📘 THE INCOME TAX ACT, 2025
Act No. 30 of 2025
Presidential Assent: 21st August, 2025
Commencement: 1st April, 2026
Total Sections: 536 | Total Schedules: XVI (16)
Extent: Whole of India
⚠️ EDUCATIONAL RESOURCE ONLY
Disclaimer: This webpage is created for educational and informational purposes only. It is NOT a substitute for professional legal or tax advice. The Income Tax Act, 2025 contains 536 sections and XVI schedules. This resource covers key provisions with examples and explanations. For official reference, please consult the complete Act as published in the Gazette of India or seek advice from qualified Chartered Accountants, Tax Consultants, or Legal Professionals.
CHAPTER I: PRELIMINARY (Sections 1-2)
📜 Actual Text from Act
1.(1) This Act may be called the Income-tax Act, 2025.
(2) It extends to the whole of India.
(3) Save as otherwise provided in this Act, it shall come into force on the 1st April, 2026.
💡 Explanation
This section provides three fundamental aspects of the new Income Tax Act, 2025:
- Title: The official name is "Income-tax Act, 2025" (Act No. 30 of 2025)
- Territorial Jurisdiction: The Act applies to the entire territory of India, including all states, union territories, and special administrative regions
- Effective Date: The Act comes into force from April 1, 2026 (beginning of Financial Year 2026-27). This replaces the Income Tax Act, 1961
Key Point: Income earned in FY 2025-26 will be taxed under the old Act (1961), while income from FY 2026-27 onwards will be taxed under the new Act (2025).
📊 Example 1: Applicability Timeline
Mr. Rajesh Kumar is a salaried employee in Mumbai.
| Financial Year | Income Earned | Applicable Act | Filing Year |
|---|---|---|---|
| FY 2024-25 | ₹8,00,000 | Income Tax Act, 1961 | 2025-26 |
| FY 2025-26 | ₹9,00,000 | Income Tax Act, 1961 | 2026-27 |
| FY 2026-27 | ₹10,00,000 | Income Tax Act, 2025 | 2027-28 |
| FY 2027-28 onwards | Future income | Income Tax Act, 2025 | Subsequent years |
Conclusion: Rajesh's income from April 1, 2026 onwards will be governed by the new Act.
⚖️ Relevant Case Law
Case: State of Gujarat vs. Vora Fiddali Badruddin, [1964] 5 SCR 314 (Supreme Court)
Principle: A statute comes into operation from the date specified in the commencement clause. Unless otherwise stated, the law applies prospectively from the commencement date.
Relevance: This case establishes that Section 1(3) makes it clear that the Income Tax Act, 2025 will apply only to income earned on or after April 1, 2026, unless specific provisions state otherwise.
🔄 Flowchart: Determining Applicable Act
1st April, 2026?
Income Tax Act, 2025
Income Tax Act, 1961
📜 Key Definitions from Section 2
This section contains over 100 definitions. Here are the most important ones:
(5) "Agricultural income" means:
- (a) Any rent or revenue derived from land situated in India used for agricultural purposes
- (b) Any income derived from such land by agriculture or processing produce
- (c) Income from farm buildings
(11) "Assessee" means a person by whom any tax or any other sum of money is payable under this Act, and includes:
- Every person in respect of whom any proceeding has been taken
- Every person deemed to be an assessee
- Every person deemed to be an assessee in default
(22) "Capital asset" means property of any kind held by an assessee, whether or not connected with business or profession, but does NOT include:
- (i) Any stock-in-trade, consumable stores, or raw materials
- (ii) Personal effects (except jewelry, archaeological collections, drawings, paintings, sculptures, art work)
- (iii) Agricultural land in India, not situated:
- (A) in any area within the jurisdiction of a municipality or notified area committee, town area committee, or cantonment board having population of 10,000 or more; or
- (B) in any area within specified distance from municipality limits based on population
- (iv) Gold Deposit Bonds and certain certificates
(91) "Tax year" means the twelve-month period of the financial year commencing on 1st April.
💡 Explanation
Section 2 is the definitional section containing detailed meanings of terms used throughout the Act. Understanding these definitions is crucial as they form the foundation for interpreting all other provisions.
