[Opinion] Key Policy Changes in the Income-Tax Act, 2025

CA. Rakesh Kedia & Yamish Jain – [2026] 182 taxmann.com 44 (Article)

1. Background and Need for Re-enactment

The Income-tax Act, 2025 replaces the Income-tax Act, 1961 after more than six decades of continuous amendments that resulted in fragmentation, excessive cross-referencing, and uneven drafting. The new legislation is presented as a overall restructuring undertaken to modernize the tax code.

The Government asserts through the Statement of Objects and Reasons for the Income Tax Act, 2025 that three foundational principles of this act are:

1. Textual and structural simplification for improved clarity and coherence
2. No major tax policy changes to ensure continuity and certainty.
3. Stability of tax rates to ensure predictability for taxpayers and businesses.

To implement the goal of simplification, the Income-tax Act, 2025 adopts a refined drafting approach—featuring shorter sentences, clearer terminology, reduced reliance on legal jargon and provisos, extensive tabulation of provisions, and consolidation of related rules into unified sections.

For example, phrases like “Notwithstanding anything contained” and “Without prejudice to…” have been replaced with more direct and accessible language. However, it is important to note that these linguistic changes do not alter the legal interpretation of the provisions. Despite differences in wording, the substance and intent remain consistent with the earlier law. What may appear to be a deviation on a plain reading is, in fact, a clarification aimed at enhancing understandability without affecting the legal position.

While some provisions may at first glance appear to reflect policy changes, it is important to note that they are intended to be interpreted in the same manner as under the earlier law. The legislative intent behind the Income-tax Act, 2025 is one of structural and linguistic simplification rather than substantive overhaul. Accordingly, all judicial pronouncements rendered under the 1961 Act continue to remain valid and form the basis for interpretation under the new act.

2. Key Changes Which May Appear to be Policy Departures

2.1 Mandatory Taxability of Unexplained Credits/Investments

One of the most debated changes in the Income-tax Act, 2025, is the shift in language across provisions dealing with unexplained income. The relevant section numbers as per the old act and the new act are as under:

Nature of Income	1961 Act Section No.	2025 Act Section No.
Unexplained credits	68	102
Unexplained investments	69	103
Unexplained money, bullion, jewellery	69A	104
Amounts not fully disclosed in books	69B	103
Unexplained expenditure	69C	105
Amounts borrowed/repayments not explained	69D	106

Previously, under the Income-tax Act, 1961, sections like 68 to 69D gave the Assessing Officer (AO) the discretion to decide whether certain unexplained credits, investments, or expenditures may be taxed, based on the facts of the case.

However, in the Income-tax Act, 2025, the word “may” has been replaced with “shall”. Does this mean the AO no longer has any discretion? Let’s take a closer look.

Under the 1961 Act, Section 68 read as follows:

“Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year”.

This language clearly indicated that the AO had discretion. Even if the explanation given by the assessee was unsatisfactory, the AO could choose not to treat the amount as income, depending on the overall facts and circumstances.