The new Income Tax Act-2025 has brought great news for common taxpayers. The government has decided to completely change the tax system by eliminating the complications that were prevalent till now. This new law, which will come into effect from April 1, 2026, will replace the 60-year-old Income Tax Act (1961). Its biggest attraction is the new tax regime, in which the tax can be zero on annual income up to Rs 12 lakh. Besides, the process of filing returns and rectifying mistakes has also been made very easy and transparent, so that taxpayers will not have to visit offices.
New system will replace 60 years old law, no tax will be paid on income up to Rs 12 lakh in the new tax system
The purpose of this new law passed by the Parliament in August 2025 is to make the tax language understandable to the common man. Now instead of heavy words like ‘Assessment Year’, simple words like ‘Tax Year’ will be used. The biggest relief has been given to the middle class and employed people. The new tax regime has been made the default, in which the rebate limit has been increased to Rs 60,000. Due to this, if a salaried person opts for the new regime, effectively income up to Rs 12 lakh will become tax-free. The slabs have also been rationalized, where there is a provision of 0% tax on income up to Rs 4 lakh and only 5% tax on income Rs 4 to 8 lakh.
Now you will get full 4 years time to correct the mistake in return, but if you delay, you will have to pay heavy fine.
Often taxpayers inadvertently make mistakes while filing returns or miss out on some income. In the old rule, there was only 2 years (24 months) time for correction (Updated ITR), which has now been increased to 4 years (48 months). This facility has been given to save common taxpayers from lawsuits. However, this time limit will not be free. If you make corrections within 12 months, you will have to pay 25% additional tax, but if you update the return in the last 4 years, you may have to pay up to 70% additional amount along with tax and interest.
TDS deduction limit on rent and interest income increased, senior citizens and tenants get direct relief
In view of inflation, the government has also made major changes in the TDS rules. Elderly people paying house rent and earning from interest will get direct benefit from this. The limit for deducting TDS on rent has been directly increased from Rs 2.4 lakh to Rs 6 lakh per annum, which means there will be no hassle of TDS if the rent is less than this. At the same time, for senior citizens, the limit of TDS exemption on bank or post office interest income has been increased from Rs 50,000 to Rs 1 lakh. Additionally, special benefits in health insurance premium and basic exemptions for senior citizens (60+) and super-senior citizens (80+) have also been continued.
Rules changed for stock market and mutual fund investors, short term capital gains tax rate will now be 20 percent.
This law has brought mixed effects for investors. The short term capital gain (STCG) rate on equity shares and equity mutual funds has been increased from 15% to 20% from Budget 2024-25 onwards, which has also been retained in the new law. This means that you will have to pay more tax on earning profits in less time. At the same time, the rate of 12.5% will be applicable on Long Term Capital Gain (LTCG), although the annual exemption limit has been fixed at Rs 1.25 lakh. The rules have been simplified more than before by now bringing some investment options like debt funds under the normal tax slab.
Delay in depositing tax will no longer be considered a crime, filing returns through mobile will become even easier
To relieve small traders and taxpayers from mental stress, delay in TDS and TCS has been decriminalized. Now it will be considered only as ‘civil default’, which will eliminate the fear of criminal action. Along with this, the limits of TCS deducted on small online transactions is being increased to Rs 10 lakh. On the technology front, the ITR forms have been completely redesigned. Now there will be less columns in the form and more information will come pre-filled, so that a common taxpayer will be able to easily file the return from his mobile phone.
