A Professional Legislative Comparison & Analysis

Executive Summary

India’s income tax framework has undergone a fundamental transformation with the enactment of the Income Tax Act, 2025, which supersedes the Income Tax Act, 1961. The 1961 Act, enacted on 13 September 1961 and operational from 1 April 1962, served as the cornerstone of India’s direct tax regime for over six decades. During this period, it was amended more than 4,000 times through successive Finance Acts and special legislation, resulting in a text of nearly 800 sections, 29 schedules, and thousands of provisos, explanations, and sub-clauses that made interpretation and compliance increasingly burdensome.

The Income Tax Act, 2025 — passed by Parliament in February 2025 and set to take effect from Assessment Year 2026-27 — represents a comprehensive overhaul aimed at simplification, rationalisation, and modernisation of the direct tax law. It reduces the legislative text by approximately 50%, introduces plain-language drafting, restructures the architecture of tax law, and codifies decades of judicial precedent and CBDT circulars into the statute. This article provides a detailed section-by-section comparison of both Acts across all major dimensions.

1. Historical Background & Legislative Genesis

1.1 The Income Tax Act, 1961 — Origins

Prior to 1961, India was governed by the Income Tax Act, 1922, which was itself inherited from the colonial-era legislation. By the late 1950s, the 1922 Act had become unwieldy due to repeated amendments. The Government of India constituted the Law Commission and the Direct Taxes Administration Enquiry Committee (Tyagi Committee, 1958) to examine a complete restatement of tax law. The result was the Income Tax Act, 1961, receiving Presidential assent on 13 September 1961.

The 1961 Act consolidated all prior legislation, introduced a comprehensive charge to income tax based on residential status, and established the foundational framework of five heads of income, tax deductions, exemptions, assessment procedures, and appellate machinery that continues to underpin Indian tax law even today.

1.2 Accumulation of Complexity — 1961 to 2024

Over six decades, the 1961 Act was amended through more than 60 Finance Acts, resulting in:

Over 800 operative sections with hundreds of sub-sections
29 Schedules including the First Schedule (tax rates), Second Schedule (procedure for recovery), and others
Approximately 1,500 provisos — many conflicting with the main body of sections
Hundreds of Explanations and Illustrations added through retrospective amendments
Over 10,000 CBDT circulars and notifications issued to clarify the Act
Conflicting judicial interpretations on identical provisions by different High Courts

The Simplification Committee constituted in 2024 under former Chief Economic Adviser Dr. V. Anantha Nageswaran found that the average taxpayer required professional assistance for even basic compliance, and litigation had accumulated to over 4 lakh pending cases in tax tribunals alone.

1.3 Income Tax Act, 2025 — Legislative Intent

The 2025 Act was drafted with the express mandate to achieve four objectives: (i) simplification and clarity; (ii) reduction of litigation; (iii) modernisation to address the digital economy; and (iv) alignment with international best practices. The Direct Tax Code discussions of 2010 and 2013 were revived and substantially incorporated, along with inputs from the Task Force on Direct Tax Code (2019) chaired by Akhilesh Ranjan.

2. Structure & Architecture

2.1 Structural Comparison at a Glance

Parameter	Income Tax Act, 1961	Income Tax Act, 2025
Total Sections	~819 Sections (after amendments)	~536 Sections (rationalised)
Chapters	23 Chapters	23 Chapters (restructured)
Schedules	29 Schedules	16 Schedules (consolidated)
Word Count (approx.)	~5,00,000 words	~2,50,000 words (~50% reduction)
Provisos	Approximately 1,500+	Substantially eliminated; replaced by sub-sections
Explanations	900+ Explanations	Reduced; integrated into main text
Effective Date	1 April 1962	1 April 2026 (AY 2026-27)
Language Style	Complex, legalistic, archaic	Plain language, gender-neutral, modern
Tables/Formulas	Embedded in provisos	Dedicated tables and formulae sections

