The Indian government has recently introduced the Income-Tax Act 2025, a significant update that affects how individuals and businesses in India will pay their taxes from FY 2025-26 onwards. Just like the GST Act of 2017 reshaped indirect taxation, this new Income-Tax law is designed to simplify compliance, widen the tax base, and push more people towards the new tax regime.
If you are a salaried employee, self-employed professional, or business owner, you need to understand these changes right away. This blog will break it down in simple language.
Why a New Income Tax Act in 2025?
For decades, India followed the Income-Tax Act of 1961, which had been amended hundreds of times through Finance Acts and budgets. Over time, it became too complicated, confusing, and outdated.
The government felt the need for:
- Simplification of laws.
- Better alignment with the new digital economy.
- Encouraging voluntary compliance.
- Reducing litigation between taxpayers and the Income-Tax Department.
Thus, the Income-Tax Act 2025 was introduced, which will be applicable from 1st April 2025.
Major Changes in the Income Tax Act 2025
1. Tax Slabs – New vs Old Regime
The government has simplified tax slabs to push people into the new tax regime.
New Tax Regime (FY 2025-26 onwards):
| Income Slab | Tax Rate |
|---|---|
| ₹0 – ₹3 lakh | 0% |
| ₹3 – ₹7 lakh | 5% |
| ₹7 – ₹10 lakh | 10% |
| ₹10 – ₹15 lakh | 15% |
| ₹15 – ₹20 lakh | 20% |
| ₹20 – ₹25 lakh | 25% |
| Above ₹25 lakh | 30% |
✅ Rebate under section 87A has been increased – so if your income is up to ₹7 lakh, you pay zero tax.
Old Regime: Still available, but deductions like 80C, 80D, HRA, etc. apply. However, the government is clearly nudging taxpayers towards the new system.
2. Simplified Compliance
- Filing process will be pre-filled with salary, TDS, and bank interest details (using AIS & Form 26AS).
- Small taxpayers with income up to ₹10 lakh can use a 2-page ITR form.
- Refunds will be processed within 7 working days.
3. Digital Transactions Incentives
- Tax rebates for those receiving salary/business income digitally.
- Penalties for large cash transactions increased.
4. Business & Professional Income
- Presumptive taxation limits increased to encourage small businesses.
- Freelancers and gig workers get a special deduction for online income.
How the New Income Tax Act in 2025 Rules Affect Different Groups
📌 Salaried Employees
- Benefit if they don’t claim too many deductions.
- Someone earning ₹10 lakh pays only ₹60,000 tax in new regime vs nearly ₹75,000 in old regime (after deductions).
📌 Self-Employed / Freelancers
- Easier compliance.
- No need for multiple deductions paperwork.
📌 Senior Citizens
- Higher basic exemption limits.
- Better rebate structure.
Should You Choose Old or New Regime in Income Tax Act in 2025?
- New Regime best for: Salaried employees without housing loan, HRA, or high deductions.
- Old Regime best for: People with home loans, big insurance premiums, and those who maximize 80C/80D/24(b) benefits.
👉 Example:
- If your deductions are less than ₹2.5 lakh/year, the new regime is better.
- If more, stick to old regime.
Tax Saving Tips for 2025
- Use NPS (National Pension Scheme) for retirement + tax saving.
- Invest in tax-saving mutual funds (ELSS) if you choose old regime.
- Claim HRA if you live in a rented house.
- For new regime, focus on low-cost index funds and ETFs since tax-saving isn’t tied to them.
FAQs
Q1: Is Income Tax Act 1961 gone now?
➡️ From April 2025, yes. The 1961 Act will be replaced by the 2025 Act.
Q2: Is it mandatory to use the new tax regime?
➡️ No, but it’s the default. Old regime is optional.
Q3: Will income tax rates change every year now?
➡️ Only through Finance Bills (like earlier). The Act just simplifies structure.
Conclusion
The Income Tax Act 2025 is a historic move by the Indian government. For most middle-class taxpayers, the new system means less paperwork, faster refunds, and lower disputes.
👉 The smart move is to calculate tax liability under both regimes and then decide. Use tax calculators provided by portals like CAMS, ClearTax, and ET Money.
With time, expect most Indians to migrate to the new regime as it becomes simpler and more beneficial.
Also read: 🧠 Why Your Rs. 1 Crore Retirement Target Is a Joke in 2025?
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