New Income Tax Act 2025: The new Income Tax Act 2025 will come into effect in the country from April 1, 2026. The most significant change will be the use of “tax year” instead of “assessment year” and “previous year.” The new system will replace the Income Tax Act, 1961. The most significant change will be the use of “tax year” instead of “assessment year” and “previous year.”
This will reduce confusion for the average taxpayer when filing their ITR, as the income-earning year and the tax-reporting year will be the same. This change is a major step towards simplifying the tax system. Let’s explore the nine changes that will impact taxpayers with the implementation of the new Income Tax Act, 2025:
What changes will happen in ITR filing?
In the new system, ITR will be filed for the tax year in which the income was earned. There are no changes to tax rates or slabs; only the terminology and process will be simplified. The new law will consider the ‘tax year’ as the same year in which income is earned and reported. This means that the tax will be filed and assessed in the same year in which the income is earned. This eliminates the need for two separate terms. The full impact of the New Income Tax Act 2025 will be visible from ITR filing in 2026-27 (tax year 2026-27). Now, the ‘tax year’ will be mentioned in the ITR form, notices, assessments, and other documents. This will make tax communication more clear and straightforward.
Change in ITR-3 and ITR-4 filing deadlines
The new Income Tax Act 2025 will also provide an extension in the due date for filing ITR-3 and ITR-4 for non-audit taxpayers. In the new tax system, the deadline for filing ITR for such taxpayers will be extended from July 31 to August 31. Now, ITR can be filed for cases with special provisions till November 30 of the tax year. Companies and those taxpayers whose accounts need to be audited will be able to file ITR till October 31. Non-audit taxpayers involved in business or profession will be able to file ITR till August 31. All other taxpayers will have to file ITR by July 31.
Revised returns can now be filed by March 31
According to the new Income Tax Act 2025, the deadline for filing corrections to Income Tax Returns (ITRs) has been extended. Currently, taxpayers can make changes to their returns within nine months of the end of the tax year, but under the new law, this deadline will be extended to 12 months. This means that revised returns can be filed by March 31st instead of December 31st. However, if a revised return is filed after nine months, a fee will be charged. If the total income is up to Rs 5 lakh, the fee will be Rs 1,000. If the income exceeds Rs 5 lakh, the fee will be Rs 5,000.
Less tax will be levied on sending money abroad
Remittances abroad for education and medical treatment will attract a lower Tax Collection at Source (TCS) starting April 1, 2026. The government has decided to reduce this rate from 5% to 2% in Budget 2026. The TCS rates on foreign tour packages have been reduced from 5% and 20% to 2%.
Starting April 1st, there will be no need to submit a separate application to opt out of tax deduction at source (TDS). According to the rules, if you don’t have an income tax liability, your TDS will not be deducted. Currently, this required submitting Form 15G (for those under 60) or Form 15H (for senior citizens).
In this year’s budget, the government increased the Securities Transaction Tax (STT) on futures trading from 0.02% to 0.05%. The STT on options has also been increased to 0.15%. Consequently, futures and options trading will become more expensive from April 1st.
The new law also provides a relief for employees. If an employer provides or reimburses an employee’s travel expenses from home to the office, it will not be considered a taxable profit. Previously, this exemption was only available if the company provided cab service to the employee, but now its scope has been expanded.
The new Income Tax Act 2026 will also change the taxation of proceeds from share buybacks. Until now, this was considered dividend income. The cost of the shares sold was considered a capital loss. However, under the new law, this will be taxed as capital gains income. This change could increase the tax impact on promoters.