Income Tax Act 2025 — Key Changes Every Taxpayer Must Know
The Income Tax Act 2025 replaces the Income Tax Act 1961 — India's most significant tax law reform in six decades. This guide decodes the key changes in slab rates, zero-tax threshold, capital gains, TDS rationalisation, presumptive taxation, and compliance simplification that affect every Indian taxpayer from AY 2026-27.
📅 May 2, 2026✍ CA Chandan Shahi⏱ 14 min read
The Income Tax Act 2025 — passed by Parliament in February 2025 and effective from 1 April 2026 (AY 2026-27) — is India's most comprehensive tax law overhaul since 1961. While retaining the structural framework, it simplifies language, consolidates provisions, rationalises tax rates, and overhauls TDS compliance. Here is what every taxpayer, business, and NRI needs to know.
The Income Tax Act 2025 is largely a consolidation and simplification exercise — it rewrites the 1961 Act in plain language, removes redundant provisions, and modernises the structure. Key changes include:
Area
Old Act (1961)
New Act (2025)
Zero tax threshold
₹5 lakh (with 87A rebate)
₹12 lakh (enhanced 87A rebate)
Default tax regime
Old regime (with deductions)
New regime (default, lower rates)
Standard deduction (salaried)
₹50,000
₹75,000
LTCG on equity
10% above ₹1 lakh
12.5% above ₹1.25 lakh
STCG on equity
15%
20%
LTCG on property
20% with indexation
12.5% without indexation
TDS on FD interest (non-senior)
₹40,000 threshold
₹50,000 threshold per bank
Presumptive limit (44AD business)
₹3 crore (cash <5%)
₹3 crore (retained)
Presumptive limit (44ADA profession)
₹75 lakh
₹75 lakh (retained)
Section numbering
1961 numbering
Renumbered — consult CA for cross-references
Key Section Renumbering — IT Act 2025 vs IT Act 1961
The Income Tax Act 2025 renumbers every section. Substance is largely retained; only references change. Key mappings: Section 87A → 156 | Section 80C → 123 | Section 80CCD → 124 | Section 54 → 82 | Section 54EC → 85 | Section 54F → 86 | Section 44AD → 58 | Section 72 → 112 | Section 90 (DTAA) → 159 | All TDS 194-series → Section 393. Any references to old section numbers in contracts, notices, or court orders must be mapped accordingly.
New Income Tax Slabs — Zero Tax up to ₹12 Lakh
The most significant taxpayer-friendly change under Finance Act 2025 (Budget 2025): individuals with income up to ₹12 lakh effectively pay zero income tax under the new regime. This is achieved through a completely restructured slab system and an enhanced rebate of ₹60,000 under Section 156 of IT Act 2025 (erstwhile Section 87A of IT Act 1961) — up from ₹25,000 under the previous year's new regime.
Income Slab
New Regime Rate (AY 2026-27)
Tax Amount
Up to ₹4,00,000
Nil
₹0
₹4,00,001 – ₹8,00,000
5%
₹20,000
₹8,00,001 – ₹12,00,000
10%
₹40,000
₹12,00,001 – ₹16,00,000
15%
₹60,000
₹16,00,001 – ₹20,00,000
20%
₹80,000
₹20,00,001 – ₹24,00,000
25%
₹1,00,000
Above ₹24,00,000
30%
30% on balance
Tax at ₹12 lakh income (computed): Nil (up to ₹4L) + ₹20,000 (₹4L–₹8L @ 5%) + ₹40,000 (₹8L–₹12L @ 10%) = ₹60,000 — fully offset by the Section 156 rebate [IT Act 2025] (erstwhile Section 87A) of ₹60,000. Net tax payable = ₹0.
For salaried employees: After standard deduction of ₹75,000, income up to ₹12.75 lakh results in zero tax liability.
87A Rebate on Special Rate Income
The rebate under Section 156 of IT Act 2025 (erstwhile Section 87A) of ₹60,000 does not apply to special rate incomes like STCG on equity (20%), LTCG on equity (12.5%), and lottery winnings. Even if total income is below ₹12 lakh, the tax on special rate income must be paid separately and cannot be offset against the rebate. This is a crucial planning point for equity investors and traders.
Impact on Salaried Employees — What Changed
Standard deduction increased: ₹75,000 (new regime) vs ₹50,000 (old regime). New regime is now default.
Zero tax effectively up to ₹12.75 lakh for salaried — making the new regime highly attractive for most employees
Section 123 deductions [IT Act 2025] (erstwhile Section 80C): Still NOT available under the new regime. If 80C investments + HRA + home loan interest exceed ₹3 lakh, old regime may still be beneficial.
Leave encashment exemption: Limit enhanced to ₹25 lakh (from ₹3 lakh). Applicable to non-government employees at retirement.
NPS employer contribution: Deduction under Section 124 of IT Act 2025 (erstwhile Section 80CCD(2)) increased to 14% of salary (from 10%) for both private and government employees.
Perquisites: Tax treatment of perquisites rationalised. Employer-provided accommodation and car perquisites have revised valuation rules.
