What Changed in the Income Tax Act 2025?
India's biggest direct tax reform since 1961 — same tax, simplified statute, brand-new section numbers
The Income Tax Act 2025 officially replaces the Income Tax Act, 1961 from April 1, 2026. Passed by Parliament on 21 August 2025, it consists of 536 sections, 23 chapters, and 16 schedules — down from 819+ sections in the old law. The volume of provisions has been cut by nearly 40%, removing over 1,200 provisos and 900 explanations that were absorbed into plain language.
Critically, this is not a new tax law — it is a rewrite. Tax rates, deduction limits, exemptions, and compliance obligations are preserved intact. What changes is the organisation, language, and section numbering. Every familiar provision — 80C, 80D, 87A, Section 24b — has a new home in the new statute.
Effective: April 1, 2026
Applies from Tax Year 2026-27. FY 2025-26 returns (filed Apr–Jul 2026) still use the 1961 Act and old section numbers.
536 Sections, 16 Schedules
Compressed from 819 sections. Related provisions now grouped logically into dedicated chapters. List-based schedules replace long explanations.
Single "Tax Year" Concept
"Previous Year" and "Assessment Year" are abolished. A single Tax Year (April 1 to March 31) covers both earning and reporting — ending decades of confusion.
Digital-First Compliance
Faceless assessment, e-filing, and data-driven compliance are embedded in the Act's language. Parallel reading utility available on the IT portal for old-to-new section lookup.
The New "Tax Year" — No More FY / AY
One of the most visible terminological changes in the new Act
Under the old Income Tax Act, 1961, two overlapping concepts caused persistent confusion: the Previous Year (the year in which income was earned) and the Assessment Year (the following year in which that income was taxed and the return was filed). These were used interchangeably and inconsistently across notices, returns, and orders.
The Income Tax Act 2025 abolishes both and introduces a single term: Tax Year. A Tax Year is a 12-month period commencing April 1 in which income is earned and also reported. The first Tax Year under the new Act is Tax Year 2026-27 (April 1, 2026 to March 31, 2027).
| Old Terminology (1961 Act) | New Terminology (2025 Act) | Meaning |
|---|---|---|
| Previous Year (PY) | Tax Year | Year in which income is earned |
| Assessment Year (AY) | Tax Year (same year) | Year in which return is filed — now unified |
| FY 2025-26 / AY 2026-27 | — | Still under old 1961 Act for returns filed Apr–Jul 2026 |
| FY 2026-27 / AY 2027-28 | Tax Year 2026-27 | First year under new Income Tax Act 2025 |
Old → New Section Number Map
Every major tax-saving section under the 1961 Act and its exact new location in the Income Tax Act 2025
| Old Section (1961 Act) | New Section (2025 Act) | Description | Limit / Benefit |
|---|---|---|---|
| 80C / 80CCE / 80CCC | Section 123 + Schedule XV | PPF, ELSS, EPF, LIC, NSC, SCSS, SSY, home loan principal, tuition fees, 5-yr FD | ₹1,50,000 |
| 80CCD (1, 1B, 2) | Section 124 | NPS — employee contribution, extra ₹50K deduction, employer contribution | ₹50,000 extra + employer 14%/10% |
| 80D | Section 126 | Health insurance premiums — self/family + parents (incl. preventive checkup ₹5K) | ₹25K + ₹25K (₹50K senior) |
| 80DD | Section 127 | Medical treatment / maintenance of dependant with disability | ₹75K – ₹1.25L |
| 80DDB | Section 128 | Medical treatment of specified diseases (self or dependant) | ₹40K / ₹1L (senior) |
| 80E | Section 129 | Interest on education loan — higher education, 8 years, no upper limit | Full interest, no cap |
| 80EE | Section 130 | Additional home loan interest — first-time buyer (older loans) | ₹50,000 |
| 80EEA | Section 131 | Additional interest deduction — affordable housing loan (pre-Mar 2022 sanction) | ₹1,50,000 |