2.2 Restructuring of Chapters

The 1961 Act’s chapters often combined disparate topics — for example, Chapter VI-A contained all deductions without logical sub-grouping, making navigation difficult. The 2025 Act reorganises the chapters thematically:

Separate chapters for Salary, Business Income, Capital Gains, and Other Sources — each self-contained
A dedicated chapter on International Taxation and Transfer Pricing (previously scattered across Sections 90, 92, 195, and POEM provisions)
A new chapter on Digital Economy and Virtual Digital Assets
A consolidated chapter on Tax Administration, replacing the earlier fragmented procedures

3. Tax Rates & Slabs

3.1 Individual Tax Slabs

One of the most visible differences between the two regimes relates to tax slabs and rate structures. The 2025 Act formally abolishes the Old Regime (which was already optional under Section 115BAC introduced in 2020) and makes the New Regime the sole default structure.

Income Slab (₹)	Rate under 1961 Act (Old Regime)	Rate under 2025 Act (New Regime)
Up to ₹2,50,000	Nil	Nil
₹2,50,001 – ₹5,00,000	5% (rebate u/s 87A)	Nil (rebate up to ₹7,00,000 u/s 87A)
₹5,00,001 – ₹7,00,000	20%	5%
₹7,00,001 – ₹10,00,000	20%	10%
₹10,00,001 – ₹12,00,000	30%	15%
₹12,00,001 – ₹15,00,000	30%	20%
Above ₹15,00,000	30%	30%

3.2 Standard Deduction & Basic Exemption Limit

Under the 1961 Act (Old Regime), the basic exemption limit was ₹2,50,000 for individuals below 60 years, ₹3,00,000 for senior citizens (60-80 years), and ₹5,00,000 for super senior citizens (above 80 years). The standard deduction for salaried individuals was ₹50,000 per annum.

Under the 2025 Act, a uniform basic exemption limit of ₹4,00,000 applies to all individuals irrespective of age. The standard deduction is enhanced to ₹75,000 for salaried taxpayers and pensioners. Combined with the enhanced Section 87A rebate (income up to ₹7,00,000), this effectively makes income up to ₹12,00,000 tax-free for salaried individuals through the rebate mechanism.

3.3 Corporate Tax Rates

Corporate tax rates remain largely unchanged in the 2025 Act, consolidating what was scattered across Sections 115BA, 115BAA, 115BAB, and 115JB (MAT) of the 1961 Act into a single, clearly structured chapter:

Domestic companies (general): 25% (for turnover up to ₹400 crore) or 30%
Manufacturing companies (new): 15% (concessional rate, now permanently codified)
Foreign companies: 35% (reduced from 40%)
Minimum Alternate Tax (MAT): Retained at 15% of book profits but with simplified computation

4. Heads of Income

4.1 Five Heads of Income — Retained but Revised

The 2025 Act retains the classical five heads of income established under the 1961 Act but simplifies computation under each head:

Parameter	Income Tax Act, 1961	Income Tax Act, 2025
Head of Income	Under 1961 Act	Under 2025 Act
Salaries	Sec. 15–17; multiple exemptions under Sec. 10	Consolidated chapter; reduced exemptions, higher standard deduction
House Property	Sec. 22–27; annual value concept	Simplified; deemed rent rationalised; loss set-off limit retained at ₹2L
Business/Profession	Sec. 28–44DA; numerous special provisions	Rationalized; presumptive taxation thresholds enhanced
Capital Gains	Sec. 45–55A; complex indexation rules	Simplified; 2 holding periods (12 & 24 months); uniform LTCG at 12.5%
Other Sources	Sec. 56–59	Sec. 56 simplified; VDA & crypto codified

4.2 Capital Gains — Major Structural Change

The capital gains provisions under the 1961 Act were among the most litigated areas, involving complex classification into short-term vs. long-term, indexed cost calculations, and different rates for different asset classes. The 2025 Act overhauls this completely:

