Income Tax Act 1961 vs New Income Tax Act 2025: A Detailed Comparison
- Bhavika Rajput
- 2 days ago
- 6 min read
On August 22, 2025, the concept of the Income Tax Act, 2025 was formally introduced for the first time. Earlier, on August 11, Parliament approved the law to update the direct tax system. After receiving presidential approval on August 21, the Union Ministry of Law and Justice published the Act in the gazette, replacing the six-decade-old Income-tax Act of 1961. Unless otherwise noted, the new law will go into force on April 1, 2026, according to the announcement. Taxpayers must understand the difference between the two to know how the new Income Tax Act will impact them.
Table of Contents
Aim of the New Income Tax Bill in 2025
Since it went into operation, the current Income Tax Act of 1961 has experienced numerous modifications. Taxpayers and experts demanded a new law because of the numerous revisions, exclusions, rates, limits, provisos, and circulars that made it difficult to comprehend. This made it difficult for small firms, startups, and independent contractors to grasp procedures, file tax returns, and comply with tax laws. In order to simplify complicated rules, minimise disagreements and litigation, and maintain equity for all taxpayers, the New Income Tax Bill was introduced.
Structural Changes in the New Income Tax Act 2025
Compared to the previous Income Tax Act, the new one includes less material. There are now 536 sections instead of the previous 700 or so. Section 80C is not the same as Section 80D, for instance. The new legislation does not employ letters in the section numbers; instead, all clauses (or sections) are numbered consecutively. Consequently, it seems that the new act has more sections overall. In actuality, it hasn't. For easier comprehension, the presentation has been enhanced where needed, and the order has been preserved. (For instance, TDS regulations, the deadline for charitable institution applications, Chapter VIII deductions, etc.) Provisions that are redundant are eliminated. For instance, Section 11(1A) addresses capital gains income allocated to another capital asset for charitable institutions.
Particulars
| 1961 Act
| 2025 Act
|
Number of sections | More than 700 | 536 |
Number of Chapters | 23 | 23 |
Number of Schedules | 14 | 16 |
Content - in terms of pages | 823 | 622 |
Effective Date | Currently applicable | From 01st April, 2026 |
Tax Year Concept in New Income Tax
One of the major changes that professionals and the general public expected to see in the new act was the elimination of the concepts of the previous year and the assessment year. Concepts from the previous year and the assessment year are applied now.
The assessment year is when the income is assessed for taxes, while the preceding year is when the income is generated.
The assessment year starts the following year, which is where the previous year ends.
For income earned in the prior year, an income return must be completed during the assessment year.
The determination of the time period for which tax regulations apply became complicated and difficult as a result of these references. As a result, the new act presents the idea of a "Tax Year." The new act's Section 3 goes into further detail on this idea. Therefore, the dual reference has been reduced by referring to it as "Succeeding Tax Year" rather than "Assessment Year."
Due Dates in the New Income Tax Act
No modifications have been made to the new act's deadlines. Only the nomenclature has changed; under the current act, the deadlines are inside the evaluation year. They are currently in the next tax year. For example, under the existing act, people who are exempt from tax audits for FY 2024–2025 must submit their returns by July 31st of the corresponding assessment year, which is July 31, 2025. In contrast, the current law establishes the deadline as July 31 of the subsequent tax year, which is July 31, 2025.
Assessee
| Due Date
|
Any individual, HUF, or firm not subject to tax audit | 31st July |
Company | 31st October |
Any assessee subject to tax audit | 31st October |
Partner/partner’s spouse whose firm is subject to tax audit | 31st October |
Any assessee to whom transfer pricing is applicable | 30th November |
Inclusion of Digital Assets, Transactions, and Income
Digital assets and online revenue have grown as a result of the recent sharp increase in digital transactions. Therefore, in order to guarantee that digital income and assets are properly taken into account for taxes purposes, they have been included wherever needed. For example, virtual digital assets are included in the concept of unreported income, although the current act does not. Any asset with a digital representation of value that depends on cryptographically secured hardware or a comparable technology is now included in the definition of a virtual digital asset.
Section 115BC of the Income Tax Act 1961 vs Section 202 of the New Income Tax Act 2025
Section 115BAC considers the new tax regime for individuals and HUFs under the current act. The applicability of the new tax regime is discussed under Section 202 in the new Income Tax Act, and it covers Individuals, HUFs, Body of Individuals, Association of Persons, and Artificial Juridical Persons. The new Income Tax Act also makes it possible to opt out of the new tax structure. The default tax regime remains the new one. In general, deductions that are prohibited by section 115BAC of the current Income Tax Act are likewise prohibited by Section 202 of the new Income Tax Act. Nonetheless, the current Income Tax Act still permits the deductions allowed by section 115BAC.
TDS Provisions
Section 393 is the new TDS section that unifies all previous sections (Sections 192 to 194T) of the existing act. There has been no modification to the rates or threshold limitations. The new act maintains the rates and restrictions that were suggested in Budget 2025.
Income Tax Utility Tool
A useful tool was released by the Income Tax department to let users map and compare the relevant clauses of the Income Tax Act 2025 with the sections of the Income Tax Act 1961.
Areas that Will Remain Unchanged in the New Income Tax Act
The following are the aspects that won't change:
No changes to tax rates or slabs.
Both the previous and current tax systems will remain in place.
The deductions will be straightforward and unaltered.
Every income head will stay the same.
TDS and TCS will fall under the same heading.
Penalties and offences will not change.
The only thing altered for appeal and recuperation is the framework for improved comprehension.
Conclusion
Without altering the slabs, exemptions, or limits, the New Income Tax Bill, 2025, aims to simplify procedures and make the laws understandable. Each taxpayer, small business, or startup may concentrate more on saving money and making future plans rather than spending more time on litigation and dispute settlement. Changes are still possible because it hasn't been passed yet. Every taxpayer must understand the advantages of the proposed legislation. Our tax system will be simpler, less complicated, and driven by technology in the future.
Frequently Asked Questions
What are the benefits of the new Income Tax bill for taxpayers?
The New Income Tax bill was introduced with the primary goal of making it simpler and easier for taxpayers to grasp; despite its numerous sections, its rules are straightforward. You will gain the following advantages from it:
There will be less complexity
More organised with fewer exemptions and deductions
Simplifies the process of tax compliance
Minimise the number of legal interpretations
A more lenient and advantageous tax system for taxpayers
Cut down on disputes and litigation
What is a Tax Year?
The tax year is the financial year that runs from April 1 to March 31.
How does Tax Year replace Previous Year and Assessment Year?
Wherever AY is mentioned in the current Income Tax Act, it would be referred to as the subsequent Tax Year because Assessment Year is the year after the Previous Year.
Have there been any changes in the slab rates?
No, the new act incorporates the tax slab rates that were suggested in Budget 2025.
Has there been any change in the provisions related to an updated return?
In Budget 2025, the deadline for submitting an amended return was extended. There is also an addition of income tax due for the longer period. The revised Income Tax Act 2025 also incorporates the extended time limit and associated increased income tax as established in the Budget 2025.
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