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2 Feb 2026·Source: The Hindu
3 min
EconomyNEWS

New Income Tax Act of 2025 to Take Effect April

The Income Tax Act of 2025 will be effective from April.

New Income Tax Act of 2025 to Take Effect April

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The Income Tax Act of 2025 will come into effect from April 1, 2026, with forms and rules to be notified shortly. The forms have been redesigned to be user-friendly. The Finance Minister had proposed to overhaul the six-decade-old Income Tax Act of 1961 in her Budget presentation last year. The objective was to make the direct tax law concise, lucid, easy to read and understand.

Key Facts

1.

New I-T Act effective: April 1, 2026

2.

Replaces: Income Tax Act of 1961

UPSC Exam Angles

1.

GS Paper III (Economy): Government Budgeting, Taxation

2.

Connects to syllabus topics like Fiscal Policy, Tax Reforms

3.

Potential question types: Statement-based, Analytical

More Information

Background

The Income Tax Act of 1961, which the new act aims to replace, was enacted to consolidate and amend the law relating to income tax in India. It defines various terms like 'income', 'assessment year', and lays down the framework for computing taxable income. The Act was a significant step in streamlining the direct tax system after independence. Over the decades, the Income Tax Act of 1961 has been amended numerous times through various Finance Acts passed annually by the Parliament. These amendments have addressed evolving economic conditions, changing government policies, and emerging issues in tax administration. Landmark amendments have included the introduction of new sections, changes in tax rates, and modifications to the rules for deductions and exemptions. The power to amend the act lies with the Parliament, reflecting the principle of legislative supremacy in financial matters. The legal and constitutional framework for income tax in India is derived from Article 265 of the Constitution, which states that no tax shall be levied or collected except by authority of law. The Income Tax Act, 1961, provides the detailed legal basis for the levy, assessment, collection, and recovery of income tax. The Central Board of Direct Taxes (CBDT) is the apex body responsible for the administration and implementation of the Income Tax Act.

Latest Developments

The government has been focusing on simplifying the tax system in recent years. Initiatives like faceless assessment and appeals aim to reduce human interaction and increase transparency. The introduction of the Goods and Services Tax (GST) in 2017 was another major step towards tax reform, though it is an indirect tax. There are ongoing debates about the optimal tax rates and the scope of exemptions. Some experts argue for lower tax rates and fewer exemptions to broaden the tax base and improve compliance. Others advocate for targeted tax incentives to promote investment and economic growth. Institutions like NITI Aayog play a role in advising the government on tax policy. The future of income tax in India is likely to involve greater use of technology and data analytics to improve tax administration and compliance. The government aims to reduce tax evasion and increase revenue collection through measures like enhanced scrutiny and stricter enforcement. The new Income Tax Act of 2025 is expected to play a key role in shaping the future of direct taxation in India. The government's target is to create a tax system that is fair, efficient, and conducive to economic growth. The success of this new act will depend on its effective implementation and its ability to address the challenges of a rapidly changing economy.

Frequently Asked Questions

1. When will the new Income Tax Act of 2025 come into effect?

The Income Tax Act of 2025 will be effective from April 1, 2026.

Exam Tip

Remember the effective date: April 1, 2026. This is a direct factual question possible in prelims.

2. What is the main objective of the new Income Tax Act of 2025?

The objective is to make the direct tax law concise, lucid, easy to read and understand.

3. What are the key changes introduced in the new Income Tax Act of 2025 compared to the Income Tax Act of 1961?

As per the topic, the new act aims to be concise, lucid, easy to read and understand. The specific changes will be known when the forms and rules are notified.

4. Why is the Income Tax Act of 2025 in the news recently?

The Income Tax Act of 2025 is in the news because it will come into effect from April 1, 2026.

5. Who proposed the overhaul of the Income Tax Act of 1961?

The Finance Minister, Nirmala Sitharaman, proposed to overhaul the Income Tax Act of 1961 in her Budget presentation last year.

Exam Tip

Remember the name of the Finance Minister. Questions about key personalities are common.

6. How does the new Income Tax Act of 2025 impact common citizens?

Based on available information, the new act aims to be more user-friendly. The redesigned forms are intended to make tax filing easier for common citizens.

7. What are the recent developments related to the Income Tax Act?

Recent developments include the focus on simplifying the tax system, initiatives like faceless assessment and appeals, and the upcoming implementation of the Income Tax Act of 2025.

8. What was the purpose of the Income Tax Act of 1961?

The Income Tax Act of 1961 was enacted to consolidate and amend the law relating to income tax in India. It defined terms like 'income' and 'assessment year' and laid down the framework for computing taxable income.

9. What are some initiatives the government has taken to simplify the tax system?

The government has been focusing on simplifying the tax system through initiatives like faceless assessment and appeals. The introduction of the Goods and Services Tax (GST) in 2017 was another major step.

10. What are the key facts to remember about the new Income Tax Act of 2025 for the Prelims exam?

The key facts are that the new I-T Act will be effective from April 1, 2026, and it replaces the Income Tax Act of 1961. The aim is to make the tax law concise and easy to understand.

Practice Questions (MCQs)

1. The new Income Tax Act of 2025, as per the news, aims to replace which of the following?

  • A.The Wealth Tax Act of 1957
  • B.The Expenditure Tax Act of 1987
  • C.The Income Tax Act of 1961
  • D.The Goods and Services Tax Act of 2017
Show Answer

Answer: C

The news explicitly states that the Finance Minister proposed to overhaul the six-decade-old Income Tax Act of 1961. Therefore, the new Income Tax Act of 2025 aims to replace the Income Tax Act of 1961. The other options are incorrect as they refer to different tax laws.

2. Consider the following statements regarding the objectives of the new Income Tax Act of 2025: 1. To make the direct tax law concise and lucid. 2. To make the direct tax law difficult to read and understand. 3. To make the direct tax law easy to read and understand. Which of the statements given above is/are correct?

  • A.1 and 2 only
  • B.2 and 3 only
  • C.1 and 3 only
  • D.1, 2 and 3
Show Answer

Answer: C

The news summary states that the objective of the new Income Tax Act is to make the direct tax law concise, lucid, easy to read and understand. Therefore, statements 1 and 3 are correct, while statement 2 is incorrect as it contradicts the stated objective.

3. Which of the following statements is NOT correct regarding Article 265 of the Indian Constitution?

  • A.It states that no tax shall be levied or collected except by authority of law.
  • B.It forms the constitutional basis for taxation in India.
  • C.It allows the government to levy taxes without parliamentary approval in emergency situations.
  • D.It ensures that taxation is carried out according to the rule of law.
Show Answer

Answer: C

Article 265 of the Indian Constitution explicitly states that no tax shall be levied or collected except by authority of law. This means that all taxation must be based on laws passed by the legislature (Parliament or State Legislatures). Therefore, option C is incorrect as it suggests that the government can levy taxes without parliamentary approval, which is against the principle of rule of law and constitutional provisions.

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