Two holding period thresholds: 12 months (listed securities, equity mutual funds, REITs, InvITs) and 24 months (all other assets including unlisted shares, real estate, gold, debt funds)
Long-Term Capital Gains (LTCG): Uniform rate of 12.5% on all assets (equity/equity MFs: 12.5% without indexation; real estate/gold: 12.5% without indexation or 20% with indexation — taxpayer’s choice for assets acquired before 23 July 2024)
Short-Term Capital Gains (STCG): 20% on listed equity and equity-oriented funds (Section 111A rate raised from 15%); 30% (slab rate) for others
Indexation: Abolished for assets acquired after 23 July 2024; only grandfathered for earlier acquisitions
Annual exemption of ₹1.25 lakh on LTCG from listed equity retained

4.3 Business Income — Presumptive Taxation Enhancements

The 2025 Act enhances and simplifies presumptive taxation thresholds significantly, reducing the compliance burden on small and medium businesses:

Section 44AD (small businesses): Turnover threshold raised from ₹3 crore to ₹5 crore (₹10 crore for digital transactions)
Section 44ADA (professionals): Gross receipts threshold raised from ₹75 lakh to ₹1.5 crore
Section 44AE (transporters): Per-vehicle income rationalised upward

5. Deductions, Exemptions & Incentives

5.1 The Shift from Exemptions to Deductions

The 1961 Act contained over 100 exemptions under Section 10 alone, covering everything from agricultural income to gratuity, HRA, LTA, and retirement benefits. The 2025 Act significantly rationalises this framework by:

Reducing Section 10 exemptions from over 100 to approximately 35 core exemptions
Converting several salary-related exemptions into enhanced standard deduction
Retaining critical exemptions: agricultural income, gratuity (ceiling raised to ₹25 lakh), PPF, Sukanya Samriddhi
Eliminating exemptions that had become redundant or were being misused (e.g., certain LTA provisions restructured)

5.2 Chapter VI-A Deductions

Chapter VI-A of the 1961 Act contained over 20 separate deduction provisions (80C through 80U) totalling potential deductions of ₹3.5 lakh or more. In the 2025 Act, most of these are retained only for the grandfathered Old Regime (for those who had existing policies/investments) with the New Regime offering a simplified flat deduction structure:

Parameter	Income Tax Act, 1961	Income Tax Act, 2025
Deduction	Under 1961 Act	Under 2025 Act (New Regime)
Section 80C (investments)	Up to ₹1,50,000 (15 instruments)	Not available (subsumed in enhanced standard deduction)
Section 80D (health insurance)	₹25,000/₹50,000 (senior)	Retained at ₹25,000/₹50,000
Section 80G (donations)	50%/100% of eligible donations	Retained; pre-approval system streamlined
Section 24(b) (home loan interest)	₹2,00,000 (self-occupied)	Retained for self-occupied; rationalised for let-out
NPS (Sec. 80CCD)	₹50,000 additional over 80C	Retained; employer contribution enhanced to 14%
Section 80TTA/80TTB (savings interest)	₹10,000/₹50,000	Removed; covered under enhanced rebate structure

5.3 Tax Incentives for Industry

The 2025 Act consolidates industrial incentives scattered across Sections 10AA (SEZ), 80-IA, 80-IB, 80-IC, and 80-IE into a single Investment Incentives chapter. Key features include:

Sunset of most area-based incentives (hill states, backward districts) — only active units grandfathered
New incentive for semiconductor and electronics manufacturing: 15% concessional tax for 10 years
Green energy incentive: 100% deduction of capital expenditure in renewable energy manufacturing
Startup incentives (formerly Sec. 80-IAC): Profit-linked deduction retained for DPIIT-recognised startups, extended to AY 2035-36

6. International Taxation & Transfer Pricing

6.1 Framework under 1961 Act

International taxation under the 1961 Act was handled through a patchwork of provisions: Section 90 (Double Taxation Avoidance Agreements), Section 91 (unilateral relief), Sections 92 to 92F (Transfer Pricing), Section 9 (income deemed to accrue in India), Section 195 (TDS on non-residents), Section 115A to 115BBF (special rates for non-residents and FIIs), and the General Anti-Avoidance Rules (GAAR) introduced through Sections 95-102 by the Finance Act 2013.

