Published: 1 April 2026Press Information Bureau / ClearTaxPolitics
Income Tax Act 2025 Comes Into Force from April 1, 2026
AQuick answer
Income Tax Act 2025 replaced India's 64-year-old Income Tax Act 1961 from April 1, 2026, with 536 sections, new 'Tax Year' concept, simplified regime as default, zero tax up to ₹12 lakh, and higher allowances.
India's landmark tax reform — the Income Tax Act, 2025 — officially came into force on April 1, 2026, replacing the 64-year-old Income Tax Act of 1961. The new legislation consists of 536 sections and 23+ chapters, and represents the most comprehensive overhaul of India's direct tax system since independence.
Background
The Income Tax Act, 1961 had become a maze of more than 50 years of patchwork amendments. The need for a simpler, modern law led to the drafting of the Income Tax Act, 2025, which was passed by Parliament and notified for implementation from April 1, 2026.
Key Structural Changes
- 'Tax Year' replaces AY/FY: The Act introduces a single 'Tax Year' (April–March) replacing the confusing dual Financial Year (FY) and Assessment Year (AY) system.
- New Tax Regime as Default: The simplified new tax regime becomes the default under Section 202; taxpayers must opt out to use the old regime.
- Form 16 replaced by Form 130: A new system-generated Form 130 replaces Form 16 for salaried individuals, improving accuracy.
Tax Slabs and Rebates
- Zero tax up to ₹12 lakh income via an enhanced rebate of ₹60,000 under Section 87A.
- For salaried individuals, effective tax-free limit rises to ₹12.75 lakh (with ₹75,000 standard deduction).
- No change in income tax slab rates for FY 2026-27.
Updated Allowances
- HRA Exemption Extended: Bengaluru, Pune, Hyderabad, and Ahmedabad now qualify for 50% HRA exemption (previously only Delhi/Mumbai).
- Children's education allowance raised from ₹100 to ₹3,000 per child per month.
- Meal allowance raised from ₹50 to ₹200 per meal (tax-free).
- Employer gift exemption raised from ₹5,000 to ₹15,000 annually.
Compliance Changes
- ITR-3 and ITR-4 due date extended to August 31 (from July 31).
- All TDS provisions consolidated under a single Section 393.
- TCS on foreign tours reduced to a flat 2%.
- Buyback of shares taxed as capital gains (not dividend tax) from April 2026.
- MOTOR accident compensation interest made fully tax-exempt.
Significance
This reform is India's biggest tax simplification since 1961. It reduces compliance burden, makes the new regime the default, and provides significant relief to the middle class through higher rebates and allowances.
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Linked questionMedium
Under which section of the Income Tax Act 2025 does the new tax regime become the default option for taxpayers?
Explanation · Correct answer CSection 202 of the Income-tax Act, 2025 provides the new tax regime for individuals, HUFs and specified other persons. The Income Tax Department's official guidance states that the new regime continues as the default tax regime, while taxpayers who want the old regime must specifically opt out.
Frequently asked questions
When did Income Tax Act 2025 come into force?
The **Income Tax Act, 2025** came into force on **April 1, 2026**, replacing the Income Tax Act of 1961. It contains **536 sections** across 23+ chapters and is the most comprehensive tax reform since independence.
What is the zero-tax income limit under Income Tax Act 2025?
Under Income Tax Act 2025, individuals earning up to **₹12 lakh annually pay zero tax** via a ₹60,000 rebate under **Section 87A**. For salaried individuals, the limit is **₹12.75 lakh** (including ₹75,000 standard deduction).
What is the Tax Year concept in Income Tax Act 2025?
Income Tax Act 2025 replaces the dual **Financial Year (FY) and Assessment Year (AY)** with a single **'Tax Year'** — a 12-month period from **April to March**. This eliminates confusion between income-earning year and assessment year.
Which cities get 50% HRA exemption under Income Tax Act 2025?
Under Income Tax Act 2025, **50% HRA exemption** (previously limited to Delhi/Mumbai) has been extended to **Bengaluru, Pune, Hyderabad, and Ahmedabad**. Delhi-NCR continues at 40%.
What is Form 130 in Income Tax Act 2025?
**Form 130** is a new system-generated document replacing the older **Form 16** for salaried individuals under Income Tax Act 2025. It standardises tax reporting and improves accuracy through automation.
