Guwahati: Finance Minister Nirmala Sitharaman stated on Sunday that the Income Tax Act, 2025 will come into effect from April 1, 2026, with the corresponding rules and tax return forms to be issued soon.
The new legislation will replace the outdated 1961 tax law, incorporating updates announced in the 2026-27 Budget.
Speaking in the Lok Sabha during her Budget address, Sitharaman noted that the revised direct tax framework was completed swiftly and will make it simpler for taxpayers to comply.
The tax forms have been redesigned to be more user-friendly, enabling ordinary citizens to file returns with ease.
She clarified that the new Act does not change existing tax rates but significantly simplifies provisions, removes ambiguities, and reduces the number of sections and overall text by nearly half compared to the previous law.
The reform also merges the assessment and previous year concepts into a single tax year, streamlining the filing process.
Other measures include allowing TDS refunds even after deadlines without penalties, extending the period for revised income tax returns from December 31 to March 31 for a small fee, and reducing TCS rates from 5% to 2% for overseas education, medical education, and foreign tour packages.
Sitharaman further proposed that compensation awarded by the Motor Accident Claims Tribunal will not be taxable. She also introduced a rule-based automated system for small taxpayers to simplify compliance under the FY27 Budget.