Individual taxpayers have cause to rejoice after filing their last returns under India’s notoriously complex income tax law, whose provisions had ballooned over its 60-plus years of existence. But for tax practitioners, the country’s Income Tax Act 2025 requires extensive retraining to ensure proper understanding and accurate implementation.
First, though, the undoubted positives. Aimed at reducing ambiguities and making compliance easier, the new law will come into effect on 1 April 2026. It overhauls the Income Tax Act of 1961, which was burdened with 47 chapters, 819 sections and 512,000 words. The six-decade-old act had been amended more than 4,000 times. ‘It had lived its life,’ says Samir Kanabar of EY India.
‘It reinforces stability and taxpayer confidence’
The new act is not just sleeker – 23 chapters, 536 sections and 259,000 words – but also easier to follow. According to Hitesh Sawhney, partner at PwC, it ‘implements intended reforms without major shifts in taxation or new regimes’, thereby reinforcing stability and taxpayer confidence.
Greater clarity
While the new Income Tax Act does not introduce any major policy shifts, its drafting is significantly clearer. For instance, it reduces confusion by replacing terms such as ‘previous year’ (year in which the income is earned) and ‘assessment year’ (year in which the income is charged to tax) with a single term: ‘tax year’.
The act also reorganises provisions that were previously spread across various chapters, making interpretations easier. For instance, in the old act, taxability provisions for non-profit organisations were spread across various chapters and had numerous cross-references. In the new act, all provisions related to non-profit organisations have been put in a single part of Chapter 17 and redundant provisions removed.
Similarly, the chapter on ‘profits and gains from business or profession’ has been redrafted to keep things simple. Provisions on similar topics have been clubbed together and formula-based explanations added to clarify complex concepts, such as ‘written-down value’.
Misinterpretations during the transition may lead to disputes
The new act has a chapter on ‘salary and house property’ to help taxpayers file their returns on their own. Here too, the language has been simplified, and legal and technical jargon kept to a minimum.
The act addresses modern asset classes such as cryptocurrencies, simplifies rules for trusts and non-resident Indians, and introduces more flexible refund options. It also lays the groundwork for future legislation on e-commerce and virtual transactions. ‘It transposes the old regulation into a more contemporary law that can deal with policy changes as and when the economy, industry and the world progress,’ Kanabar explains.
Transition tools
But with just eight months to go before the new law takes effect, professional accountants have raised concerns about the industry’s readiness. They point out that extensive retraining is required to understand and apply the act properly, and that misinterpretations during the transition may lead to compliance errors or disputes.
Amit Gupta, an accountant based in New Delhi, says some ambiguities will take time to be resolved by the courts and the Income Tax Department. He adds that timelines to adapt are tight for an accounting community busy managing existing workloads.
Seminars and conferences on the new tax regime will be held across India
For its part, the Indian government has created a tool that lets users check corresponding clauses in the previous legislation with the new law. It has also put out general guidelines for the new act.
The Institute of Chartered Accountants of India (ICAI), which regulates and develops the accountancy profession, has been conducting outreach programmes on the new law. ‘So far, 38 such programmes have been conducted to engage all stakeholders,’ says its president, Charanjot Singh Nanda. ICAI’s direct taxes committee also plans to hold seminars and conferences across India, focusing on the new act and smoothing the transition.
Digital privacy
The new act has also raised concerns around privacy, as it allows tax authorities to access digital devices, cloud storage and social media accounts during search operations. While tax inspectors have been doing this informally for some time, they now have the explicit backing of the new law.
With the growing use of online platforms, remote servers and digital applications, PwC’s Sawhney says ‘such a change was needed’. Government officials argue that adequate protection is enshrined in the new act, as well as in other laws such as the Digital Personal Data Protection Act of 2023, to protect the privacy rights of the individual.
Officials can now override access codes to gain digital access
However, tax professionals have expressed concern over the wording on digital access. The new law allows officials to gain access by overriding the access code of a computer or virtual digital space if the access code is not made available. Kanabar argues that such access should be used only to determine income, or uncover hidden income and recover tax, along with interest and penalties.
Ramesh Narain Parbat, a member of the Central Board of Direct Taxes, which oversees the administration of direct taxes, says the board will issue a standard operating procedure for the search and seizure of digital records. He adds that tax officials have been granted no new powers under the act, whose provisions merely spell out the powers of tax authorities while protecting individual privacy rights.
However the privacy issues pan out, after the compliance and comprehension headaches of the old income tax regime, India’s taxpayers and tax practitioners alike have everything to hope for from the new one.
