Income Tax Act 2025: Key Provisions, Changes, and Budget 2026 Tax Reforms

Income Tax Act 2025: On February 1, 2026, Finance Minister Smt. Nirmala Sitharaman presented her record 9th Union Budget in Parliament. The Budget 2026 tax proposals emphasized the ‘Kartavya’ of sustaining the momentum of structural reforms. The Finance Minister proposed a slew of Direct Tax Reforms 2026 to simplify the tax regime and ensure better compliance by the citizens.

This landmark Budget has brought relief for travelers, students, exporters, and clean-energy sectors. At the same time, it has tightened the screws on tax non-compliance and speculative trading. The centerpiece of this reform is the Income Tax Act 2025, which will replace the six-decade-old Income Tax Act of 1961.

The Income Tax Act 2025 is scheduled to come into effect from 1 April 2026. It focuses on clarity, streamlined procedures, and better tax administration. The objective is not to increase the tax burden but to make the law easier to follow for individuals, businesses, and professionals.

Read: Union Budget 2026 Live Updates

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Implementation of the Income Tax Act 2025

The Income Tax Act 2025 is set to come into effect from April 1, 2026. This new law was created to simplify the tax administration reforms India has been working toward. The government wants to reduce the number of legal disputes and make the language of the law clearer. Under the Income Tax Act India 2025, the focus is on a "trust-first" approach for taxpayers.

Key Income Tax Act Provisions 2025

The Income Tax Act provisions 2025 include several updates to help the common man. While the tax rates remain the same, the compliance process is much simpler.

• New Income Tax Filing System: The government is introducing a new income tax filing system with redesigned forms. These forms will be easier to fill out, reducing the need for expert help.

• Staggered Deadlines: To prevent website crashes, the Direct Tax Reforms 2026 include different filing dates for different groups.

• Revised Returns: Taxpayers now have more time to fix mistakes. The deadline for filing revised returns has been extended to March 31.

Major Income Tax Act 2025 Proposals

The Budget 2026 tax proposals also addressed specific financial activities. These Income Tax changes 2026 are designed to improve the tax compliance reforms India needs for a modern economy.

Tax Administration Reforms

A Joint Committee will form. It involves the Ministry of Corporate Affairs and the CBDT. This committee will integrate Income Computation and Disclosure Standards (ICDS) requirements into Indian Accounting Standards (IndAS). 

Separate ICDS accounting needs will cease from tax year 2027-28. The definition of an accountant for the Safe Harbour Rules will also be rationalized. This supports Indian accounting and advisory firms.

Shares Buyback Taxation

The budget proposes taxing buyback as Capital Gains for all shareholders. Promoters will pay an additional buyback tax. This discourages improper use. Corporate promoters will incur an effective tax of 22 percent. Non-corporate promoters will pay 30 percent.

TCS Rate Adjustments

TCS rates for specific goods are rationalized. Scrap and minerals will incur a 2 percent rate. Tendu leaves will see a reduction from 5 percent to 2 percent. For Liberalised Remittance Scheme (LRS) amounts exceeding ten lakh rupees:

• Education or Medical Treatment: 2 percent.

• Other purposes: 20 percent.

Securities Transaction Tax (STT) Changes

STT is increased for certain transactions. Futures will rise to 0.05 percent from 0.02 percent. The options premium and exercise of options will increase to 0.15 percent. Current rates are 0.1 percent and 0.125 percent, respectively. This aims to manage speculative market activity.

Minimum Alternate Tax (MAT) Reforms

MAT credit set-off is restricted to the new tax regime. Companies can use this credit to encourage their shift. Set-off is limited to 1/4th of the new regime tax liability. MAT becomes a final tax from April 1, 2026. The final tax rate reduces to 14 percent from 15 percent. Accumulated MAT credit until March 31, 2026, remains available.

Other Significant Provisions

Overseas individual investors can now increase their shareholding. The limit rises from 5% to 10% (individual). The aggregate cap increases from 10% to 24%. TDS on property purchases from non-residents can use the buyer’s PAN-based challan. 

A separate Tax Deduction Account Number (TAN) is no longer required. Basic customs duty exemptions apply to 17 essential cancer drugs. Exemptions also cover inputs for battery energy storage, solar glass, aviation, and nuclear power projects. These aim to boost domestic manufacturing and green energy.

Mechanism of Shares Buyback Tax

This mechanism applies an additional tax on promoters. Its goal is to prevent misuse. This ensures fairness in capital gains. It specifically targets tax arbitrage.

Operation of LRS TCS Rates

TCS rates for remittances differ based on purpose. The 2% rate applies to educational and medical expenses. A 20% rate is for all other remittance types. This structure distinguishes between essential and non-essential foreign transfers.

MAT Credit Set-Off Rule

Companies under the new tax regime can set off the MAT credit. This is capped at 25% of their new tax liability. This rule incentivizes adoption of the new framework.

Customs Duty and Targeted Relief

The Budget 2026 tax proposals also delivered broad-based relief on the customs side. Basic customs duty is now exempted for 17 essential cancer drugs. This move will lower treatment costs for many patients. 

The government also announced exemptions for solar glass and battery energy storage systems. These Income Tax changes 2026, and customs reforms support clean energy and domestic manufacturing.

Why the Income Tax Bill 2025 Matters?

The income tax bill 2025 is not just about numbers; it is about changing how Indians interact with the tax department. By focusing on tax administration reforms in India, the government is moving away from complex sections. The Direct Tax Reforms 2026 will help people manage their money without fear of complicated legal language.

The Income Tax Act 2025 also offers relief to NRIs. For example, they can now use a PAN-based challan for property sales instead of needing a TAN. This is a significant part of the Income Tax changes 2026 that makes doing business easier.

Overall, the Income Tax Act India 2025 represents a shift toward a modern and transparent tax system. These Budget 2026 tax proposals ensure that while the government maintains its revenue, the taxpayer experiences much less stress.