| 80EEB | Section 132 | Interest deduction on loan for electric vehicle purchase | ₹1,50,000 |
| 80G / 80GGA / 80GGC | Section 133 | Donations to approved funds, charities, PM CARES, political parties | 50%–100% of donation |
| 80TTA / 80TTB | Section 140 / 141 | Interest on savings account / senior citizen bank & FD interest deduction | ₹10K / ₹50K (senior) |
| Section 24(b) | Section 22 | Home loan interest — self-occupied (old regime only) and let-out property | ₹2,00,000 (self-occ.) |
| Section 10(13A) — HRA | Section 11 / Schedule II | HRA exemption — salaried in rented accommodation (old regime only) | Least of: Actual HRA / 50-40% salary / rent – 10% |
| Section 16 — Standard Deduction | Section 19 | Standard deduction for salaried and pensioners — both regimes | ₹75,000 |
| Section 87A — Rebate | Section 156 | Tax rebate for resident individuals — zero tax up to ₹12L (new regime) | Up to ₹60,000 rebate |
| Section 115BAC — New Regime | Section 202 | New default tax regime with lower slab rates, fewer deductions | Default from Tax Year 2026-27 |
| Section 54 | Section 82 | Capital gains exemption — residential house property sold, reinvested in house | ₹10 crore cap |
| Section 54B | Section 83 | Capital gains on agricultural land — reinvested in agricultural land | Full exemption |
| Section 54EC | Section 85 | Capital gains — invested in NHAI/REC bonds within 6 months | ₹50,00,000 |
| Section 54F | Section 86 | Capital gains on any long-term asset — reinvested in residential house | Full / proportionate |
| Section 112A — LTCG equity | Section 198 | Long-term capital gains on equity shares / equity MF — 12.5% above ₹1.25L | ₹1,25,000 exempt p.a. |
| Section 80JJAA | Section 150 | Additional deduction on wages paid to new employees (30% for 3 years) | 30% of new employee wages |
| Section 139 — ITR filing | Section 263 | Filing of income tax returns — due dates, belated returns, revised returns | July 31 (individuals) |
| Section 194 series — TDS | Section 393 + schedules | TDS on salary, interest, rent, professional fees, contractor payments — consolidated | Per schedule rates |
Old Regime vs New Regime (Section 202)
Section 202 of the Income Tax Act 2025 (formerly Section 115BAC) — the default tax regime from Tax Year 2026-27
Default — Section 202 (new Act)
New Tax Regime
- Zero tax up to ₹12L (rebate u/s 156)
- ₹12.75L zero-tax for salaried (with ₹75K std deduction u/s 19)
- Lower slab rates across all brackets
- Standard deduction ₹75K available (Section 19)
- Employer NPS contribution deductible (Section 124)
- Home loan interest on let-out property deductible (Section 22)
- No Section 123 deduction (80C equivalent)
- No Section 126 (health insurance premium deduction)
- No HRA exemption (Section 11 / Schedule II)
- No Section 22 home loan interest for self-occupied property
Opt-in required — old regime
Old Tax Regime
- Section 123: ₹1.5L deduction (80C equivalent)
- Section 124: NPS extra ₹50K deduction
- Section 126: Health insurance premium deduction
- HRA exemption (Section 11 / Schedule II)
- Section 22: Home loan interest up to ₹2L
- Section 129: Education loan interest (full)
- Section 133: Donation deductions (80G)
- Higher slab rates before deductions applied
- Must opt in — salaried: annually; business: once only
- Investment-linked — requires actual cash outgo
Income Tax Slabs — Tax Year 2026-27
Tax rates under both regimes — unchanged from FY 2025-26, now codified in the new Act
Section 202 — New Tax Regime (Default)
| Income Slab | Tax Rate | Key Note |
|---|---|---|
| Up to ₹4,00,000 | Nil | Tax Free |
| ₹4,00,001 – ₹8,00,000 | 5% | |
| ₹8,00,001 – ₹12,00,000 | 10% | Section 156 rebate wipes tax below ₹12L |
| ₹12,00,001 – ₹16,00,000 | 15% | |
| ₹16,00,001 – ₹20,00,000 | 20% | |
| ₹20,00,001 – ₹24,00,000 | 25% | |
| Above ₹24,00,000 | 30% | Peak rate |
Old Tax Regime (Opt-in)
| Income Slab | Rate | Applicable to |
|---|---|---|
