India’s New Income Tax Act of 2025: A Landmark Overhaul

India’s New Income Tax Act of 2025: A Landmark Overhaul

Simplified Structure & Clarity

• The Income-tax Act, 2025 replaces the decades-old 1961 Act, cutting down the number of sections from 819 to 536, and organizing content into 23 chapters for improved clarity. 

• One of the biggest changes is the replacement of the dual “Previous Year/Assessment Year” structure with a unified “Tax Year”, making timelines more intuitive for individuals.

Modern Governance & Digital Transformation

• The act introduces digital-first procedures such as faceless assessments, mandatory prior notices before enforcement, and faster refunds for delayed taxpayers.

• It also clarifies standard deductions—for example, a 30% standard deduction on house property income—and restores specific deductions like inter-corporate dividends (Section 80M) and commuted pension income allowance. 

• To enhance transparency, the Act restricts anonymous donations to certain religious entities and broadens the definition of income to include virtual digital assets.

Digital-First, Faceless Administration

• Enhanced digital tax infrastructure includes faceless assessments, mandatory prior notice before enforcement actions, and improved refund procedures, especially for late filers.

Modernized Provisions for Property, Pensions & Dividends

• Clear deductions under “House Property” income (e.g., 30% standard deduction) aid rental-income clarity. 

• Explicit deductions for commuted lump-sum pensions and reinstated deductions like Section 80M (inter-corporate dividend).

Taxpayer-Friendly Refund Compliance

• Penalties for missing return deadlines have been relaxed; refunds remain possible even for belated filings.

Tighter Governance & Restrictions

• Anonymous donations to religious trusts without social services are now regulated. 

• Penalty provisions, such as sub-clause 1(ix) in Section 263, have been removed—upholding the “zero penalty” privilege for small taxpayers, though filing may still be needed for refunds.

Refer to Link Taxation on Sale of Shares

Budget 2025 Highlights: Tax Relief & Incentives for the Middle Class

Zero Tax up to ₹12 Lakh (or ₹12.75 Lakh for Salaried Individuals)

• Under the new tax regime, individuals with incomes up to ₹12 lakh face zero tax liability—thanks to a boosted rebate under Section 87A. 

• With the standard deduction raised to ₹75,000, salaried individuals effectively enjoy zero tax up to ₹12.75 lakh.

TDS & TCS Reforms

• The TDS exemption limit on senior citizens’ interest income has doubled from ₹50,000 to ₹1 lakh.

• TDS on rent collections is now applicable only above ₹6 lakh per annum.

Extended Return Filing Period

• The window to file revised or updated returns has been expanded from 2 to 4 years, offering greater flexibility.

Updated Tax Slabs – New Tax Regime (Effective FY 2025–26 / AY 2026–27)

Key Implication: Thanks to the enhanced rebate and standard deduction, individuals earning up to ₹12.75 lakh effectively pay no tax—even though the first taxable bracket technically begins post ₹4 lakh.

What Does This Mean for Taxpayers?

• Middle-Income Benefit: A much larger segment—particularly salaried professionals—now enjoys tax relief and simplified structure, with zero tax up to ₹12.75 lakh.

• Simplified Compliance: With fewer legal sections and a digital tax framework, navigating filings has become more streamlined.

• Fairer Process: Faceless assessments and enhanced transparency reduce arbitrary enforcement and enhance taxpayer confidence.

• Targeted Relief: Reforms like TDS threshold hikes, extended return periods, and clarified deductions directly benefit key taxpayer segments.