6.2 Reforms in the 2025 Act

The 2025 Act introduces a dedicated Part on International Taxation, bringing significant clarity:

Place of Effective Management (POEM): Codified with clear safe harbour rules; companies with turnover under ₹50 crore deemed non-resident
Significant Economic Presence (SEP): Threshold aligned with OECD Pillar One recommendations — revenue threshold of ₹2 crore or 3 lakh users in India
Transfer Pricing: Simplified documentation requirements; threshold for mandatory TP report raised to ₹100 crore (from ₹1 crore)
GAAR: Retained but with a higher threshold (tax benefit exceeding ₹5 crore) and a streamlined approval mechanism
Equalisation Levy: Integrated into the Act (previously a separate Finance Act charge); extended to B2B digital services
DTAA Override: New provision explicitly stating that treaty provisions prevail over domestic law unless the treaty itself specifies otherwise, resolving a long-standing judicial controversy

7. Virtual Digital Assets & Digital Economy

7.1 The 1961 Act — A Retrofitted Approach

Cryptocurrency and Virtual Digital Assets (VDAs) were not originally contemplated in the 1961 Act. Section 2(47A) defining VDAs and Section 115BBH imposing a flat 30% tax were inserted through the Finance Act, 2022. Section 194S mandated 1% TDS on VDA transfers. This led to several anomalies: no set-off of losses, no deduction except cost of acquisition, and uncertainty about whether mining constituted a business.

7.2 VDA Framework under 2025 Act

The 2025 Act contains a dedicated chapter on Digital Assets and New Economy Income, providing:

Retention of 30% flat tax on VDA transfers — no change
Clarity on mining income: Treated as business income; cost of mining (electricity, hardware) is deductible
NFTs: Separately categorised; same tax treatment as VDAs
DeFi income (staking, yield farming): Classified as Other Sources; taxable at slab rates
Loss set-off: Intra-head set-off of VDA losses now permitted (reversed from 2022 position)
Exchange of VDAs: Treated as taxable barter transaction at fair market value
Reporting: Exchanges and platforms mandated to report all transactions above ₹50,000 to CBDT

8. Assessment Procedures & Tax Administration

8.1 Assessment under 1961 Act

The 1961 Act provided for Self-Assessment (Sec. 140A), Summary Assessment (Sec. 143(1)), Scrutiny Assessment (Sec. 143(3)), Best Judgement Assessment (Sec. 144), and Reassessment (Sec. 147/148). The reassessment provisions were heavily litigated, particularly after Finance Act 2021 amendments. The time limits, notice requirements, and the burden of proof were contested in numerous Supreme Court and High Court decisions.

8.2 Streamlined Assessment under 2025 Act

The 2025 Act consolidates assessment procedures significantly:

Parameter	Income Tax Act, 1961	Income Tax Act, 2025
Procedure	Under 1961 Act	Under 2025 Act
Self-Assessment	Section 140A	Retained; challan-linked auto-credit system
Intimation/Processing	Section 143(1)	Faceless by default; 6-month processing window
Scrutiny Assessment	Section 143(3); manual + faceless	100% faceless; AI-based risk profiling
Reassessment	Sec. 147/148; 3/10 year limits	Unified re-opening provision; 3-year general, 5-year for income >₹50 lakh
Best Judgement Assessment	Section 144	Retained but audit-linked trigger required
Assessment Timeline	21 months from end of AY	12 months from end of AY (streamlined)
Faceless Scheme	Introduced 2019 via Sec. 144B	Statutory mandate; exceptions only for international cases

8.3 Dispute Resolution

The 2025 Act makes important structural improvements to dispute resolution:

