INTRODUCTION
The Income-tax Act, 1961[1] has regulated India’s direct taxation system for more than six decades and has undergone numerous amendments through successive Finance Acts to address changing economic conditions, technological developments and evolving tax policies. Although these amendments strengthened the legal framework, they also increased the legislative complexity, thereby contributing to compliance burdens and tax disputes.[2]
To address these concerns, the Central Government announced in the Union Budget, 2024-25 that the 1961 Act would undergo a comprehensive review.[3] Accordingly, the Central Board of Direct Taxes (CBDT) constituted an internal committee to oversee a comprehensive review of the 1961 Act and invite suggestions from stakeholders, experts and the public.[4] As a result, the Income-tax Bill, 2025 was introduced in the Lok Sabha on 13 February 2025[5] and following its enactment, the Income-tax Act, 2025 came into force on 1 April 2026.
The new simplified law replaced the existing law while retaining the underlying tax policy. It replaces the concepts of the Previous Year and the Assessment Year with Tax Year.[6] However, an important question remains as to whether the Act has genuinely simplified tax law or merely reorganised the existing provisions.
OBJECTIVES OF THE INCOME-TAX ACT, 2025
The new law seeks to simplify statutory language, reduce interpretational disputes, lower the compliance burden and remove obsolete provisions with the broader objective of creating a tax law that is simpler, more transparent and easier to navigate.[7] It aims to present the existing law in a more organised and reader-friendly manner while preserving the core principles relating to taxation of income, computation of income, assessment procedures and appeals. The Income Tax Department has clarified that the new Act does not introduce any new tax and does not significantly alter the existing tax policy.[8]
STRUCTURAL REFORMS UNDER THE INCOME-TAX ACT, 2025
One of the most significant features of the Income-tax Act, 2025[9] is the simplification of its structure to make it more understandable for taxpayers and professionals. First, the overall size of the legislation has been reduced from 819 sections to 536 sections by deleting redundant provisions, integrating explanations into the principal text and eliminating unnecessary repetitions.[10]
Secondly, a new concept of ‘Tax Year’ has been introduced. Under the earlier law, taxpayers often found it confusing to distinguish between the financial year in which income was earned and the assessment year in which tax was levied. Now, the term ‘Tax Year’ aligns the tax period directly with the financial year, thus reducing the confusion.[11]
The drafting style is also modernised. Long and complicated sentences have been replaced with shorter and more direct language. Passive expressions have been substituted with active voice and complex textual provisions have been presented through tables, formulae and schedules wherever appropriate, enabling readers to identify relevant provisions more efficiently.[12]
The new Act has removed approximately 1,200 provisos and 900 explanations and incorporated the exceptions into the main text or schedules. The provisions have been consolidated under common headings. These structural changes are intended to improve the readability and accessibility of the legislation.[13] In spite of the structural reforms, the 2025 Act largely preserves the substantive framework of the earlier legislation. The heads of income, residency rules, computation mechanisms, assessment procedures, appellate remedies and annual determination of tax rates through the Finance Act continue substantially unchanged.[14]
DOES THE INCOME-TAX ACT, 2025 SIMPLIFY TAX LAW?
The earlier 1961 Act was difficult to navigate because of continuous amendments, lengthy explanations, multiple provisos and scattered provisions. The new Act replaced it by using plain language, shorter sentences, simplified definitions and logical arrangement of provisions to improve readability for taxpayers, professionals and tax administrators.[15]
For example, the new Act consolidates the presumptive taxation schemes previously contained in sections 44AD, 44ADA and 44AE of the 1961 Act into section 58 in a tabular format.[16] This changes the way the provisions are arranged and presented without fundamentally changing the basic tax treatment. This illustrates the distinction between structural reform, which changes the organisation of the law, and substantive reform, which changes the underlying legal rules.
Under the previous law, taxpayers often struggled to distinguish between the year in which income was earned and the year in which it was assessed. The introduction of a single ‘Tax Year’ removes this confusion. The Income Tax Department has clarified that this change is intended to simplify terminology and does not alter the manner in which income is taxed.[17]
Similarly, the consolidation of several provisions into tabular formats and the removal of repetitive explanations are intended to make compliance easier. For instance, Tax Deducted at Source (TDS) provisions that were previously spread across numerous sections have been reorganised into consolidated provisions with tables specifying the applicable rates, thresholds and categories of taxpayers.[18]
Despite these improvements, the 2025 Act does not significantly modify India’s substantive tax policy. The fundamental concepts governing taxable income, residential status, heads of income, deductions, exemptions, assessments, appeals and recovery proceedings remain substantially similar to those under the 1961 Act. Likewise, tax rates continue to be determined annually through the Finance Act, meaning the new legislation does not introduce a new taxation framework.[19]
The official FAQs issued by the Income Tax Department also emphasize that the purpose of the Act is to simplify legislative drafting while ensuring continuity in tax administration. Existing mechanisms relating to Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), faceless assessments, appeals, refunds and other administrative procedures continue under the new Act with only corresponding changes in section numbers and terminology. Therefore, while the 2025 Act introduces significant structural simplifications the tax law, it cannot be regarded as a complete reform of India’s direct taxation system. Its primary contribution lies in making the law clearer rather than changing the substantive legal principles governing taxation.
CHALLENGES IN IMPLEMENTING THE INCOME-TAX ACT, 2025
Although the 2025 Act aims to improve clarity, its implementation is likely to present certain challenges. Since it replaces legislation that has been in force for over six decades, taxpayers, legal practitioners, accountants and tax officials will need time to become familiar with the new structure and section numbering.