Important Points:
- Agricultural Income: Completely exempt from tax under this Act (covered in Schedule II)
- Capital Asset: Gains from transfer of capital assets are taxed under "Capital Gains" head
- Tax Year: Replaces the old concepts of "Previous Year" and "Assessment Year" - now it's just one unified "Tax Year"
📊 Example 2: Capital Asset Determination
Mrs. Priya Sharma owns various assets. Let's determine which are capital assets:
| Asset | Description | Capital Asset? | Reason |
|---|---|---|---|
| Residential House | In Mumbai city | ✓ YES | Property is always a capital asset |
| Agricultural Land | In rural village, Uttar Pradesh | ✗ NO | Not in municipal limits |
| Agricultural Land | In Gurugram Municipal limits | ✓ YES | Within municipality |
| Gold Jewelry | Personal jewelry worth ₹5 lakhs | ✓ YES | Jewelry is capital asset |
| Personal Car | Used for personal transport | ✗ NO | Personal effect (not jewelry/art) |
| Textile Stock | Inventory in her boutique | ✗ NO | Stock-in-trade for business |
| Painting | Original artwork by M.F. Husain | ✓ YES | Art work is capital asset |
Tax Implication: When Priya sells any capital asset, she will pay tax on Capital Gains. Sale of non-capital assets will not attract capital gains tax.
⚖️ Relevant Case Law
Case: CIT vs. Mohanbhai Pamabhai, [1973] 91 ITR 393 (Supreme Court)
Principle: Agricultural land within municipal or cantonment board limits, or within specified distance from such limits, is a capital asset and gains from its transfer are taxable as capital gains.
Relevance: This interpretation continues under Section 2(22) of the new Act. Location of agricultural land is crucial in determining whether it's a capital asset.
🔄 Flowchart: Is it a Capital Asset?
Business Inventory?
(Business Income)
Limits or Specified
Distance?
(except jewelry/art)?
CHAPTER II: BASIS OF CHARGE (Sections 3-10)
📜 Actual Text from Act
3.(1) For the purposes of this Act, 'tax year' means the twelve-month period of the financial year commencing on the 1st April.
(2) In case of business or profession newly set up, or source of income newly coming into existence in any financial year, the tax year shall be the period beginning from the date of setting up of the business or profession or the date on which the source of income comes into existence and ending on the 31st March of that financial year.
💡 Explanation
Major Change from Old Act: The new Act introduces a unified concept of "Tax Year" which replaces both "Previous Year" and "Assessment Year" from the old Income Tax Act, 1961.
Key Points:
- Tax Year = Financial Year (April 1 to March 31)
- Income earned in a tax year is taxed in that same tax year
- For new businesses: Tax year is from start date to March 31 of that FY
- This simplification eliminates confusion between previous year and assessment year
📊 Example 3: Tax Year for New Business
Ms. Anjali starts a consultancy business on July 15, 2026.
Calculation of First Tax Year:
- Business Start Date: July 15, 2026
- End of Financial Year: March 31, 2027
- First Tax Year: July 15, 2026 to March 31, 2027 (8.5 months)
- Second Tax Year onwards: April 1 to March 31 (full 12 months)
Income earned from July 15, 2026 to March 31, 2027 will be taxed for Tax Year 2026-27.
| Period | Duration | Tax Year |
|---|---|---|
| July 15, 2026 - March 31, 2027 | 8.5 months | 2026-27 |
| April 1, 2027 - March 31, 2028 | 12 months | 2027-28 |
| April 1, 2028 - March 31, 2029 | 12 months | 2028-29 |
⚖️ Relevant Case Law
Case: CIT vs. M.P. Ramachandran, [1974] 94 ITR 254 (Supreme Court)
Principle: The concept of "previous year" (now "tax year") is fundamental to the scheme of income tax. Income must be related to a specific period for assessment purposes.
Relevance: The principle remains applicable under Section 3 - income must be attributed to a defined tax year for proper taxation.
🔄 Flowchart: Determining Tax Year
starting mid-year?
Start Date to March 31
April 1 to March 31
April 1 to March 31
(Standard FY)
📜 Actual Text from Act
4.(1) Where any Central Act enacts that income-tax shall be charged for any tax year at any rate or rates, income-tax for such tax year shall be charged at that rate or those rates in accordance with, and subject to the provisions of, this Act.
(2) The charge of income-tax under sub-section (1) shall, in respect of an assessee, apply to the total income of such assessee for such tax year.
💡 Explanation
This is the CHARGING SECTION - the most important provision of the entire Act. It creates the legal liability to pay income tax.
