In Budget 2026, Finance Minister Nirmala Sitharaman announced that the New Income Tax Act will come into force from April 1, 2026, replacing the six-decade-old 1961 law. The reform aims to simplify tax compliance, reduce penalties, ease reporting errors, and streamline ITR forms.
India to Implement New Income Tax Law from Next Financial Year
New Delhi: Union Finance Minister Nirmala Sitharaman made a major announcement regarding income tax while presenting the 2026 Budget. She stated that the new Income Tax Act will be implemented from April 1, 2026, effective from the next financial year, 2026-27. This new law will replace the nearly six-decade-old Income Tax Act, 1961.
The Finance Minister clarified that the purpose of the new Income Tax Act is to simplify tax laws and make compliance easier for taxpayers. This law does not introduce any new tax rates, but rather makes the existing law more clear and understandable by removing complex language and unnecessary provisions.
Union Budget 2026: Income Tax filing to become easier; New IT Act to come into effect from 1 April
The new Income Tax Act provides significant relief to taxpayers. In cases of misreporting, the option of paying tax exemption instead of penalty will be provided. Additionally, courts will have the power to convert sentences into fines in certain cases. This will help reduce tax disputes and reduce the burden of litigation.
After the implementation of the new law, Income Tax Return (ITR) forms will also be simplified. The government aims to make it easier for ordinary taxpayers to file their returns without any complicated procedures. Additionally, an additional exemption of up to 10 percent is proposed, beyond the applicable tax rate, which will benefit honest taxpayers.
To promote digital infrastructure, Budget 2026 also proposes tax exemptions for companies setting up data centers in India. This is expected to increase investment in the country and strengthen the digital economy.
In November last year, Central Board of Direct Taxes (CBDT) Chairman Ravi Agarwal stated that the ITR forms and rules under the simplified Income Tax Act, 2025, would be notified by January. The department aims to simplify and make compliance under the new law transparent.
Budget 2026–27 Leaves Middle Class Disappointed as Income Tax Relief Fails to Arrive
The new Income Tax Act reduces the existing 819 sections of the 1961 Act to 536 and 47 chapters to 23. Additionally, the word count has been reduced from 5.12 lakh to 2.6 lakh. 39 new tables and 40 new formulas have been included to enhance clarity.
Overall, the new Income Tax Act could prove to be a major relief for taxpayers. It will not only reduce the complexity of tax laws but also make the tax system in India more transparent and taxpayer-friendly.
