Impact of the Income Tax Act, 2025 on Individuals and Businesses in India

Vijaya B

Abstract

The Income Tax Act, 2025 marks a significant milestone in India's fiscal and taxation frameworkby replacing the long-standing Income Tax Act, 1961. Designed to modernize and simplify thecountry's direct tax system, the new legislation seeks to enhance transparency, reducecompliance burdens, promote digital governance, and align tax administration with the needs ofa rapidly evolving economy. This study is based on secondary data collected from governmentreports, policy documents, tax portals, published literature, and related news sources. Adopting adescriptive and analytical approach, the paper examines the salient features of the new Act andevaluates its impact on individual taxpayers and business entities.The study highlights several important reforms, including the introduction of a single "Tax Year"concept, simplified legislative structure, digital-first and faceless compliance mechanisms,consolidation of tax provisions, expanded coverage of virtual digital assets, and improveddispute-resolution procedures. For individuals, the Act offers greater clarity, enhancedtransparency, simplified filing procedures, and increased tax relief under the new tax regime.However, challenges such as reduced exemptions, changes in salary taxation, digital literacyrequirements, and transitional adjustments remain significant concerns. For businesses, thelegislation improves ease of doing business through streamlined compliance requirements,clearer tax provisions, and reduced litigation, while also presenting challenges related totechnological adaptation and implementation costs.The findings suggest that although short-term adjustment issues may arise, the Income Tax Act,2025 represents a progressive and forward-looking reform that can strengthen tax administration,improve compliance, encourage economic growth, and support India's long-term developmentobjectives.

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