Vivad se Vishwas Scheme: Permanently codified as a standing settlement mechanism, eliminating the need for annual finance act extensions
Dispute Resolution Panel (DRP): Scope expanded to cover all cases involving additions above ₹1 crore
Advance Rulings: Authority for Advance Rulings (AAR) replaced by Board for Advance Rulings (BAR) in 2021 is now given statutory backing; response time reduced to 6 months
Faceless Appeals: Commissioner (Appeals) faceless mechanism (introduced in 2021) is now a statutory provision
Mutual Agreement Procedure (MAP): Specific timelines for MAP resolution — 2 years for treaty partners with explicit provisions

9. TDS, TCS & Advance Tax

9.1 TDS under the 1961 Act

The 1961 Act contained TDS provisions spread across Sections 192 to 206AA, covering salaries, interest, dividends, rent, professional fees, commission, and dozens of other payment types. Over the years, multiple new TDS sections were added: Section 194-IA (immovable property), 194-IB (rent by individuals), 194N (cash withdrawals), 194Q (purchase of goods), 206AB (higher TDS for non-filers) — creating a complex web of compliance obligations.

9.2 TDS Rationalisation under 2025 Act

The 2025 Act reduces TDS sections from over 35 to approximately 20, adopting a category-based approach:

Single section for ‘payments to residents’ replacing the fragmented sections; rates differentiated by income type
Section 206AB (higher TDS for non-filers): Retained but threshold raised to ₹1 lakh
TDS on purchase of immovable property (Section 194-IA): Threshold raised to ₹75 lakh
TDS credit mechanism: Real-time credit in Annual Information Statement (AIS); disputes resolved within 30 days
Compliance calendar: Uniform TDS deposit date (7th of following month); quarterly returns for non-corporate deductors

9.3 Advance Tax

The advance tax installment schedule under the 2025 Act is unchanged (15%, 45%, 75%, 100% by June 15, September 15, December 15, and March 15 respectively). However, the 2025 Act introduces a safe harbour: taxpayers who pay at least 90% of final tax liability through advance tax or TDS are exempt from penal interest under Section 234B, regardless of whether interim installments were paid on time.

10. Penalties, Prosecution & Search Provisions

10.1 Penalty Framework

The 1961 Act’s penalty provisions were notoriously complex, with penalties under Sections 270A, 271, 271A, 272A, 272AA, 273B, and others overlapping and creating uncertainty. The distinction between ‘under-reporting’ and ‘misreporting’ was introduced in Section 270A (Finance Act 2016) but created new definitional disputes.

The 2025 Act consolidates penalties into three tiers:

Tier 1 — Procedural non-compliance (late filing, non-maintenance of records): Fixed monetary penalties, capped and graduated
Tier 2 — Under-reporting of income: 50% of tax on under-reported income (no change from 270A)
Tier 3 — Misreporting/fraud: 200% of tax on misreported income; mandatory reference to prosecution

10.2 Search & Seizure

Sections 132, 132A, 132B, and 133 governed search and seizure under the 1961 Act. The 2025 Act rationalises these by:

Introducing a ‘Block Assessment’ mechanism for search cases: Tax at 60% on undisclosed income for the block period (consistent with pre-2003 position, which was removed and has now been restored to reduce litigation)
Time limit for completion of search assessment: 24 months from the end of financial year in which last panchnama was drawn (reduced from 30 months)
Retention of seized assets: Capped at 60 days unless extended by court order
Digital evidence: New provisions for seizure of cloud data, email communications, and electronic records — aligned with the Digital Personal Data Protection Act, 2023

11. Language, Drafting Style & Clarity

11.1 The Problem with the 1961 Act

The 1961 Act’s language was described by the Supreme Court as requiring ‘skilled navigation through a labyrinth of provisos and exceptions.’ A single section could run to several pages with multiple sub-sections, dozens of provisos, explanations, and cross-references to other sections. Section 43B, dealing with certain deductions only on actual payment, had no fewer than eight provisos after 60 years of amendments. Section 80-IC (special category states) contained cross-references to four other sections and three schedules.