Key Points:
- Section 4 is the foundation on which entire tax liability rests
- Without this section, no tax can be charged despite other provisions
- Tax is charged on "Total Income" as computed under the Act
- Tax rates are notified by Finance Act each year
- Every assessee's total income is subject to this charge
Two-Step Process:
- Step 1: Compute Total Income as per provisions of this Act
- Step 2: Apply tax rates (from Finance Act) to the Total Income
📊 Example 4: How Income Tax is Charged
Mr. Vikram Kumar's income for Tax Year 2026-27:
COMPUTATION OF TOTAL INCOME:
| Head of Income | Amount (₹) |
|---|---|
| Salaries | 8,00,000 |
| Income from House Property (Rental Income) | 2,40,000 |
| Profits and Gains from Business or Profession | 0 |
| Capital Gains | 1,50,000 |
| Income from Other Sources (Interest on FD) | 60,000 |
| GROSS TOTAL INCOME | 12,50,000 |
| Less: Deductions under Chapter VIII | (1,50,000) |
| TOTAL INCOME | 11,00,000 |
APPLICATION OF SECTION 4:
Under Section 4(2), income tax shall be charged on the Total Income of ₹11,00,000 as per the rates prescribed in the Finance Act for the Tax Year 2026-27.
(Actual tax rates would be specified in the Finance Act)
⚖️ Relevant Case Law
Case: CIT vs. B.C. Srinivasa Setty, [1981] 128 ITR 294 (Supreme Court)
Principle: "The charging section is the core of the Income Tax Act. Unless the charging section specifically applies to a particular income, the machinery provisions for computing income and imposing liability cannot be invoked."
Ratio: Without a valid charging provision, no tax liability can arise, regardless of computational provisions.
Relevance: Section 4 is the charging provision without which no tax can be levied under the Income Tax Act, 2025.
🔄 Flowchart: How Income Tax is Charged
(Salary, House Property, Business, Capital Gains, Other Sources)
= Gross Total Income
(Section 4 applies to this)
(as per Finance Act)
(Chapter IX)
📜 Actual Text from Act
5.(1) Subject to the provisions of this Act, the total income of any tax year of a person who is a resident includes all income from whatever source derived which:
- (a) is received or is deemed to be received in India during such tax year by or on behalf of such person; or
- (b) accrues or arises or is deemed to accrue or arise to such person in India during such tax year; or
- (c) accrues or arises to such person outside India during such tax year.
(2) Subject to the provisions of this Act, the total income of any tax year of a person who is a non-resident includes all income from whatever source derived which:
- (a) is received or is deemed to be received in India during such tax year by or on behalf of such person; or
- (b) accrues or arises or is deemed to accrue or arise to such person in India during such tax year.
💡 Explanation
This section defines the SCOPE OF TAXATION based on residential status. It establishes what income is taxable in India.
Key Principle: Residential Status Determines Tax Liability
| Type of Income | Resident | Non-Resident |
|---|---|---|
| Income received in India | ✓ Taxable | ✓ Taxable |
| Income accruing/arising in India | ✓ Taxable | ✓ Taxable |
| Income accruing/arising outside India | ✓ Taxable | ✗ Not Taxable |
Important Points:
- Residents: Global income taxable (India + Foreign)
- Non-Residents: Only India-sourced income taxable
- Residential status is determined under Section 6
📊 Example 5: Taxability Based on Residential Status
Mr. Arjun Singh and Mr. David Wilson both have following incomes in Tax Year 2026-27:
| Income Source | Amount (₹) | Mr. Arjun (Resident) | Mr. David (Non-Resident) |
|---|---|---|---|
| Salary from Indian Company | 10,00,000 | Taxable | Taxable |
| Rental Income from property in Mumbai | 3,00,000 | Taxable | Taxable |
| Interest from Fixed Deposit in SBI | 80,000 | Taxable | Taxable |
| Salary from Singapore Company (for services in Singapore) |
15,00,000 | Taxable | Not Taxable |
| Dividend from US Company | 2,00,000 | Taxable | Not Taxable |
| TOTAL TAXABLE INCOME IN INDIA | ₹30,80,000 | ₹13,80,000 | |
Conclusion: Arjun (resident) pays tax on global income. David (non-resident) pays tax only on Indian income.
⚖️ Relevant Case Law
Case: CIT vs. R.D. Agarwal, [1965] 56 ITR 20 (Supreme Court)
Principle: Residential status is the key determinant of tax liability. The scope of total income depends entirely on whether the assessee is a resident or non-resident.
Relevance: This principle continues under Section 5 - residential status under Section 6 must be determined first to ascertain scope of total income.