Capital Gains Tax — Major Restructuring
Capital gains taxation has been significantly restructured — effective from 23 July 2024 (Budget 2024) and codified in the Income Tax Act 2025. Under IT Act 2025, capital gains provisions are contained in Sections 196–203 (erstwhile Sections 45–55A of IT Act 1961), with reinvestment exemptions under Sections 82–88 (erstwhile Sections 54–54GB):
Equity and Equity Mutual Funds
LTCG rate: Raised from 10% to 12.5%. Holding period: >12 months. Exemption limit raised to ₹1.25 lakh per year (from ₹1 lakh).
STCG rate: Raised from 15% to 20%. Holding period: ≤12 months.
Indexation on equity: Never applied — no change here.
Immovable Property (Land & Buildings)
LTCG rate:12.5% without indexation (previously 20% with indexation). Holding period: >24 months.
Indexation removed: The Cost Inflation Index (CII) benefit is no longer available on property sold after 23 July 2024. For property purchased before 2001, fair market value as of 1 April 2001 is allowed as cost.
Option for pre-July 2024 property: For property acquired before 23 July 2024, taxpayers can choose between: (a) 12.5% without indexation OR (b) 20% with indexation — whichever gives a lower tax liability.
Exemptions retained under IT Act 2025: Section 82 (erstwhile Section 54 — reinvest in residential property), Section 85 (erstwhile Section 54EC — NHAI/REC bonds up to ₹50 lakh), Section 86 (erstwhile Section 54F — invest net consideration in residential property)
Debt Mutual Funds and Bonds
Debt MF (purchased after 1 April 2023): Taxed at slab rate — no LTCG/STCG distinction. This was introduced in March 2023 and continues under the new Act.
Listed bonds: LTCG at 12.5% (holding >12 months); STCG at slab rate.
Unlisted bonds/debentures: LTCG at 12.5% without indexation (holding >24 months).
Capital Gains Planning — Act Now
The removal of indexation on property LTCG significantly increases tax liability for long-held properties. If you are planning to sell property, calculate both options (12.5% vs 20% with indexation for pre-July 2024 property) with our CA team. The reinvestment exemptions under Sections 82, 85 & 86 of IT Act 2025 (erstwhile Sections 54, 54EC, 54F) remain fully available.
TDS Rationalisation — Key Changes
The Income Tax Act 2025 rationalises TDS thresholds and rates to reduce compliance burden:
Section (IT Act 1961 ref.)
Nature of Payment
Old Threshold (IT Act 1961)
New Threshold (IT Act 2025)
Rate
194A
Interest from bank / post office
₹40,000
₹50,000
10%
194A (senior citizen)
Interest from bank
₹50,000
₹1,00,000
10%
194D
Insurance commission
₹15,000
₹20,000
5%
194G
Commission on lottery tickets
₹15,000
₹20,000
5%
194H
Commission / brokerage
₹15,000
₹20,000
5%
194-I
Rent
₹2,40,000/yr
₹6,00,000/yr
2%/10%
194J
Professional fees
₹30,000
₹50,000
10%/2%
194LA
Compulsory acquisition compensation
₹2,50,000
₹5,00,000
10%
IT Act 2025 — TDS Consolidated Under Section 393
All the above TDS provisions (the entire erstwhile 194-series of IT Act 1961) are now consolidated under Section 393 of the Income Tax Act 2025. Salary TDS (erstwhile Section 192) falls under Section 392. Individual payments are identified by a numeric payment code system (Codes 1001–1092) within Section 393, replacing individual section citations in challans and TDS returns from AY 2026-27 onwards.
Significant Relief
The increase in rent TDS threshold from ₹2.4 lakh to ₹6 lakh per year (i.e., ₹50,000/month) is a major relief for landlords and tenants. Many residential rental arrangements under ₹50,000/month are now free from TDS obligation under the rent TDS provisions of Section 393 of IT Act 2025 (erstwhile Section 194-I of IT Act 1961).
Changes for Businesses and Self-Employed
Presumptive tax for businesses — Section 58 of IT Act 2025 (erstwhile Section 44AD): Limit retained at ₹3 crore (10 crore for digital transactions). Rate 8% of gross turnover (6% for digital receipts).
Presumptive for professionals — IT Act 2025 (erstwhile Section 44ADA): Limit retained at ₹75 lakh. Rate: 50% of gross receipts deemed as profit.
Business loss carryforward: Business losses continue to be carried forward for 8 years from the year of loss, as under the existing provisions.
Updated return — Section 263 of IT Act 2025 (erstwhile Section 139(8A)): Facility to file updated return extended to 4 years from the end of AY (previously 2 years). Additional tax of 60% applies for 3rd and 4th year.
Angel Tax abolished: Erstwhile Section 56(2)(viib) of IT Act 1961 (Angel Tax provision) has been removed under IT Act 2025 — a relief for startups. Investments by foreign and domestic investors are no longer taxable under this provision.
Startup deductions — Section 140 of IT Act 2025 (erstwhile Section 80-IAC): Tax holiday for eligible startups continued — 100% deduction for 3 out of 10 years.