11.2 Plain Language Drafting in the 2025 Act

The 2025 Act adopts modern legislative drafting principles:

Use of defined terms: Key terms defined in a consolidated Definitions chapter (Chapter I) rather than being re-defined in individual sections
Gender-neutral language: ‘he/she’, ‘his/her’ replaced with ‘they/their’ or the defined term itself
Tables instead of provisos: Complex rate calculations presented in tabular form
Formula approach: Quantitative provisions expressed as formulas (e.g., ‘Taxable Income = Gross Income − Deductions − Set-offs’)
No cross-referencing chains: Each operative provision is self-contained with definitions and conditions stated in the same section or referred to by a dedicated definition cross-reference
Illustrations: Statutory illustrations included for complex provisions (e.g., set-off of losses, TDS computation)

12. Compliance, Technology & Faceless Administration

12.1 Faceless Assessment — From Circular to Statute

The Faceless Assessment Scheme was introduced under Section 144B of the 1961 Act through the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. While transformative, it suffered from being a delegated framework — the core scheme was implemented through rules and executive orders, not the Act itself, leading to challenges before High Courts questioning its legal basis.

The 2025 Act embeds faceless assessment as a core statutory requirement, providing constitutional underpinning and eliminating procedural challenges. All assessment, reassessment, penalty, and appeal proceedings are faceless by default, with exceptions only for:

Transfer pricing cases involving foreign entities
Cases selected under international tax exchange of information (AEOI/FATCA)
High-value fraud investigations where physical evidence is necessary

12.2 Annual Information Statement & Pre-filled Returns

The 2025 Act gives statutory recognition to the Annual Information Statement (AIS) and Tax Information Summary (TIS), which were introduced through CBDT notifications under the 1961 Act. The AIS now has evidentiary value, and discrepancies between AIS and filed returns are automatically flagged. Pre-filled return forms are mandated to include all AIS data.

12.3 Real-Time Data & AI Risk Profiling

The 2025 Act explicitly authorises the CBDT to use artificial intelligence, machine learning, and risk-scoring models for:

Case selection for scrutiny assessment
Identification of high-risk taxpayers for TDS surveys
Matching of invoice-level data with ITR and GST returns
Detection of shell companies and circular transactions

13. Summary of Key Differences

Parameter	Income Tax Act, 1961	Income Tax Act, 2025
Aspect	Income Tax Act, 1961	Income Tax Act, 2025
Legislative Size	~5 lakh words; 819+ sections	~2.5 lakh words; ~536 sections
Tax Regime	Old + New regime (optional)	Unified New Regime only
Basic Exemption	₹2.5L / ₹3L / ₹5L (age-based)	Uniform ₹4,00,000
Standard Deduction	₹50,000 (salary/pension)	₹75,000 (salary/pension)
LTCG Rate (Equity)	10% (above ₹1L)	12.5% (above ₹1.25L)
Capital Gains Holding	3 categories; 12/24/36 months	2 categories: 12 or 24 months
Indexation	Available for LTCG	Abolished for post-July 2024 assets
Chapter VI-A Deductions	Available (80C to 80U)	Reduced; most not available in new regime
Presumptive Tax (Business)	Turnover up to ₹3/5 crore	Turnover up to ₹5/10 crore
VDA Taxation	Retrofitted (Sec. 115BBH, 2022)	Dedicated chapter; mining clarified
TDS Sections	35+ individual sections	~20 rationalized sections
Penalty Structure	Complex; multiple overlapping sections	3-tier simplified structure
Assessment Timeline	21 months	12 months
Faceless Assessment	Via executive orders/rules	Statutory mandate
International Tax	Scattered across multiple sections	Dedicated chapter; SEP, POEM codified
Language	Complex, archaic legal language	Plain language, gender-neutral
Drafting Style	Provisos and explanations	Tables, formulas, illustrations

14. Critical Analysis & Industry Perspectives

14.1 Strengths of the 2025 Act

Genuine simplification: The 50% reduction in legislative text is not cosmetic — it reflects substantive rationalisation, not just reorganisation
Litigation reduction: Eliminating provisos and embedding judicial interpretations into the statute removes thousands of potential disputes
Business friendliness: Enhanced presumptive taxation thresholds, startup incentives, and streamlined TDS reduce compliance costs
Modernisation: Digital economy provisions, VDA clarity, and AI-enabled administration bring the law into the 21st century
Taxpayer certainty: Single tax regime eliminates the annual dilemma faced by taxpayers choosing between Old and New regimes

