Income Tax Act 1961 Vs Income Tax Act 2025 Comparison

On February 1, 2026, India's financial history shifted dramatically. Finance Minister Nirmala Sitharaman stated categorically that the 60-year-old Income Tax Act of 1961 should be scrapped during the Budget 2026 release.

On April 1, 2026, the "New Income Tax Act, 2025" will take its place.

Structure and Complexity

• Old Act: The Old Act of 1961 included approximately 298 core parts, but thousands of revisions throughout time had resulted in a complex web of more than 800 sections and subsections. It contained 900 explanations and more than 1,200 clauses.
• New Act (2025): The new law's simplicity is its greatest benefit.The number of sections has been reduced to approximately 536. Complex legal terms have been removed and simple language has been used so that even the average citizen can understand it.

End of Assessment Year Concept

The most radical change is in the terminology:

• Old Act: Here we used to be confused between 'Previous Year' (the year the money was earned) and 'Assessment Year' (the year the tax was paid).
• New Act: The new law eliminates this confusion. Now, there's just one term—'Tax Year.' The year you earn income will be your tax year, making reporting and filing easier.

Consolidation of Sections

• Old Act: In the old law, TDS (Tax Deducted at Source) sections were spread across sections 192 to 194T.
• New Act: The new act consolidates all TDS provisions into a single tabular form under a single major section (Section 393). Similarly, deductions from sections 80C through 80U are now properly arranged into separate sections (such as Section 123).

Digital and Faceless Administration (Digital-First Approach)

• Old Act: Although faceless assessment had begun, the basic framework of the law was still based on paperwork.
• New Act: This law is completely 'digital-first'. It clearly defines Virtual Digital Assets (VDA) such as crypto and NFTs. Furthermore, 99% of tax returns will now be processed on a self-assessment basis, minimizing official intervention.

Special provisions of Budget 2026 (Budget 2026 Updates)

Budget 2026 has made the new law even more attractive:

Relief even after reassessment: Previously, it was difficult to correct a mistake once a reassessment was initiated. Now, you can file an 'Updated Return' by paying an additional 10% tax.

MACT interest tax-free: The interest on compensation received by road accident victims will no longer be taxable.

TCS reduction: The TCS on funds sent for studies abroad has been reduced from 5% to 2%.

The main objective of the New Income Tax Act 2025 is "Trust-Based Taxation." The government wants taxpayers to understand their responsibility, not fear.This change, brought about by reducing the number of sections, simplifying the language and reducing litigation, is a big step towards making India a modern economy.

Wisdom Vani's advice: If you are still in the old tax regime, re-evaluate your tax planning before April 1, 2026, as the new law makes the 'New Tax Regime' the default and more simplified.