India’s taxation landscape is set for a major transformation as the Income Tax Act, 2025, received the formal assent of President Droupadi Murmu. The law, which will come into effect from April 1, 2026, marks a significant step in the government’s attempt to modernise and simplify India’s direct taxation system.

The passage of this Act signals the culmination of extensive discussions on creating a more transparent, predictable, and compliance-friendly tax regime. With the assent from the President, the Act now becomes law and will be notified for implementation in the next financial year.

A new era in India’s taxation system

The Income Tax Act, 2025, replaces several outdated provisions in the current law, aiming to bring more clarity for both individual taxpayers and corporates. The Act is expected to simplify tax structures, streamline exemptions, and reduce litigation by eliminating ambiguous provisions.

According to government officials, the law is part of a long-term vision to create a taxpayer-friendly regime that also supports India’s economic growth and formalisation of the economy. It aligns with the government’s roadmap to boost investments, encourage compliance, and reduce the overall tax burden by expanding the tax base.

Key highlights expected in the Act

While the full set of rules, schedules, and notifications will be issued in the coming months, experts anticipate several important features:

• Simplified tax slabs: The Act may restructure the personal income tax slabs, possibly merging multiple layers to make filing easier for individuals.

• Reduced exemptions: To prevent misuse and complexity, the government is expected to limit certain exemptions and deductions.

• Corporate taxation clarity: Provisions for startups, MSMEs, and large corporates are likely to be revised for greater ease of doing business.

• Digital compliance: A stronger focus on technology-driven tax administration, including AI-based scrutiny, pre-filled returns, and simplified filing.

• Dispute resolution mechanisms: New frameworks to resolve tax disputes quickly and reduce the burden on courts.

Impact on taxpayers and businesses

For individual taxpayers, the law is expected to bring a clearer slab system, possibly with fewer deductions but lower rates, ensuring greater simplicity in compliance. For businesses, especially MSMEs and startups, the new law may provide relief through rationalised corporate tax provisions.

However, tax professionals caution that any removal of exemptions could initially increase the tax burden for some categories of taxpayers. Hence, detailed rules and clarifications will be critical in determining the real impact.

Transition period and preparations

Since the Act will take effect only from April 1, 2026, both individuals and businesses have time to prepare for the transition. During this period, the government is expected to issue draft rules, conduct consultations with stakeholders, and launch awareness campaigns to help taxpayers adapt.

Financial planners and experts recommend that taxpayers stay updated on forthcoming notifications and guidelines, as changes in slabs, deductions, and exemptions will directly impact income planning and investments.

Political and economic significance

The Income Tax Act, 2025, is being seen as one of the most important tax reforms in recent years, potentially comparable to the rollout of Goods and Services Tax (GST) in 2017. The government believes that a modernised direct tax law is essential for India’s ambition to become a $10 trillion economy and a Viksit Bharat by 2047.

Politically, the law underscores the government’s commitment to simplifying citizen compliance and reducing harassment from tax authorities. By leveraging technology-driven processes, the aim is to create an environment of trust between taxpayers and the government.

Challenges ahead

While the announcement has been welcomed, challenges remain in implementation. Tax practitioners note that ensuring smooth transition, preventing interpretation disputes, and aligning the Act with international tax treaties will require careful planning. Additionally, training for tax officers, upgrading IT infrastructure, and clear communication with taxpayers will be crucial.

The road ahead

As India moves towards April 2026, the focus will be on how the government defines the final tax slabs, exemptions, and compliance norms. For taxpayers, this period will be about financial planning and recalibrating investments. For businesses, aligning accounting systems and compliance frameworks with the new law will be the priority.

The Income Tax Act, 2025, represents a bold step towards creating a simpler, fairer, and more transparent taxation system. By modernising direct taxes, India hopes to reduce litigation, encourage compliance, and position itself as an investment-friendly destination.

The Upcoming IPOs in this week and coming weeks are Abril Paper Tech, Sneha Organics, Sugs Lloyd, Anlon Healthcare, NIS Management, Sattva Engineering Construction, Globtier Infotech, Current Infraprojects, Vikran Engineering.

The Current active IPO are Shivashrit Foods, Anondita Medicare, Classic Electrodes (India), ARC Insulation & Insulators, Mangal Electrical Industries, .

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.