Income-tax Act 2025

The Income-tax Act, 2025 is the statute that replaces the Income-tax Act, 1961 as the law governing direct taxation in India, having received Presidential assent on 21 August 2025 and coming into force on 1 April 2026. It applies to Tax Year 2026-27 onward, so the financial year 2025-26, whose returns are filed in 2026, remains under the 1961 Act. It is a structural rewrite of the same law, not a new tax: it renumbers and consolidates six decades of accumulated provisions but does not by itself change the rates, slabs, or deductions a central government employee pays.

For a salaried employee or pensioner the practical questions are narrow: which Act governs which year, what the familiar sections are now called, whether any deduction has been lost, and whether the forms change. This article answers each. It sets out the enactment and effective date, the single tax year concept that replaces the previous year and assessment year, the mapping of the sections a government employee uses, the scale of the simplification, and, most important, the fact that the tax actually payable is unchanged. Every load-bearing figure is either verified against the Income Tax Department or clearly attributed where it rests on the reported text of the new Act.

Because the transition spans two years under two Acts, this page dual-cites throughout: the 1961 section that governs the financial year 2025-26 return and the 2025 section that governs the financial year 2026-27 onward. For the computation itself, see income tax for government employees ; for the regime choice, old versus new tax regime .

What the 2025 Act changes, and what it does not

The single most important point is also the most reassuring: the Income-tax Act, 2025 does not change what you pay. It is a consolidation and simplification exercise. The rates, the slabs, the standard deduction , the Section 87A rebate , and every exemption a government employee relies on continue in substance. What changes is the architecture: the section numbers, the drafting style, the removal of obsolete provisions, and the replacement of long textual provisos with tables and formulas.

This matters for how to read the change. Tax rates and slabs are not set by the Income-tax Act at all; they are set each year by the annual Finance Act that follows the Union Budget. The 2025 Act supplies the machinery, definitions, heads of income, deductions, and procedure, while the Finance Act supplies the numbers. So the replacement of the 1961 Act with the 2025 Act does not touch the slab structure. A person on the same income, claiming the same deductions, pays the same tax whether the computation is described under Section 115BAC of the 1961 Act or Section 202 of the 2025 Act.

The change is therefore one of form, not liability. It removes the accumulated complexity that made the 1961 Act hard to read, but the reader who wants to know their tax for a given year should look to the Finance Act slabs for that year, not to the change of Act.

The road to the Act

The replacement was deliberate and staged, and the sequence explains why the final law differs from the Bill first introduced.

The Income-tax Bill, 2025 was introduced in the Lok Sabha on 13 February 2025 and referred to a Select Committee chaired by the Member of Parliament Baijayant Panda, which examined it through the first half of 2025 and returned a report with a large set of recommendations. The government accepted the substance of that report, withdrew the original Bill on 8 August 2025, and introduced a revised Income-tax (No. 2) Bill, 2025 incorporating the changes. The Lok Sabha passed the revised Bill on 11 August 2025 and the Rajya Sabha on 12 August 2025, and it received Presidential assent on 21 August 2025 as the Income-tax Act, 2025. A companion Taxation Laws (Amendment) Act, 2025 received assent the same day to handle interim amendments to the 1961 Act. The Income-tax Rules, 2026 were subsequently notified to operationalise the new Act from 1 April 2026.

The staged passage is the reason the Act carries a settled, committee-reviewed text rather than a first draft, and it is why commentary from early 2025, written against the original Bill, sometimes cites section numbers that the final Act changed.

The tax year replaces the previous year and assessment year

The most visible conceptual change is the retirement of two terms every taxpayer half-remembers: the previous year and the assessment year.

Under the 1961 Act, income earned in a financial year, the previous year, was taxed in the following financial year, the assessment year, so the financial year 2025-26 was assessed in assessment year 2026-27. The two-year labelling was a persistent source of confusion, particularly on challan and return forms. The Income-tax Act, 2025 abolishes both and uses a single tax year: the twelve-month financial year, 1 April to 31 March, in which the income is earned. Tax Year 2026-27 simply means income earned between 1 April 2026 and 31 March 2027. A shorter tax year applies to a newly set-up business or a new source of income that begins mid-year.

For a salaried employee the effect is cosmetic but welcome: one year label instead of two. The tax year is the financial year, so there is no separate assessment year to track.

Which year is under which Act

The transition rule is simple once the tax year concept is clear, and getting it right matters because the wrong Act means the wrong forms.

The line to remember is that no return filed in 2026 is under the 2025 Act. The 1961 Act governs the financial year 2025-26 return in full, including the Section 89 relief on Form 10E, the Section 87A rebate , and Section 115BAC. The Income-tax Act, 2025 first bites on the financial year 2026-27, which is filed in 2027. An employee filing this year should ignore the new Act and its forms entirely.