14.2 Concerns & Criticisms

Loss of deductions: Elimination of 80C, HRA, LTA (in New Regime) adversely impacts middle-income salaried taxpayers who planned long-term savings around these benefits
LTCG rate hike: Increase from 10% to 12.5% on equity LTCG reduces post-tax returns for retail investors; removal of indexation on real estate controversial
Transition complexity: Parallel regime for grandfathered assets and old deduction holders creates a de facto dual system for the next 10-15 years
Revenue neutrality concerns: CBDT estimates the 2025 Act is broadly revenue neutral, but some independent estimates suggest a ₹15,000-20,000 crore shortfall annually
Corporate MAT continuity: MAT continues, which many had expected to be abolished as part of the simplification exercise

14.3 Impact on Different Taxpayer Categories

The 2025 Act’s impact varies across taxpayer categories:

Salaried individuals (income < ₹12L): Significantly better off — effective zero tax due to enhanced rebate and standard deduction
Salaried individuals (income ₹12L–₹50L): Marginal benefit — lower rates offset loss of 80C/HRA deductions
High-income salaried (> ₹50L): Mixed — lower rates but higher LTCG on investments
Small businesses: Better off — enhanced presumptive thresholds reduce compliance burden
Real estate investors: Worse off — loss of indexation increases effective LTCG tax
Equity investors: Marginally worse off — LTCG rate up 2.5 percentage points
NRIs/Foreign investors: Better off — simplified DTAA provisions and SEP clarity reduces double-taxation risk

15. Transitional Provisions

Given the magnitude of change, the 2025 Act contains extensive transitional provisions in Part XV:

Pending assessments: All assessments, appeals, and proceedings pending under the 1961 Act as on 31 March 2026 continue under the 1961 Act provisions
Deduction grandfathering: Investments made in 80C instruments (PPF, ELSS, insurance) before 31 March 2026 continue to qualify for deduction until maturity under the 1961 Act rules, in a transitional schedule
Tax treaties: All existing DTAAs remain operative; references to 1961 Act provisions in treaties are to be read as references to corresponding provisions of the 2025 Act
Cost of acquisition for pre-2026 assets: FMV as on 1 April 2026 deemed as cost for assets held before the commencement of the Act, for capital gain computation
MAT credit: Unabsorbed MAT credit as on 31 March 2026 carried forward and eligible for set-off against regular tax for up to 15 years

16. Conclusion

The Income Tax Act, 2025 represents the most significant overhaul of India’s direct tax law since independence. The 1961 Act, despite its countless amendments, had become a monument to complexity — its sheer volume of provisos, exceptions, and cross-references defeating the very purpose of a law that every citizen and business was expected to comply with.

The 2025 Act’s ambition is evident: a 50% reduction in volume, a unified tax regime, plain-language drafting, digital-era provisions, and a faceless administration embedded in statute. These are genuine improvements that will reduce compliance costs, litigation, and uncertainty for the majority of taxpayers.

That said, the abolition of popular deductions, the hike in capital gains rates, and the complexity of transitional provisions mean that the benefits are uneven across taxpayer categories. The long-term success of the 2025 Act will depend on the quality of implementing rules, the robustness of the faceless assessment system, and the CBDT’s willingness to issue clear, binding guidance on areas of ambiguity rather than relying on litigation to settle interpretive disputes — which was precisely the failure that necessitated this wholesale reform.

For practitioners, academics, and policymakers, the 2025 Act offers an opportunity to engage with tax law afresh, unencumbered by the accumulated weight of sixty years of legislative sedimentation. For taxpayers, it promises — and must deliver — a simpler, fairer, and more certain tax experience.

Income Tax Act, 1961 vs. Income Tax Act, 2025 |