Union Budget 2026 : Income Tax Act, 2025 to take effect from April 1; simplified rules and forms soon: Finance Minister Nirmala Sitharaman

Finance Minister Nirmala Sitharaman on Sunday announced that the Income Tax Act, 2025 will come into force from April 1, replacing the six-decade-old Income Tax Act of 1961. She said the rules and income tax return (ITR) forms under the new law would be notified shortly to give taxpayers adequate time to familiarise themselves with the changes.

Presenting the Union Budget in the Lok Sabha, the Finance Minister said the new direct tax law had been drafted in record time and would be implemented from April 1, 2026, with changes proposed in the 2026–27 Budget also being incorporated into the legislation.

“This direct tax code has been completed in record time. The Income Tax Act, 2025 will come into effect from April 1, 2026. Simplified income tax rules and return forms will be notified shortly, allowing sufficient time for taxpayers to understand the new framework,” Sitharaman said.

She added that the ITR forms had been redesigned to ensure that ordinary citizens could comply with tax requirements without difficulty.

The new Income Tax Act is revenue-neutral and does not alter existing tax rates. Instead, it focuses on simplifying the direct tax structure, removing ambiguities and reducing litigation. The legislation cuts down the overall volume of text and number of sections by nearly 50 per cent compared to the 1961 Act.

One of the key reforms introduced under the new law is the removal of the distinction between the ‘assessment year’ and ‘previous year’. These have been replaced with a single “tax year” concept, streamlining the tax timeline.

Additionally, the new law allows taxpayers to claim refunds of tax deducted at source (TDS) even if income tax returns are filed after the due date, without attracting any penal charges.

Read Also : Punjab Police arrest two BKI operatives in Nalagarh IED blast case