High Networth Individuals — Surcharge & Special Rates
Surcharge on income >₹50 lakh: 10% surcharge (new regime). 15% for income >₹1 crore. 25% for >₹2 crore.
Surcharge cap on LTCG/STCG: Maximum surcharge on LTCG (equity) capped at 15% — unchanged.
STCG at 20% + 15% surcharge + 4% cess: Effective STCG rate for HNIs with income >₹5 crore = 20% × 1.37 = 27.4% approximately.
Buyback taxation: From 1 Oct 2024, buyback proceeds are taxable in the hands of shareholders as dividend income (not as capital gains). This is a significant change for listed company shareholders participating in buybacks.
Trust taxation: Revised provisions for charitable trusts — corpus donations and accumulations have revised rules. Consult our team for trust-specific impact.
NRI Taxation Changes
Deemed resident threshold: Indian citizens in zero-tax jurisdictions with India income >₹15 lakh remain deemed residents (unchanged).
NRI capital gains on property: TDS rate on NRI property sales revised — now 12.5% for LTCG transactions (revised from variable rates).
15CA / 15CB: Thresholds for Form 15CA/15CB rationalised. CA certification (15CB) required for remittances exceeding ₹5 lakh in a year — previously ₹5 lakh per transaction.
DTAA provisions: New Act clarifies DTAA override — treaty provisions continue to prevail over domestic law where beneficial (Section 159 of IT Act 2025 (erstwhile Section 90(2) of IT Act 1961) retained).
Faceless assessment for NRIs: NRI assessments under the new faceless assessment system — submissions can be made online without physical presence in India.
Compliance Simplification
Annual Information Statement (AIS): Expanded AIS now captures more financial transactions. Pre-filling of ITR significantly enhanced.
Faceless assessment: Fully implemented — all scrutiny assessments conducted electronically without face-to-face interaction.
TDS credit without TDS certificate: TDS credit now based on AIS/26AS — Form 16A not mandatory if AIS reflects the credit.
Faster refunds: Target refund processing time reduced to 10 days (from current 20-30 days) with enhanced CPC processing.
Simplified ITR forms: Revised ITR forms for AY 2026-27 aligned with new Act section numbering.
Penalty rationalisation: Several redundant penalty provisions merged. Late fee under the applicable penalty provision of IT Act 2025 (erstwhile Section 234F of IT Act 1961) retained at ₹5,000 (₹1,000 for income ≤₹5 lakh).
FAQs — Income Tax Act 2025
Yes. Under the new tax regime (now the default), individuals with total income up to ₹12 lakh pay zero income tax. The Finance Act 2025 (Budget 2025) restructured the slabs — tax on ₹12 lakh works out to ₹60,000 (₹20,000 at 5% on ₹4L–₹8L + ₹40,000 at 10% on ₹8L–₹12L) — which is fully offset by the Section 156 rebate [IT Act 2025] (erstwhile Section 87A) of ₹60,000. For salaried individuals, the standard deduction of ₹75,000 further raises the effective zero-tax threshold to ₹12.75 lakh. Important: the rebate under Section 156 [IT Act 2025] does not apply to special rate income (equity STCG at 20%, lottery winnings, etc.).
The new regime is beneficial for most salaried individuals earning up to ₹15–20 lakh with limited deductions. The old regime remains beneficial if you have significant Section 123 [IT Act 2025] investments (erstwhile 80C — ₹1.5L), home loan interest (₹2L), health insurance under Section 126 [IT Act 2025] (erstwhile 80D), and HRA. Our CAs compute tax under both regimes and recommend the optimal choice. Contact us for a personalised tax computation at no cost.
From 23 July 2024 (codified in IT Act 2025): LTCG on property is 12.5% without indexation (previously 20% with CII indexation). For property acquired before 23 July 2024, you can choose between (a) 12.5% without indexation or (b) 20% with indexation — whichever gives lower tax. TDS by buyer remains 1% on purchase price above ₹50 lakh. Exemptions under Sections 82, 85, and 86 of IT Act 2025 (erstwhile Sections 54, 54EC, 54F of IT Act 1961) continue.
Angel Tax (erstwhile Section 56(2)(viib) of IT Act 1961) has been completely abolished under the Income Tax Act 2025. This means investments received by unlisted companies from both resident and non-resident investors are no longer taxable as income in the hands of the company, regardless of whether the share premium exceeds fair market value. This is a major relief for the startup ecosystem.
The updated return under Section 263 of IT Act 2025 (erstwhile Section 139(8A) of IT Act 1961) allows taxpayers to voluntarily disclose additional income missed in the original return. Under the Income Tax Act 2025, the window is extended to 4 years from the end of the relevant Assessment Year (previously 2 years). Additional tax: 25% for year 1-2, 50% for year 3, and 60% for year 4 of the update. You cannot file an updated return to claim a higher refund — only to pay additional tax.
Need Help Navigating the New Income Tax Act 2025?
Our CA team stays current with every change in the Income Tax Act 2025. We offer personalised tax planning, ITR filing, regime analysis, and full representation for notices and assessments under the new Act.