Continuity: past years, appeals, and refunds

A change of Act raises an obvious worry for anyone with an open matter: what happens to assessments, refunds, and appeals that straddle the switch. The answer is that they are preserved.

A repealing statute of this kind carries savings provisions so that the old Act continues to govern everything that arose under it. An assessment for the financial year 2025-26 or an earlier year is made, and any appeal, rectification, penalty, or refund for those years is pursued, under the Income-tax Act, 1961, even where the work happens after 1 April 2026. A notice already issued, a proceeding already pending, and a right or liability already accrued under the 1961 Act survive the repeal. The permanent account number, the tax deduction account number, and the deductor and collector machinery carry over unchanged, so an employer’s TDS on salary and an employee’s Form 26AS credits are not disturbed by the transition. In practical terms, a government employee with a refund pending for the financial year 2024-25 or an appeal on an old assessment need do nothing differently; those follow the old Act to their conclusion, while only fresh income from the financial year 2026-27 is assessed under the new one.

The scale of the simplification

The rewrite is substantial in size even though it is modest in substance. The Income Tax Department describes the 2025 Act as having 536 sections and 16 schedules, against the 819 sections and 14 schedules of the 1961 Act, and the subordinate framework was cut in parallel, from 511 rules and 399 forms to 333 rules and 190 forms.

Beyond the section count, the drafting was modernised. The Act is organised into about 23 chapters, reported to be down from 47 in the amended 1961 Act, and it strips out roughly 1,200 provisos and 900 explanations that had accreted over six decades, replacing many of them with tables and formulas that can be read at a glance. The overall legislative volume is reported to be about 40 per cent smaller. None of this is a change in liability; it is a change in readability, aimed at reducing the interpretation disputes that the dense 1961 text generated.

The aim: fewer interpretation disputes

The purpose behind the rewrite is to reduce litigation, and the drafting choices follow from it. The 1961 Act had become one of the most disputed statutes in the country, in part because meaning was buried in long provisos and explanations layered onto sections over sixty years, each amendment qualifying the last. The 2025 Act attacks that directly: it collapses the layered text into cleaner sections, moves conditional rules into tables and formulas that state the position without cross-reference, and removes provisions that had been rendered dead by later law.

For the reader this changes how the law is used rather than what it says. A worked computation that once required chasing three provisos and an explanation across the section can now be read from a single table. The established interpretation of a provision generally carries over, because the substance is preserved, so the large body of case law built under the 1961 Act remains a guide to the corresponding 2025 provision. The gain is that a straightforward salaried computation, the standard deduction, the rebate, the exemptions, should now be legible from the Act itself rather than from a commentary, which is the point of the exercise.

Section mapping for salaried employees and pensioners

The sections a government employee cites by number have moved. The table maps the familiar 1961 provisions to their 2025 counterparts, with the confidence of each mapping marked, because only some have been confirmed by the Income Tax Department directly while others rest on the reported text of the new Act.

Two cautions apply. First, the only mapping the department states outright is Section 115BAC to Section 202; the Section 87A rebate to Section 156 and the Section 89 relief to Section 157 are widely reported and consistent across commentaries but should be checked against the bare Act before being cited as settled. Second, the house rent allowance exemption appears to have been moved out of the old Section 10 list into a Schedule rather than a numbered section, so the precise Schedule reference should be verified rather than assumed. The substance of each, the regime, the rebate, the relief, and the exemption, carries over.

What a government employee actually pays: unchanged

Because the Act does not change rates, the figures a central government employee uses are the same across the transition, set by the Finance Act. For the current new tax regime the slab structure is a nil rate up to Rs. 4 lakh, then 5 per cent from Rs. 4 lakh to Rs. 8 lakh, 10 per cent from Rs. 8 lakh to Rs. 12 lakh, 15 per cent from Rs. 12 lakh to Rs. 16 lakh, 20 per cent from Rs. 16 lakh to Rs. 20 lakh, 25 per cent from Rs. 20 lakh to Rs. 24 lakh, and 30 per cent above Rs. 24 lakh, with a 4 per cent health and education cess on the tax.