| Up to ₹2,50,000 | Nil | All individuals |
| Up to ₹3,00,000 | Nil | Senior citizens (60–80 yrs) |
| Up to ₹5,00,000 | Nil | Super senior (80+ yrs) |
| ₹2.5L – ₹5,00,000 | 5% | Section 156 rebate — net ₹0 up to ₹5L |
| ₹5,00,001 – ₹10,00,000 | 20% | All individuals |
| Above ₹10,00,000 | 30% | All individuals |
Key Deductions Under the Income Tax Act 2025
New section numbers with old section reference — available under old regime unless noted
| New Section (2025 Act) | Old Section (1961) | Deduction | Limit | Regime |
|---|---|---|---|---|
| Section 123 + Sch. XV | 80C / 80CCE | ELSS, PPF, EPF, LIC, NSC, SCSS, SSY, home loan principal, tuition fees | ₹1,50,000 | Old only |
| Section 124 | 80CCD(1B) | Additional NPS contribution over Section 123 limit | ₹50,000 | Old only |
| Section 124 (employer) | 80CCD(2) | Employer's NPS contribution — above ₹1.5L overall limit | 14% of salary (govt) / 10% (others) | Both regimes |
| Section 126 | 80D | Health insurance premium — self/family + parents; preventive ₹5K included | ₹25K + ₹25K (₹50K for senior parents) | Old only |
| Section 22 | 24(b) | Home loan interest — self-occupied property (old regime); let-out property (both) | ₹2,00,000 (self-occ.) | Self-occ: Old only |
| Section 129 | 80E | Education loan interest — higher education, 8 years, no upper cap | Full interest | Old only |
| Section 19 | Section 16 | Standard deduction for salaried employees and pensioners | ₹75,000 | Both regimes |
| Section 11 / Sch. II | 10(13A) — HRA | HRA exemption — salaried in rented accommodation | Least of 3 conditions | Old only |
| Section 156 | 87A | Tax rebate — up to ₹60,000 for resident individuals; zero tax up to ₹12L (new regime) | ₹60,000 rebate (new) / ₹12,500 (old) | Both regimes |
| Section 133 | 80G | Donations to approved funds, PM CARES, PMNRF, approved charities | 50%–100% of donation | Old only |
| Section 131 | 80EEA | Additional interest — affordable housing loan (sanctioned before 31 Mar 2022) | ₹1,50,000 | Old only |
| Section 132 | 80EEB | Interest on loan taken for purchase of electric vehicle | ₹1,50,000 | Old only |
Top 10 Legal Tax Saving Strategies — Tax Year 2026-27
Ethical, fully compliant strategies using new Income Tax Act 2025 section numbers
Max Out Section 123 + Section 124 (NPS)
Save up to ₹63,180
Invest ₹1.5L under Section 123 (old 80C — ELSS, PPF, NSC, LIC, EPF) and an additional ₹50,000 in NPS Tier-I under Section 124 (old 80CCD(1B)). Total ₹2L deduction at 30% slab saves ₹63,180 including cess.
New Act: Sec 123 + Sec 124 | Old: 80C + 80CCD(1B)
HRA Exemption — Section 11 / Schedule II
Save ₹20,000–₹1,00,000+
Salaried in rented accommodation can claim HRA exemption under Section 11 read with Schedule II (old Section 10(13A)). Maintain rent receipts, rent agreement, and landlord's PAN if rent exceeds ₹1L/year. Now also requires disclosure of relationship with landlord for rent > ₹1L/year.
New Act: Sec 11 + Sch II | Old: 10(13A)
Home Loan Interest — Section 22
Save up to ₹62,400
Claim up to ₹2L home loan interest on self-occupied property under Section 22 (old Section 24b) in the old regime. For let-out properties, full interest is deductible under Section 22 in both regimes — no ceiling for let-out property.
New Act: Sec 22 | Old: Sec 24(b)
Health Insurance Premium — Section 126
Save up to ₹23,400
Buy health insurance for self/family (₹25K) and senior citizen parents (₹50K) for a total ₹75K deduction under Section 126 (old 80D). Preventive health checkups up to ₹5,000 also qualify within this limit.
New Act: Sec 126 | Old: 80D
ELSS — Best Instrument Under Section 123
Market-linked + tax saving
ELSS (Equity Linked Savings Scheme) is listed in Schedule XV of Section 123 (old 80C). It has the shortest lock-in (3 years) among eligible instruments, with equity-linked market returns. Redemption gains above ₹1.25L are taxed at 12.5% under Section 198 (old 112A) — still highly efficient.