One of the immediate challenges is the transition period from the 1961 Act to the 2025 Act since both statutes will operate simultaneously. Tax matters relating to financial years before 1 April 2026 will continue to be governed by the 1961 Act, whereas income earned from 1 April 2026 onwards will be governed by the new Act. Consequently, taxpayers and professionals initially need to refer to both laws depending on the relevant tax period.[20]
Another challenge is that many judicial precedents delivered under the previous Act will continue to remain relevant because the substantive provisions have been largely retained. The courts and practitioners will still need to interpret the new provisions in light of existing case law wherever the legislative intent remains unchanged.
Further, the success of the new Act depends upon its effective implementation. Government authorities will need to update compliance software, tax forms, departmental manuals and online guidance materials to reflect the revised provisions. Additionally, adequate awareness programmes and educational initiatives should be conducted so that taxpayers understand the new terminology and compliance requirements.
The earlier Act became highly complex due to the frequent insertion of provisos, explanations and cross-references through Finance Acts. If similar drafting practices continue, the new Act may gradually become as lengthy and complicated as its predecessor.
CONCLUSION
The Income-tax Act, 2025 is undoubtedly a major legislative reform aimed at making India’s direct tax law easier to read and administer. It seeks to make India’s direct tax legislation more accessible, organised and easier to understand. Instead of introducing a completely new taxation framework, the Act primarily focuses on improving the structure of the existing law. Through simplified language, logical arrangement of provisions, the introduction of the concept of ‘Tax Year’ and the removal of redundant provisions, the legislation seeks to reduce compliance difficulties and improve the overall taxpayer experience.
However, a closer analysis indicates that the reform is largely structural rather than substantive. The fundamental principles relating to the computation of income, tax liability, assessments, appeals and enforcement continue substantially unchanged. Consequently, the 2025 Act should be viewed as a legislative redrafting exercise that enhances clarity.
Overall, it is more accurate to describe the new Act as a structural redrafting rather than a substantive reform. The Act seeks to improve legislative drafting, organisation and accessibility while preserving the existing framework of tax law. Its long-term success will depend upon consistent implementation, taxpayer awareness, judicial interpretation and the Government’s commitment to preserving the simplicity that the new legislation seeks to achieve. If these objectives are fulfilled, the 2025 Act may reduce litigation and interpretational disputes, strengthen voluntary tax compliance and improve taxpayer confidence while contributing to a more efficient and transparent tax administration system. These, however, are expected benefits of the reform and cannot yet be confirmed as actual outcomes.
Author(s) Name: Roopali Ashiwal (Kanoria School of Law for Women, Jaipur)
References:
[1] Income-tax Act 1961.
[2] EY India, ‘Income Tax Bill 2025: March Towards Simplification’ (February 2025) <https://assets.ey.com/content/dam/ey-sites/ey-com/en_in/topics/tax/tax-alerts/2025/02/ey-decoding-the-new-income-tax-bill.pdf> accessed 18 July 2026.
[3] Ministry of Finance, Government of India, ‘Budget Speech 2024-25’ (23 July 2024) para 137 <https://www.indiabudget.gov.in/budget2024-25/doc/Budget_Speech.pdf> accessed 18 July 2026.
[4] Ministry of Finance, ‘CBDT forms internal committee to comprehensively review Income-tax Act and invites suggestions from stakeholders/experts/public on the Income Tax e-filing portal’ (Press Information Bureau, 7 October 2024) <https://www.pib.gov.in/PressReleaseIframePage.aspx?LID=1&PRID=2062861> accessed 18 July 2026.
[5]Lok Sabha, ‘Bulletin- Part II, No 1978’ (17 February 2025) <https://sansad.in/getFile/bull2mk/2025/17-02-25.pdf> accessed 18 July 2026.
[6] Income Tax Department, ‘Objective and Scope of the New Act’ (Income Tax Department) <https://www.incometax.gov.in/iec/foportal/help/all-topics/e-filing-services/objective-and-scope-new-act> accessed 18 July 2026
[7] Central Board of Direct Taxes, ‘Executive Summary on the Comprehensive Simplification of the Income-tax Act, 1961’ (Ministry of Finance, Government of India, 13 February 2025) <https://www.incometaxindia.gov.in/Lists/Press%20Releases/Attachments/1219/Executive-Summary-on-the-Comprehensive-Simplification-of-the-Income-tax-Act-1961-PressRelease-13-2-25.pdf> accessed 18 July 2026.
[8] Income Tax Department (n 6).
[9] Income Tax Department (n 6).
[10] EY India (n 2).
[11] Income Tax Department (n 6).
[12] EY India (n 2).
[13] CBDT (n 7).
[14] EY India (n 2); Income Tax Department (n 6).
[15] EY India (n 2).
[16] Income Tax Department (n 6).
[17] Income Tax Department (n 6).
[18] Central Board of Direct Taxes, FAQs on Interplay and Transition from the Income-tax Act, 1961 to the Income-tax Act, 2025 (2026) <https://www.incometaxindia.gov.in/documents/81799/11848482/Updated-FQAs-on-Interplay%26Transitions.pdf/e10ad2b6-9495-de90-58d3-20606d8954ae?t=1775128640970> accessed 18 July 2026.
[19] CBDT (n 16).
[20] CBDT (n 16).