📜 Actual Text from Act (Simplified)
6.(1) An individual is said to be resident in India in any tax year if:
- Condition A: Present in India for 182 days or more during the tax year; OR
- Condition B: Present in India for 60 days or more during the tax year AND 365 days or more in aggregate during the 4 years preceding the tax year.
(2) If neither condition is satisfied, the individual is a non-resident.
(Note: Special provisions exist for Indian citizens leaving India for employment, Indian citizens/PIOs on visit to India, etc.)
💡 Explanation
Residential status is determined based on physical presence in India during the tax year and preceding years.
Two Basic Tests for Residency:
- Test 1: Stay in India for 182+ days in current tax year (simple test)
- Test 2: Stay 60+ days in current year AND 365+ days in previous 4 years combined
Important: If you satisfy EITHER test, you are a RESIDENT. Both tests are not required.
📊 Example 6: Determining Residential Status
Case: Mr. Rahul Patel, Indian Citizen working in USA
Days of Stay in India:
| Period | Days in India |
|---|---|
| Tax Year 2026-27 (Current Year) | 75 days |
| Tax Year 2025-26 | 100 days |
| Tax Year 2024-25 | 90 days |
| Tax Year 2023-24 | 110 days |
| Tax Year 2022-23 | 100 days |
| Total in 4 preceding years | 400 days |
APPLYING THE TESTS:
Test 1: 182+ days in current year?
➤ 75 days < 182 days → ✗ NOT SATISFIED
Test 2: 60+ days in current year AND 365+ days in previous 4 years?
➤ Current Year: 75 days ≥ 60 days → ✓ YES
➤ Previous 4 Years: 400 days ≥ 365 days → ✓ YES
➤ BOTH CONDITIONS SATISFIED
RESULT: Mr. Rahul is a RESIDENT for Tax Year 2026-27
Tax Implication: His global income (India + USA) will be taxable in India
🔄 Flowchart: Determining Residential Status
182+ days in tax year?
AND
365+ days in previous 4 years?
📚 COMPLETE STRUCTURE: ALL 23 CHAPTERS
CHAPTER III
Incomes Which Do Not Form Part of Total Income
Section 11-12
Covers exempt incomes as per Schedules II to VIII including agricultural income, receipts from life insurance, gifts, scholarships, etc.
CHAPTER IV
Computation of Total Income
Sections 13-95
Five Heads of Income:
- Part A: Salaries
- Part B: Income from House Property
- Part C: Profits and Gains from Business or Profession
- Part D: Capital Gains
- Part E: Income from Other Sources
CHAPTER V
Income of Other Persons Included in Assessee's Income
Sections 96-100
Clubbing provisions - income of spouse, minor child, transfer of assets without adequate consideration, etc.
CHAPTER VI
Aggregation of Income
Section 101
How to aggregate income from various heads to arrive at Gross Total Income.
CHAPTER VII
Set Off or Carry Forward and Set Off of Losses
Sections 102-112
Rules for setting off losses against income, carry forward provisions, time limits for different types of losses.
CHAPTER VIII
Deductions to be Made in Computing Total Income
Sections 113-155
Deductions from Gross Total Income including investments in specified instruments, donations, interest on loans, medical insurance premiums, etc.
CHAPTER IX
Rebates and Reliefs
Sections 156-161
Rebates available, relief for double taxation, foreign tax credit provisions.
CHAPTER X
Special Provisions Relating to Avoidance of Tax
Sections 162-171
Transfer pricing, deemed income provisions, transactions to avoid tax liability.
CHAPTER XI
General Anti-Avoidance Rule (GAAR)
Sections 172-185
GAAR provisions to prevent abusive tax avoidance arrangements.
CHAPTER XII
Determination of Tax in Special Cases
Sections 186-217
Special provisions for shipping, non-residents, foreign companies, etc.
CHAPTER XIII
Mode of Payment in Certain Cases, etc.
Sections 218-229
Payment modes, designated banks, payment through digital methods.
CHAPTER XIV
Tax Administration
Sections 230-246
Income tax authorities, their powers, jurisdiction, appointment of officers.
CHAPTER XV
Return of Income
Sections 247-267
Who must file return, due dates, forms, verification, revised returns, belated returns, updated returns.
CHAPTER XVI
Procedure for Assessment
Sections 268-298
Assessment procedures, scrutiny assessment, best judgment assessment, reassessment, time limits.
CHAPTER XVII
Special Provisions Relating to Certain Persons
Sections 299-315
Assessment of firms, association of persons, trusts, companies, co-operative societies.
