repeal, savings, General Clauses Act

Sixteen schedules follow the main body, covering instruments such as insurance rules, recovery procedures, rates for specific industries, and forms that in the 1961 Act were scattered across rules and notifications.

The “tax year” — biggest terminology change

The single most important structural change is the replacement of the “previous year / assessment year” dual concept with a single concept: tax year. Under the 1961 Act, income earned between 1 April 2024 and 31 March 2025 was “previous year 2024-25” and it was assessed in “assessment year 2025-26”. Under the 2025 Act, income earned between 1 April 2026 and 31 March 2027 is simply “tax year 2026-27” — the same label covers both the earning year and the assessment year. There is no year-of-assessment lag in nomenclature.

A tax year runs from 1 April to 31 March. The first tax year under the new Act is the tax year 2026-27, which begins on 1 April 2026 and ends on 31 March 2027. Income earned in the year 1 April 2025 to 31 March 2026 continues to be called “previous year 2025-26 / assessment year 2026-27” and remains governed by the 1961 Act — because the new Act was not yet in force during that year.

For transitional references, Chapter XXIII provides that where the 2025 Act refers to a tax year commencing on 1 April 2025 or an earlier tax year, such reference shall be construed as a reference to the corresponding previous year under the repealed 1961 Act. This matters for pulling forward depreciation WDV, brought-forward losses, MAT credit and long-term capital gains cost bases.

Basis of charge and five heads of income

Chapter II carries forward the charging architecture of the 1961 Act. Total income is determined with respect to a tax year, and tax is charged at the rates specified in the First Schedule or the relevant Finance Act for that year. Residence tests continue to be based on 182-day and 60/365-day rules, with the 120-day rule for high-income Indian citizens retained.

Chapter IV retains the five heads of income we are all used to: (i) Salaries; (ii) Income from House Property; (iii) Profits and Gains of Business or Profession; (iv) Capital Gains; and (v) Income from Other Sources. The character, scope and mutual exclusivity of these heads is unchanged. What has changed is that each head’s computation machinery has been redrafted in plain language with explanations written as numbered sub-sections rather than long provisos.

Tax rates, slabs and rebate under the new regime

Under the 2025 Act, the new personal tax regime is the default. It applies automatically to every individual, HUF, AOP, BOI and artificial juridical person unless the taxpayer validly opts out. The slabs, as introduced by the Union Budget 2025 and brought into the Act by the Finance Act, 2026, are:

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%

A rebate of up to ₹60,000 is available to resident individuals whose total income (under the new regime) does not exceed ₹12,00,000. The effect is that a resident individual with non-special-rate total income of exactly ₹12 lakh pays nil tax. For a salaried individual, the effective nil-tax threshold is ₹12.75 lakh after the ₹75,000 standard deduction. Marginal relief is built in so that a taxpayer whose income slightly exceeds ₹12 lakh does not pay a tax higher than the excess over ₹12 lakh.

Surcharge under the new regime is 10% for income above ₹50 lakh, 15% above ₹1 crore, and 25% above ₹2 crore. The 37% top slab surcharge that used to bite above ₹5 crore under the old regime has been abolished in the new regime. Health and Education Cess of 4% continues to apply on tax plus surcharge.

The old regime — still available on opt-out

The old regime remains available. A taxpayer with business or professional income who wants the old regime must file Form 10-IEA on or before the due date of return under Section 139(1) equivalent. Once opted out, a business taxpayer can return to the new regime only once. Salaried taxpayers without business income can toggle between regimes every year.

The old regime slabs remain at nil up to ₹2,50,000, 5% up to ₹5,00,000, 20% up to ₹10,00,000, and 30% above ₹10,00,000. The Sec 87A rebate in the old regime continues at ₹12,500 for total income up to ₹5,00,000. Senior citizens (60+) have a higher basic exemption of ₹3,00,000 and super-seniors (80+) have ₹5,00,000 — but only under the old regime.

Capital gains overhaul

Capital gains have been restructured more decisively than any other chapter. Long-term capital gains are taxed at a uniform 12.5% without indexation across every asset class — listed equity, unlisted shares, real estate, gold, debt mutual funds and art. Short-term capital gains on listed equity and equity-oriented mutual funds are taxed at 20%, up from 15% earlier.

Holding periods are rationalised to two tiers: 12 months for listed securities (including listed bonds and equity-oriented MFs) and 24 months for every other asset. The ₹1,00,000 exempt LTCG threshold on listed equity and equity MFs is increased to ₹1,25,000.

Indexation is gone as a general feature. The one exception is a transitional election for resident individuals and HUFs on land or buildings acquired before 23 July 2024: the taxpayer may choose between 20% with indexation (old regime mechanics) and 12.5% without indexation (new regime mechanics), whichever is lower. The intention is to protect taxpayers who purchased property under an expectation of indexation benefit.

Deductions and exemptions

Under the new (default) regime, most Chapter VI-A-equivalent deductions are not available. The only deductions permitted are:

• Standard deduction of ₹75,000 for salaried and pensioners
• Employer’s contribution to NPS (Sec 80CCD(2) equivalent) up to 14% of salary for both Government and private employees
• Family pension deduction of ₹25,000 (up from ₹15,000)
• Contribution to the Agniveer Corpus Fund (Sec 80CCH equivalent)

Under the old regime, the familiar deductions continue: Sec 80C-equivalent (₹1,50,000), Sec 80CCD(1B)-equivalent NPS (₹50,000), Sec 80D-equivalent health insurance (₹25,000 / ₹50,000), Sec 80E education loan interest, Sec 80G donations, Sec 80TTA/80TTB interest, and HRA, LTA and Sec 24(b) home loan interest (₹2,00,000).

