25-Dec-2025 Comparison of the Income Tax Act 1961 and the Income Tax Act 2025

Key changes between the two Acts are outlined below: 

Structural and Terminological Changes 

i) Reduced Complexity: The 1961 Act had over 819 sections, which have been reduced to 536 sections in the 2025 Act, by consolidating provisions and removing redundant sections. 

ii) Unified Tax Year: The confusing distinction between "Previous Year" (when income is earned) and "Assessment Year" (when it is taxed) is replaced by a single, unified term: "Tax Year" (April 1 to March 31). 

iii) Simplified Language: The 2025 Act eliminates archaic legal language, numerous provisos, and explanations, using plain language and tables for better readability. 

iv) Consolidated Provisions: Sections for specific areas, such as Tax Deducted at Source (TDS), previously spread across many sections, are now grouped under a single section (Section 393) for easier reference.  

Substantive and Procedural Updates 

i) Digital Integration: The 2025 Act explicitly expands search and seizure provisions to include "information stored in any electronic media or a computer system," and broadens the definition of Virtual Digital Assets (VDAs) to cover cryptocurrencies and similar technologies for taxation purposes. 

a) Under the Income-tax Act, 1961, Section 2(47A) defines "Virtual Digital Asset" to include information, code, number, or token that provides a digital representation of value, excluding Indian or foreign currency, and is generated through cryptographic means or otherwise. This definition encompasses assets like non-fungible tokens (NFTs) and similar tokens and can function as a store of value or be used in financial transactions. Certain items like gift cards, loyalty points, and Central Bank Digital Currency (CBDC) are excluded.  

b) The Income Tax Act 2025 relocates the VDA definition to Section 2(111), maintaining a similar scope while specifically designating VDAs as property and capital assets. A change starting April 1, 2026, aligns the definition with the OECD's Crypto-Asset Reporting Framework (CARF), including crypto-assets that are digital representations of value based on distributed ledger technology secured by cryptography. This aims to improve reporting and align with global standards.  

ii) Dispute Resolution: The new Act introduces a more robust framework for resolving disputes, including a Dispute Resolution Committee for small and medium taxpayers, aiming to reduce litigation. 

iii) Updated Return Timelines: The time limit for filing an updated tax return (ITRU) is extended from two years to four years from the end of the relevant assessment year, giving taxpayers more time to correct errors or disclose undisclosed income. 

iv) Relaxed Home Loan Interest Deduction: For self-occupied property, the deduction for pre-construction interest is now available in addition to the post-construction interest deduction (subject to the existing cap), which was an area of ambiguity in the 1961 Act. 

v) Enhanced Rebate in New Regime: Under the default new tax regime, the rebate limit has been increased, effectively making income up to ₹12 lakh tax-exempt for individuals. 

vi) Adjusted TDS/TCS Thresholds: Certain TDS (e.g., on rent and senior citizen interest income) and TCS thresholds have been enhanced to reduce the compliance burden for taxpayers.  

The Income-tax Act, 2025, therefore, primarily modernizes the framework and simplifies compliance without a major overhaul of fundamental tax policy or rates, paving the way for a more efficient and transparent tax system in India.