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Major Overhaul of India’s Tax Law: Income Tax Act, 2025, Gets President’s Assent
The Income Tax Act, 2025, has officially been notified, marking a historic reform in India’s direct tax regime. Replacing the nearly six-decade-old Income Tax Act, 1961, the new law received the President’s assent on Thursday, August 21, 2025. It is set to take effect from April 1, 2026, and promises a simpler, more transparent, and compliance-friendly system.
What’s New?
This landmark legislation streamlines the tax code by cutting the number of Sections from 819 to 536 and chapters from 47 to 23. It also significantly reduces the word count, making the law much easier to understand. For the first time, the Act introduces 39 new tables and 40 new formulas to replace dense legal text, bringing greater clarity to tax calculations and rules.
Here are some of the key changes:
- No More Lost Refunds: A major relief for taxpayers, the new Act removes the provision that denied refunds if a return was filed after the due date. Now, you can still claim your refund even if your ITR is filed late.
- Digital-First Process: The law aims to create a more automated, faceless, and digital tax system to enhance convenience and minimize corruption.
- Support for Corporate Dividends: The Section 80M deduction for inter-corporate dividends is being restored for companies availing the special tax rate under Section 115BAA.
- Clarified Donations: Anonymous donations to purely religious trusts will be exempt from tax. However, this exemption will not apply to trusts that are also involved in social services like running hospitals or schools.
- Nil TDS Certificates: Taxpayers will now be able to obtain Nil TDS certificates, allowing for no tax to be deducted at source under certain conditions.
It’s important to note that the Income Tax Department has clarified that the new Act does not change the existing capital gains tax rates. The primary goal is to simplify and modernize the law, not to alter tax rates.
The passage of this new Act is a significant step toward a more efficient and user-friendly tax system for all Indians.