New Act: Sec 123 Sch XV | Old: 80C
NPS — Triple Tax Benefit via Section 124
Save up to ₹93,600
NPS provides deduction on: (a) employee contribution within ₹1.5L (Section 123), (b) extra ₹50K (Section 124), and (c) employer contribution 10–14% of salary (Section 124 — available in new regime too). At retirement, 60% of corpus is tax-free. One of the most powerful triple-benefit instruments.
New Act: Sec 124 | Old: 80CCD(1B) + 80CCD(2)
Education Loan Interest — Section 129
100% of interest, no cap
Interest on higher education loan for self, spouse, children, or legal ward is fully deductible under Section 129 (old 80E) for up to 8 consecutive years. No ceiling — a loan at 10% on ₹20L generates ₹2L in deductible interest in year one.
New Act: Sec 129 | Old: 80E
LTCG Harvesting — Section 198 Exemption
Save ₹15,625 per year
Long-term capital gains on equity and equity mutual funds are exempt up to ₹1.25 lakh per Tax Year under Section 198 (old Section 112A). Systematically book and reinvest gains each year — often called "LTCG harvesting" — to utilise this annual exemption completely.
New Act: Sec 198 | Old: 112A
Capital Gains Bonds — Section 85
Defer up to ₹50L in gains
Invest long-term capital gains from any asset in NHAI / REC bonds within 6 months under Section 85 (old Section 54EC) to defer capital gains tax. Lock-in is 5 years. Maximum investment: ₹50 lakh per Tax Year. Particularly valuable for property sale gains.
New Act: Sec 85 | Old: 54EC
Donations — Section 133 (80G)
50–100% deductible
Donations to PM CARES, PMNRF, government relief funds (100% deduction), or CBSE, approved NGOs (50–100% deduction) qualify under Section 133 (old 80G). Ensure the donee has a valid 80G certificate (now registered under new Act). Always obtain a receipt with the donee's registration number.
New Act: Sec 133 | Old: 80G
Tax Planning for Salaried Employees
How to use the new Act's provisions optimally if you earn salary income
1. Compare
Run actual tax numbers — Sec 202 (new) vs old regime
2. Declare
Inform employer of regime choice (Form 12BB)
3. Submit Proofs
Rent receipts, Sec 123 investments, Sec 126 premiums
4. Invest
Complete ELSS/PPF/NPS by end of February
5. File ITR
File ITR-1/ITR-2 by July 31 (Section 263)
Tax-Free Salary Allowances Under Section 19 / Section 11 (Old Regime)
| Allowance | New Act Section | Old Section | Exemption |
|---|---|---|---|
| Standard Deduction (salaried + pensioner) | Section 19 | Section 16 | ₹75,000 — both regimes |
| HRA — House Rent Allowance | Section 11 / Sch. II | 10(13A) | Old regime only; 8-city 50% rule (now includes Bengaluru, Hyderabad, Pune, Ahmedabad) |
| Leave Travel Concession (LTC) | Section 11 / Sch. II | 10(5) | Actual travel — 2 domestic trips per 4-year block |
| Gratuity on retirement | Section 19 | 10(10) | Up to ₹20 lakh — both regimes |
| Leave encashment on retirement | Section 19 | 10(10AA) | Up to ₹25 lakh — both regimes |
| Employer NPS contribution | Section 124 | 80CCD(2) | Up to 14% of salary (govt) / 10% (others) — both regimes |
| Meal allowance / food coupons | Section 11 / Sch. II | 10(14) | ₹50/meal (≈₹26,400/yr) via approved vouchers |
Tax Planning for Business Owners & Professionals
Key deductions and structural choices under the Income Tax Act 2025
Depreciation — Section 33 (old Sec 32)
Claim depreciation on business assets under Section 33. Additional 20% depreciation on new plant & machinery in manufacturing. Substantially reduces taxable profit for capital-intensive businesses.
Presumptive Taxation — Sec 44AD / 44ADA
Businesses up to ₹3Cr turnover (digital) and professionals up to ₹75L can opt for presumptive income (6%/8% or 50%) — no mandatory books, no audit. Highly beneficial for consultants, freelancers, and small traders.
New Jobs — Section 150 (old 80JJAA)
30% additional deduction on wages paid to newly hired employees for 3 consecutive years under Section 150. Employee must earn ≤ ₹25,000/month and complete ≥ 240 days. Available to audit-liable businesses only.
Scientific Research Deduction
Expenditure on in-house R&D and contributions to approved research institutions qualify for 100% (or weighted) deductions. Specific qualifying conditions under the new Act — consult the relevant section for current rates.
