What Happened
- April 1, 2026 marks the commencement of the Income Tax Act, 2025, which replaces the Income Tax Act, 1961 — the most significant structural reform of India's direct tax law since independence.
- The new law is a streamlined code: 536 sections in 23 chapters (down from 819 sections in 47 chapters), drafted in plain English with formulas and tables, removing decades of legislative clutter.
- Higher allowances for salaried taxpayers: the standard deduction under the new regime has been enhanced; the personal exemption threshold under the default new tax regime is now ₹12 lakh for regular income and effectively ₹12.75 lakh with the standard deduction — meaning salaried individuals earning up to ₹12.75 lakh effectively pay zero tax.
- Share buyback taxation: the biggest investor-facing change — buyback proceeds are now taxed as capital gains in shareholders' hands (not as deemed dividend at the company level), shifting who pays and how much.
- The new Act explicitly codifies Virtual Digital Assets (cryptocurrencies and NFTs) under a dedicated Schedule VDA with a 30% flat rate and 1% TDS.
- "Assessment Year" is abolished; the new unified "Tax Year" concept applies from Tax Year 2026-27 onwards.
- Minimum Alternate Tax (MAT) is reduced from 15% to 14% and no new MAT credit can be accumulated post March 31, 2026.
Static Topic Bridges
Direct Tax Architecture — From 1961 to 2025
India's Income Tax Act, 1961 was drafted 16 years after independence and replaced a colonial-era law (Indian Income Tax Act, 1922). Over 64 years, it accumulated 300+ amendments through annual Finance Acts, thousands of CBDT circulars, and countless judicial rulings — resulting in 819 sections, 47 chapters, and hundreds of provisos and explanations that made it inaccessible to ordinary taxpayers. The 2025 Act was preceded by a Direct Tax Code (DTC) attempt in 2009 (Kelkar Committee), which lapsed, and again in 2019 (Akhilesh Ranjan Task Force report), which also stalled. The Income Tax (No.2) Bill, 2025 was the third attempt — it passed in August 2025 after a Standing Committee review.
- IT Act, 1961: replaced Indian Income Tax Act, 1922; drafted post-independence
- DTC 2009: Kelkar Committee proposal; DTC 2019: Akhilesh Ranjan Task Force — both lapsed
- IT Act, 2025: Parliamentary assent August 21, 2025; 536 sections, 23 chapters
- SIMPLE framework: Streamlined, Integrated, Minimized Litigation, Practical & Transparent, Learn & Adapt, Efficient
- Tax Year concept: eliminates the AY/FY duality; Tax Year 2026-27 = April 1, 2026 to March 31, 2027
Connection to this news: The move from 819 to 536 sections is not just cosmetic — it represents a genuine reduction in legal complexity. The "Tax Year" innovation alone eliminates the confusing practice where income earned in FY 2025-26 was assessed in AY 2026-27, causing consistent errors in ITR filing.
Standard Deduction and the New Tax Regime for Salaried Class
India operates two parallel income tax regimes for individuals: the old regime (with deductions for 80C, HRA, LTA, etc.) and the new regime (lower rates, no deductions, introduced in Budget 2020). The new regime became the default from AY 2024-25. Under the IT Act, 2025, the new regime remains the default, with enhanced tax-free thresholds. The standard deduction — introduced for salaried employees in Budget 2018 at ₹40,000, raised to ₹50,000 in 2019, and further to ₹75,000 in Budget 2024 — provides a flat deduction from salary income without requiring proof of expenditure.
- Standard deduction: ₹75,000 for salaried individuals (Budget 2024 enhancement, carried into new Act)
- New regime basic exemption: ₹3 lakh (no tax up to ₹3 lakh); full rebate under Section 87A up to ₹12 lakh
- Effective zero-tax threshold for salaried: ₹12.75 lakh (₹12 lakh + ₹75,000 standard deduction)
- Old regime retained as optional: deductions for 80C (₹1.5 lakh), 80D (health), HRA, etc. available
- Family pension standard deduction: ₹25,000 or 1/3 of pension (whichever lower)
Connection to this news: The ₹12.75 lakh effective zero-tax threshold is the biggest practical benefit for salaried middle-class taxpayers — it represents an expansion of the tax-exempt ceiling under the new regime that benefits the largest segment of formal-sector employees.