CHAPTER XVIII
Appeals, Revisions and Alternate Dispute Resolutions
Sections 316-349
Appeal to Commissioner (Appeals), Appellate Tribunal, High Court, Supreme Court; Dispute Resolution Panel, Advance Rulings.
CHAPTER XIX
Collection and Recovery of Tax
Sections 350-420
Includes:
- Part A: Deduction of tax at source (TDS)
- Part B: Collection of tax at source (TCS)
- Part C: Advance tax payment
- Part D: Tax recovery procedures
CHAPTER XX
Refunds
Sections 421-428
Refund procedures, interest on refunds, claims for refund, time limits.
CHAPTER XXI
Penalties
Sections 429-456
Penalties for non-filing of returns, concealment of income, failure to deduct TDS, false information.
CHAPTER XXII
Offences and Prosecution
Sections 457-469
Criminal prosecution for willful tax evasion, false statements, failure to comply with summons.
CHAPTER XXIII
Miscellaneous
Sections 470-536
General provisions including notice procedures, authentication, service of documents, power to make rules, notifications, repeal of Income Tax Act 1961, savings provisions.
📋 XVI SCHEDULES OF THE ACT
SCHEDULE I
Conditions for certain activities not to constitute business connection in India
See Section 9(12) - Defines eligible investment funds and conditions under which activities don't create taxable business connection in India.
SCHEDULE II
Income not to be included in total income
See Section 11 - Includes agricultural income, life insurance proceeds, gifts, scholarships, awards, certain allowances, gratuity, leave encashment, etc.
SCHEDULE III
Income not to be included in total income of eligible persons
See Section 11 - Share income from HUF, partner's share in firm profits, compensation from disasters, specified allowances like HRA, conveyance, etc.
SCHEDULE IV
Income not to be included in total income of eligible non-residents, foreign companies
See Section 11 - Interest on NRE accounts, remuneration of foreign officials, income of foreign companies from certain activities.
SCHEDULE V
Income not to be included in total income of certain eligible persons including investment funds, business trusts
See Section 11 - Income of investment funds, unit holders, business trusts, REITs, etc.
SCHEDULE VI
Income not to be included in total income of certain eligible persons in International Financial Services Centre (IFSC)
See Section 11 - Income from units in IFSC, aircraft leasing, ship leasing, fund management activities in IFSC.
SCHEDULE VII
Persons exempt from tax
See Section 11 - Lists 42+ entities completely exempt from income tax including defense funds, LIC, certain statutory bodies, boards, authorities.
SCHEDULE VIII
Income not to be included in total income of political parties and electoral trusts
See Section 12 - Voluntary contributions to registered political parties and electoral trusts subject to conditions.
SCHEDULE IX
Deduction for Tea Development Account, Coffee Development Account and Rubber Development Account
See Section 48 - Deduction up to 40% of profits for deposits in special development accounts.
SCHEDULE X
Deduction for site restoration fund
See Section 49 - Deduction up to 20% for petroleum/natural gas companies for site restoration deposits.
SCHEDULE XI
Recognised Provident Funds
See Section 2(91) - Detailed provisions for recognition, operation, and taxation of provident funds including RPF, SPF, PPF.
SCHEDULE XII
Minerals
See Section 51 - Lists 27 minerals (aluminum, copper, gold, iron, silver, uranium, etc.) and associated mineral groups for deduction purposes.
SCHEDULE XIII
List of articles or things
See Section 45(2) - Lists items for special valuation provisions including alcoholic beverages, tobacco, cosmetics, aerated waters, chocolates, etc.
SCHEDULE XIV
Insurance business
See Section 55 - Special provisions for computation of profits in life insurance and general insurance business.
SCHEDULE XV
Deduction in respect of life insurance premia, contribution to provident fund, subscription to equity shares, etc.
See Section 123 - Detailed provisions for deductions including life insurance, PPF, ELSS, NSC, housing loan principal, tuition fees, etc.
SCHEDULE XVI
Permitted modes of investment or deposits
See Section 350 - Lists 17 permitted investment modes for registered non-profit organizations including government securities, bank deposits, mutual funds, etc.
📌 IMPORTANT INFORMATION
The Income Tax Act, 2025 contains:
- ✓ 536 Sections organized in 23 Chapters
- ✓ XVI (16) Schedules providing detailed specifications
- ✓ Presidential Assent: 21st August, 2025
- ✓ Commencement: 1st April, 2026
- ✓ Replaces: Income Tax Act, 1961
This webpage covers major provisions with examples. For complete details, please refer to the official Gazette notification or consult a qualified professional.