What Happened
- The Income Tax Act 2025 comes into force on April 1, 2026, replacing the Income Tax Act, 1961, which had undergone over 4,000 amendments across six decades
- The new Act consolidates the legislation into 536 sections across 23 chapters and 16 schedules — down from 819+ sections in the 1961 Act, reducing total legislative volume by roughly 40%
- Tax slabs and rates remain unchanged; the law is a structural overhaul, not a rate revision
- All sections are renumbered: for example, Section 80C (deductions up to ₹1.5 lakh) becomes Section 123; TDS provisions (earlier Sections 192–194T) are consolidated into 3 sections
- The new Income Tax Rules, 2026 also come into force on the same date, completing the transition
Static Topic Bridges
Income Tax Act 2025 vs Income Tax Act 1961 — Structural Overhaul
The Income Tax Act, 1961 was the principal statute governing direct taxation in India. By 2025, it had accumulated over 4,000 amendments, approximately 1,200 provisos, and 900 explanations, making it one of the most complex pieces of legislation in Indian law. The Income Tax Act, 2025 was enacted to simplify this structure — not to alter tax rates, but to reorganise and rationalise the language, eliminate redundancies, and reduce compliance burden.
- Old Act: 819+ sections, enacted in 1961; governed all periods up to March 31, 2026
- New Act: 536 sections, 23 chapters, 16 schedules; effective April 1, 2026
- "Tax Year" concept: The new Act replaces the confusing distinction between "Previous Year" and "Assessment Year" with a single unified "Tax Year" running April 1 to March 31
- TDS consolidation: Over 60 separate TDS sections (192–194T) in the 1961 Act are collapsed into 3 sections in the 2025 Act
- Charitable trust provisions: Previously scattered across Sections 11, 12A, and 80G; now consolidated into a single chapter
- Section renumbering examples: Section 80C → Section 123; Section 10 (exemptions) → reorganised into new structure; Section 44AD (presumptive taxation) → new section numbers
Connection to this news: The April 2026 deadline makes this a live transition event. Taxpayers and tax professionals must learn the new section numbering while being assured that no deduction limits or rates have changed — only the legislative architecture has been reorganised.
New Tax Regime as Default — Section 115BAC and Its Evolution
The new (concessional) tax regime was introduced via Section 115BAC of the Income Tax Act, 1961 (now re-designated under the 2025 Act) as an optional regime by the Finance Act, 2020. The Finance Act, 2023 made it the default regime for individuals and HUFs from AY 2024-25 onwards.
- Default regime: New tax regime applies automatically unless taxpayer explicitly opts for the old regime
- New tax regime slabs (unchanged for AY 2026-27):
- Up to ₹3 lakh: Nil
- ₹3–7 lakh: 5%
- ₹7–10 lakh: 10%
- ₹10–12 lakh: 15%
- ₹12–15 lakh: 20%
- Above ₹15 lakh: 30%
- Tax-free threshold (effective): Income up to ₹12 lakh attracts zero tax liability due to rebate under Section 87A (new regime)
- Standard deduction: ₹75,000 for salaried individuals under the new regime
- Deductions NOT available under new regime: Section 80C (investments), HRA, LTA
- Deductions still available under new regime: Employer's NPS contribution (80CCD), family pension deduction (lower of ₹25,000 or 1/3rd of pension), interest on let-out property (Section 24b)
Connection to this news: The 2025 Act codifies the new regime as the structural default, making this a significant shift in how Indian taxation is framed — simplicity and lower rates over the comprehensive exemption architecture of the old regime.
CBDT and Legislative Power — Finance Acts and Delegated Legislation
The Central Board of Direct Taxes (CBDT), constituted under the Central Board of Revenue Act, 1963, exercises supervisory powers over income tax administration. Tax law changes in India occur through two channels: substantive changes via Finance Acts (passed as part of the Union Budget), and delegated rule-making via Income Tax Rules framed by CBDT under Section 295 of the old Act (now its equivalent in the 2025 Act).
- Union Budget → Finance Act: The primary mechanism for changing tax rates, slabs, and deduction limits. The 2025 Act itself was passed as separate legislation, not a Finance Act.
- Income Tax Rules, 2026: The accompanying rules notified under the 2025 Act replace the Income Tax Rules, 1962
- Retrospective effect: The 1961 Act governs all assessments for periods up to March 31, 2026; no retrospective application of 2025 Act
- Parallel reading tool: CBDT has launched a utility allowing taxpayers to map old section numbers to new ones
Connection to this news: Understanding the distinction between the substantive law (Income Tax Act) and the subordinate legislation (Income Tax Rules) is essential for UPSC — the Finance Act amends the Act, while CBDT's rules operationalise it.
Key Facts & Data
- Income Tax Act 2025: 536 sections, 23 chapters, 16 schedules (vs 819+ sections in 1961 Act)
- Effective date: April 1, 2026 (along with Income Tax Rules, 2026)
- ~1,200 provisos and ~900 explanations removed from the old legislation
- Tax-free effective income (new regime): Up to ₹12 lakh (via rebate under Section 87A)
- Standard deduction for salaried employees (new regime): ₹75,000
- Old Section 80C → New Section 123; deduction limit (₹1.5 lakh) unchanged
- TDS provisions: Consolidated from 60+ sections to 3 sections
- "Previous Year" + "Assessment Year" → replaced by single "Tax Year" concept
- Finance Act 2023 made the new regime the default from AY 2024-25