Capital Gains Tax Framework — Structural Changes for Investors
Capital gains tax in India applies on the transfer of "capital assets" (property, shares, mutual funds, gold, etc.). Assets are classified as Short-Term Capital Assets (held ≤12 months for listed equity; ≤24 months for property) or Long-Term Capital Assets. Key changes under the new Act and Budget 2025-26 (carried forward): LTCG on listed equity shares and equity mutual funds is taxed at 12.5% (above ₹1.25 lakh annual exemption) — raised from 10% in Budget 2024. STCG on listed equity is taxed at 20% (raised from 15% in Budget 2024). Indexation benefit for long-term capital gains on immovable property was removed in Budget 2024 (replaced with a flat 12.5% without indexation), though a partial restoration option was introduced later.
- LTCG on equity/equity MFs: 12.5% above ₹1.25 lakh annual exemption (effective FY25 onwards)
- STCG on equity: 20% (effective FY25 onwards)
- LTCG exemption: ₹1.25 lakh per year (raised from ₹1 lakh)
- Buyback proceeds (new regime): taxed as capital gains — LTCG at 12.5% (listed, held 12+ months) or STCG rates; corporate promoters 22%; non-corporate 30%
- Section 112A equivalent in new Act: governs LTCG on listed securities
Connection to this news: The buyback taxation overhaul is the most market-sensitive capital gains change — listed company promoters who used share buybacks to extract value from companies at 0% tax (under Section 115QA regime) will now face capital gains tax, reducing the attractiveness of buybacks as a promoter wealth-extraction tool.
Minimum Alternate Tax (MAT) — Phase-Down Begins
MAT was introduced in Section 115JB of the IT Act, 1961 to prevent "zero tax companies" — large corporations with substantial book profits that paid no income tax by using exemptions and deductions. MAT is computed at 15% of book profits (as per the company's audited P&L), and if this amount exceeds the regular tax, the company pays MAT. The excess MAT over regular tax becomes "MAT credit" that can be offset against regular tax in subsequent years (up to 15 years). The IT Act, 2025 reduces MAT to 14%, and crucially, bars the generation of new MAT credit from April 1, 2026 — signalling a policy intent to eventually phase out MAT altogether as India moves toward a cleaner concessional corporate tax rate of 22%.
- MAT rate: 15% → 14% of book profits (effective April 1, 2026)
- Existing MAT credit: continues to be usable within original 15-year carry-forward window
- New MAT credit: NOT allowed for years beginning April 1, 2026 onwards
- Companies under concessional 22% regime (Section 115BAA equivalent): exempt from MAT
- MAT applicability: only for companies NOT opting for the 22% concessional regime
Connection to this news: The MAT phase-down is a structural shift — India's corporate tax landscape is consolidating around the 22% concessional rate, and MAT (conceived as a backstop against avoidance under the older high-rate + exemptions system) is being made redundant as that older system recedes.
Key Facts & Data
- Income Tax Act, 2025: effective April 1, 2026; passed August 2025; Presidential assent August 21, 2025
- New code: 536 sections, 23 chapters (old: 819 sections, 47 chapters)
- Zero-tax threshold for salaried: ₹12.75 lakh (₹12 lakh + ₹75,000 standard deduction)
- Standard deduction: ₹75,000 (salaried); ₹25,000 or 1/3 of pension for pensioners
- Share buyback: company-level tax abolished; shareholder pays capital gains (22% corporate, 30% non-corporate)
- MAT: reduced from 15% → 14%; no new MAT credit from April 1, 2026
- VDA (crypto): 30% flat, 1% TDS above ₹10,000/year
- Tax Year 2026-27: first year under new unified "Tax Year" concept
- LTCG on equity: 12.5% above ₹1.25 lakh exemption; STCG: 20%