The Income Tax Act 2025 replaces the Income Tax Act 1961 with effect from April 1, 2026. The new Act simplifies India’s tax law — reducing the number of sections from 819 to 536, introducing a higher basic exemption of ₹4 lakh, and providing zero tax for incomes up to ₹12 lakh via the Section 202 rebate. Here is everything you need to know.
What is the Income Tax Act 2025?
The Income Tax Act 2025 is a comprehensive rewrite of India’s direct tax law that replaces the Income Tax Act 1961. It was passed by Parliament and comes into effect from April 1, 2026 (Tax Year 2026-27). The new Act uses simpler language, removes redundant provisions, and reorganises sections for clarity — from 819 sections down to 536.
Key Changes Under Income Tax Act 2025
| Provision | Old Act (1961) | New Act (2025) |
|---|---|---|
| Basic exemption | ₹2.5 lakh | ₹4 lakh |
| Tax rebate section | Section 87A (₹12,500 up to ₹5L) | Section 202 (₹60,000 up to ₹12L) |
| Zero-tax income | Up to ₹5 lakh | Up to ₹12 lakh |
| Standard deduction (salary) | ₹50,000 | ₹75,000 |
| NPS employer deduction | Section 80CCD(2) – 10% of salary | Section 152 – 14% of salary |
| TDS provisions | Sections 192–196D (30+ sections) | Section 393 (single consolidated section) |
| Assessment Year | Assessment Year (AY) | Tax Year (TY) |
| Total sections | 819 sections | 536 sections |
New Tax Slabs Under Income Tax Act 2025 (FY 2026-27)
| Income Range | Tax Rate |
|---|---|
| Up to ₹4 lakh | NIL |
| ₹4 lakh – ₹8 lakh | 5% |
| ₹8 lakh – ₹12 lakh | 10% |
| ₹12 lakh – ₹16 lakh | 15% |
| ₹16 lakh – ₹20 lakh | 20% |
| ₹20 lakh – ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
Section 202 – The New Tax Rebate
Section 202 of the Income Tax Act 2025 replaces Section 87A. Under this section, a taxpayer with total income up to ₹12 lakh is entitled to a tax rebate equal to the amount of tax payable (maximum ₹60,000). This effectively makes income up to ₹12 lakh completely tax-free under the new regime. For salaried individuals, with the ₹75,000 standard deduction, the effective zero-tax income threshold is ₹12.75 lakh.
Old Regime vs New Regime – Which is Better?
The new tax regime is now the default regime from FY 2026-27. However, taxpayers can still opt for the old regime. The old regime is better if you have large deductions under 80C (₹1.5 lakh), 80D (health insurance), HRA, and home loan interest exceeding ₹3.5 lakh combined. For most salaried taxpayers with income below ₹15 lakh and limited deductions, the new regime offers lower tax.
Frequently Asked Questions on Income Tax Act 2025
Q: From when is the Income Tax Act 2025 applicable?
A: The Income Tax Act 2025 is applicable from April 1, 2026 — i.e., from Tax Year (formerly Assessment Year) 2026-27.
Q: Does the Income Tax Act 2025 replace the Income Tax Act 1961?
A: Yes, the new Act completely replaces the 1961 Act. All references to the old Act in tax filings are now replaced with the new Act’s section numbers.
Q: Are Section 80C deductions still available?
A: Section 80C is not available under the new regime. If you want to claim 80C deductions (PPF, ELSS, LIC etc.), you must opt for the old tax regime.