The reliefs that make the new regime light at the lower end also continue. The Section 87A rebate makes a resident individual’s income up to Rs. 12 lakh tax-free under the new regime, which is Rs. 12.75 lakh for a salaried employee after the Rs. 75,000 standard deduction , with marginal relief just above Rs. 12 lakh; the rebate excludes income taxed at special rates such as capital gains. The government-employee specifics are intact: the standard deduction of Rs. 75,000 under the new regime and Rs. 50,000 under the old, the employer’s National Pension System contribution of 14 per cent of basic pay plus dearness allowance deductible under Section 80CCD(2) even in the new regime and now uniform across government and private employers, the family pension deduction of Rs. 25,000 or one-third of the pension whichever is lower under the new regime (Rs. 15,000 under the old), and the full exemption of gratuity, commuted pension, and leave encashment for a government employee. The income tax calculator applies these figures to a specific salary.

Forms: Form 10E becomes Form 39

The form change most likely to affect a government employee concerns relief on salary arrears, which are common when a dearness allowance revision or a pay-fixation order pays out for an earlier period.

Under the 1961 Act, relief under Section 89 for arrears is claimed by filing Form 10E on the income-tax portal before the return. Under the Income-tax Act, 2025 and the Income-tax Rules, 2026, that relief is reported to be claimed on a new Form 39, a restructured, partly auto-populated form, from Tax Year 2026-27 onward. The critical caveat is timing: Form 39 applies to the financial year 2026-27 return filed in 2027, not to the return filed in 2026. For the financial year 2025-26 return, an employee claiming arrears relief still files Form 10E under Section 89 of the 1961 Act. The how to fill Form 10E guide covers the current-year process. Renumbering of other forms, such as Form 16 and Form 26AS, has not been reliably confirmed and should not be assumed.

For pensioners

A pensioner is taxed on the same footing across the transition, and nothing in the new Act alters it. Monthly pension is taxed under the head Salaries, so a pensioner claims the same standard deduction as a serving employee, Rs. 75,000 under the new regime or Rs. 50,000 under the old, carried into the 2025 Act. A family pension received by a dependant is taxed under Income from Other Sources with its own deduction, the lower of Rs. 25,000 or one-third of the pension under the new regime and Rs. 15,000 or one-third under the old, which the 2025 Act preserves. The commuted portion of pension stays fully exempt for a government pensioner, and dearness relief tracks the pension as before. The section numbers move, but the income tax for pensioners position is unchanged.

What to do now

For the return due this year there is nothing new to learn. File the financial year 2025-26 return under the 1961 Act, choose between the old versus new tax regime on the current slabs, and use Form 10E if you have arrears. The 2025 Act does not touch that return.

Looking ahead to the financial year 2026-27 return in 2027, expect the same tax on the same income, but under new section numbers and, for arrears, a new form. Because the substance is unchanged, no employee needs to restructure investments or revisit the regime choice on account of the new Act alone; the regime decision continues to turn on how many deductions a person can claim, exactly as before. Keep watching the annual Finance Act, not the change of Act, for any movement in the slabs or the rebate.

Related Articles

• Income tax for government employees
• Old versus new tax regime
• New tax regime
• Standard deduction
• Section 87A rebate
• Section 89 relief
• How to fill Form 10E
• HRA exemption under Section 10(13A)
• House rent allowance
• TDS on salary
• NPS tax benefits
• Income tax for pensioners
• Professional tax
• Form 16
• Form 26AS
• Advance tax
• Central Board of Direct Taxes
• National Pension System
• Family pension
• Gratuity for central government employees
• Leave encashment
• Commutation of pension
• Dearness allowance
• Take-home salary of central government employees
• Central government employees in India
• Income tax calculator
• HRA exemption calculator

External references

• Income Tax Department, objective and scope of the new Act (incometax.gov.in)
• Income Tax Department (incometaxindia.gov.in)
• Central Board of Direct Taxes (cbdt)
• Press Information Bureau
• India Code (bare Acts)
• The Gazette of India

References

1. Income-tax Act, 2025 (received Presidential assent on 21 August 2025; comes into force on 1 April 2026, repealing the Income-tax Act, 1961).
2. Income Tax Department, “Objective and scope of the New Act” (incometax.gov.in), on the tax year concept and the 536 sections, 16 schedules, 333 rules, and 190 forms of the 2025 Act.
3. Income-tax (No. 2) Bill, 2025, passed by the Lok Sabha on 11 August 2025 and the Rajya Sabha on 12 August 2025, following the Select Committee report chaired by Baijayant Panda.
4. Finance Act, 2025, on the new-regime slab rates and the Section 87A rebate for the current year.
5. Income-tax Act, 1961, Sections 115BAC, 87A, 89, 16(ia), 10(13A), 10(10), 10(10A), 10(10AA), and 80CCD(2).
6. Income-tax Rules, 2026, on the forms operative under the 2025 Act from Tax Year 2026-27, including the reported Form 39 for arrears relief.
7. Press Information Bureau release PRID 2035605, on the standard deduction and family pension deduction under the new regime.