TDS and TCS rationalisation

Chapter XIX carries forward the TDS architecture with several rate cuts that substantially reduce cash-flow friction for small businesses and professionals.

Old Sec reference	Nature of payment	Rate under 2025 Act
192	Salary	Slab rates
193	Interest on securities	10%
194	Dividend (threshold ₹10,000)	10%
194A	Interest (non-bank)	2% (bank 10%)
194C	Contractor	1% (indiv/HUF) / 2% (others)
194H	Commission / brokerage	2% (cut from 5%)
194I	Rent — plant / machinery	2%
194I	Rent — land / building	10%
194IB	Rent by individual (non-audit)	2% (cut from 5%)
194J	Professional / technical fees	2% technical / 10% professional
194Q	Purchase of goods > ₹50 lakh	0.1%
194R	Benefit / perquisite in business	10%
194S	VDA transfer	1%
194T (new)	Firm / LLP payments to partners	10%

The non-filer / non-PAN higher TDS equivalent of old Sec 206AA and 206AB is carried forward, at the higher of twice the prescribed rate or 5%. For TCS, the Sec 206C equivalents on foreign remittances and overseas tour packages have been rationalised.

Return filing, due dates and updated returns

Due dates for returns for tax year 2026-27 are:

• Non-audit individuals and HUFs — 31 July 2027
• Audit cases, including companies — 31 October 2027
• Transfer pricing (Form 3CEB) cases — 30 November 2027
• Belated and revised returns — 31 December 2027

The most significant change for post-filing correction is the extension of the updated return window from 24 months to 48 months from the end of the relevant tax year. Additional tax payable on the updated return scales with time: 25% of (tax + interest) within 12 months, 50% between 12 and 24 months, 60% between 24 and 36 months, and 70% between 36 and 48 months. An updated return cannot claim or increase a refund and cannot carry forward a loss.

Assessment, reassessment and faceless procedure

Chapter XVI makes faceless assessment the default, not a layered scheme. Regular assessment must be completed within 12 months from the end of the tax year in which the return is filed. Reassessment of escaped income is permitted up to 3 years generally, extended to 10 years where the escaped income (supported by evidence in the possession of the Assessing Officer) is above ₹50 lakh. Search assessments, survey assessments and best-judgement assessments are retained with streamlined timelines.

Appeals and dispute resolution

First appeal lies to the Commissioner (Appeals) or Joint Commissioner (Appeals) for smaller matters. Second appeal lies to the Income-tax Appellate Tribunal. Substantial questions of law go to the High Court, and further to the Supreme Court. The e-Dispute Resolution Committee (e-DRC) for small taxpayers is retained. The Board for Advance Rulings (which had replaced AAR in the 1961 Act regime) continues under the 2025 Act.

Penalties and prosecution

Under-reporting attracts 50% of the tax on under-reported income; misreporting attracts 200%. Late filing fee is ₹5,000 (₹1,000 if income below ₹5 lakh). Failure to maintain books is ₹25,000 and failure to audit is 0.5% of turnover capped at ₹1,50,000. Cash loan / deposit / repayment above ₹20,000 attracts a penalty equal to the loan amount. Prosecution for willful evasion, false verification and failure to deposit TDS continues under Chapter XXII.

Transitional provisions

Chapter XXIII contains the repeal and savings clause. Critical transitional rules are:

1. Pending proceedings under the 1961 Act (assessments, reassessments, appeals, revisions, searches, prosecutions) continue under the 1961 Act procedure.
2. Brought-forward losses determined under the 1961 Act are eligible for set-off and carry-forward under the 2025 Act for the remaining unexpired period.
3. Depreciation WDV as per 1961 Act block of assets carries forward as opening WDV.
4. Capital gains on pre-1-April-2026 assets: cost of acquisition and holding period determined under 1961 Act rules.
5. Searches and requisitions initiated before 1 April 2026 continue under the 1961 Act.
6. Tax credit (TDS, TCS, advance tax) from the pre-commencement period is allowed under the 2025 Act.
7. Section 6 of the General Clauses Act, 1897 continues to apply for the effects of repeal.

Worked example — salaried taxpayer, tax year 2026-27

Cross-links to related articles

• Income-tax Act, 2025 vs 1961 — Complete Transition Guide
• New Section Numbers — 1961 Act to 2025 Act Mapping
• Transitional Provisions — Losses, Depreciation and MAT Credit
• New Tax Regime Slabs and Rebate
• Capital Gains Tax under the 2025 Act
• TDS Rate Chart under the 2025 Act

Expert Insight

Key Takeaways

• Assent date: 21 August 2025. Commencement: 1 April 2026 (single, unconditional).
• The Act applies to tax year 2026-27 onwards. Tax year 2025-26 and earlier remain under the 1961 Act.
• 23 chapters, 536 sections, 16 schedules — linguistically simpler, not numerically shorter.
• “Tax year” replaces the PY/AY framework. One year label covers earning and assessment.
• New regime is the statutory default; old regime available only on opt-out (Form 10-IEA for business income).
• Nil tax up to ₹12 lakh (₹12.75 lakh salaried) after ₹60,000 rebate and ₹75,000 standard deduction.
• LTCG flat 12.5% without indexation across asset classes; STCG on listed equity 20%.
• Updated return window extended to 48 months; graduated additional tax up to 70%.
• TDS cuts on commission / brokerage, non-bank interest and individual rent to 2%.
• Pending 1961 Act proceedings continue under the old Act; losses, WDV and tax credits migrate forward.

Frequently Asked Questions

Need help with the transition? Speak to CA V. Viswanathan and the Virtual Auditor team. Contact us or call +91 99622 60333.