VDA / Crypto Taxation Clarified
The Act formally defines Virtual Digital Assets (including cryptocurrencies) as taxable capital assets. VDA gains are taxed at 30% (flat) with no deductions except cost of acquisition. Loss on VDA cannot be set off against any other income.
Business Expense Claims — Sec 37
All genuine business expenses — rent, salaries, professional fees, internet, advertising, travel, software, equipment — are deductible if wholly and exclusively for business. The new Act preserves this principle. Maintain proper invoices and bank records for all claims.
Capital Gains Tax Planning — New Act 2025
Capital gains provisions reorganised under Sections 67, 196, 197, 198 — same rates, cleaner structure
| Asset | Holding for LTCG | STCG (New Sec) | LTCG (New Sec) | Key Exemption |
|---|---|---|---|---|
| Equity shares / Equity MF | 12 months | 20% (Sec 196) | 12.5% (Sec 198) | ₹1.25L exempt p.a. — Section 198 |
| Debt mutual funds (post Apr 2023) | 24 months | Slab rate (Sec 197) | Slab rate (Sec 197) — no indexation | Nil |
| Real estate property | 24 months | Slab rate | 12.5% without indexation OR 20% with indexation (pre-Jul 2024 assets) |
Section 82 — reinvest in house (₹10Cr cap) |
| Gold (physical / ETF) | 24 months | Slab rate | 12.5% | Sovereign Gold Bonds — exempt at maturity |
| Unlisted shares | 24 months | Slab rate | 12.5% | Nil |
Capital Gains Exemption Sections — New Act 2025
| New Section | Old Section | Description | Cap / Limit |
|---|---|---|---|
| Section 82 | 54 | Residential house sold — reinvest in new house (buy within 2 yrs / construct 3 yrs) | ₹10 crore cap |
| Section 83 | 54B | Agricultural land sold — reinvest in agricultural land within 2 years | Full exemption |
| Section 85 | 54EC | Any long-term asset — invest proceeds in NHAI/REC bonds within 6 months | ₹50,00,000 |
| Section 86 | 54F | Any long-term capital asset (not house) — reinvest in residential house | Full / proportionate |
Tax Planning Data & Visuals
Visual comparison of tax regimes, deduction impact, and saving instrument analysis
Tax Liability — Section 202 (New) vs Old Regime
Net tax at various income levels (old regime assumes max deductions)
Section 123 (80C) Instruments — Risk vs Return vs Liquidity
Radar comparison of eligible Schedule XV instruments
Tax Saved Per Deduction Section (at 30% slab)
Annual tax saving for each major deduction under the 2025 Act (₹)
Most-Used Section 123 (80C) Instruments
% of Indian taxpayers utilising each eligible instrument
Year-End Tax Planning Checklist — Tax Year 2026-27
Complete before March 31 each year to leave zero money on the table
- Run full tax computation under both regimes — Section 202 (new) and old regime — with actual numbers
- If choosing old regime: declare to employer via Form 12BB; file Form 10-IEA if business income
- Maximise Section 123 investments up to ₹1,50,000 — ELSS, PPF top-up, NSC, LIC premium, SCSS
- Make additional ₹50,000 NPS Tier-I contribution under Section 124 (over and above Section 123)
- Pay health insurance premium for self/family and senior citizen parents — Section 126 (up to ₹75,000)
- Pay preventive health checkup expenses within ₹5,000 (sub-limit within Section 126)
- Submit HRA proof to employer — rent receipts, agreement, landlord PAN; disclose relationship if rent > ₹1L
- LTCG harvest: Book equity / equity MF gains up to ₹1.25L under Section 198 — then reinvest
- Tax-loss harvest: Sell loss-making investments to offset capital gains before March 31
- Make eligible charitable donations under Section 133 — obtain receipt with donee's new-Act registration number
- Submit Form 12BB to employer with all investment proofs for correct TDS deduction
- Verify AIS (Annual Information Statement) and Form 26AS for any income mismatch that may trigger a notice
- Pay advance tax (4th installment) by March 15 if self-employed or freelancer — avoid 234B/234C interest
- Confirm TDS software / payroll tools are updated for new section numbers effective April 1, 2026
- File ITR under Section 263 (old 139) by July 31 — use correct ITR form for your income type
Frequently Asked Questions
Common questions on the Income Tax Act 2025 and legal tax saving