A Comparative Analysis of Key Heads of Income - The Income Tax Act, 2025 vis-à-vis The Income Tax Act, 1961

The Income Tax Act, 2025 vis-à-vis 

The Income Tax Act, 1961 

A Comparative Analysis of Key Heads of Income 

Introduction 

After over six decades of governing India’s direct tax framework, the Income Tax Act, 1961 is set to make way for the Income Tax Act, 2025. Passed by both Houses of Parliament on 21st August 2025 and having received Presidential assent the same day, the new Act is slated to come into effect from 1st April, 2026. The Income Tax Act, 2025 condenses approximately 800 sections of the old law into 536 sections across 23 chapters and 16 schedules, reducing the legislative text from over 5.12 lakh words to approximately 2.6 lakh words. 

The new legislation does not seek to overhaul tax rates or fundamentally alter the tax policy. Instead, it focuses on structural simplification, clearer drafting, removal of redundancies, and logical reorganisation of provisions. The dual concepts of “Previous Year” and “Assessment Year” have been replaced by a single, unified “Tax Year” — a reform that alone eliminates decades of interpretational confusion. 

This article offers a brief comparative analysis of the old and new Acts across four critical heads: Salaries, Capital Gains, Gifts (Income from Other Sources), and Business & Profession. The aim is to highlight the key structural and substantive shifts that practitioners and taxpayers should be aware of as they prepare for the transition. 

I. Salaries 

Structural Consolidation

Under the Income Tax Act, 1961, salary provisions were scattered across multiple sections — Section 15 (chargeability), Section 16 (deductions from salary), Section 17 (definitions of salary, perquisite, and profits in lieu of salary), along with Rule 2A, 3, and others governing valuation. The practical result was that a salaried individual or their employer had to navigate several provisions spread across both the Act and the Rules to compute taxable salary income. 

The Income Tax Act, 2025 brings all salary-related provisions under a logically grouped block of sections, i.e., Sections 15 to 19. Section 15 continues as the charging section for salary income, while Section 16 consolidates the definition of salary, incorporating components such as wages, annuities, pensions, gratuities, fees, commissions, perquisites, leave encashment, and employer contributions to recognised funds. The valuation rules for perquisites, which were previously embedded in the Rules, have been shifted to the Rules framework more explicitly, keeping the main Act leaner and focused on principles rather than computational detail. 

Standard Deduction

The standard deduction of ₹75,000 for salaried individuals under the new (concessional) regime, which was introduced by the Finance Act, 2025, is carried forward into the new Act. The earlier anomaly regarding the applicability of the higher standard deduction limit has been addressed, confirming that salaried individuals opting for the concessional regime are entitled to the full ₹75,000 deduction. For pensioners not drawing salary, the Act now explicitly provides for the full deduction of commuted pension without restriction. 

Perquisites and Allowances

The treatment of perquisites and allowances remains substantively unchanged. However, the presentation is significantly cleaner. Instead of lengthy explanations and provisos embedded in the old Sections 10 and 17, the 2025 Act uses schedules and structured sub-sections, making it far easier to identify which allowances are exempt and which are taxable. The exemption for House Rent Allowance, Leave Travel Allowance, and similar components continues under the old regime, while the concessional regime remains devoid of most exemptions as before. 

Key Takeaway

For salaried taxpayers, the new Act does not materially alter their tax burden. The reform is primarily one of presentation and accessibility — all salary rules now sit “under one roof,” making return filing and compliance review significantly more intuitive. 

II. Capital Gains 

Reorganised Architecture

Capital gains taxation under the 1961 Act was notoriously complex. The provisions were spread across Sections 45 to 55A, supplemented by a web of exemptions under Sections 54, 54B, 54D, 54EC, 54F, 54G, and 54GB, each with its own eligibility conditions, timelines, and limitations. Over the years, frequent amendments further complicated the landscape. 

The 2025 Act reorganises capital gains under Sections 67 to 91, arranging them sequentially and logically. The charging provision, computation rules, cost of acquisition, transfer definitions, exemptions, and special provisions are now presented in a coherent flow rather than being scattered across disparate sections. This structural clarity is particularly welcome for practitioners advising on real estate transactions, share transfers, and business restructuring. 

Indexation and Tax Rates

The substantive tax regime for capital gains, as amended by the Finance Act, 2024 and the Finance Act, 2025, has been preserved in the new Act. The rate of Long-Term Capital Gains (LTCG) tax stands at 12.5% without the benefit of indexation (which was removed for most asset classes by the Finance Act, 2024), and the exemption threshold for LTCG on listed equity shares and equity-oriented mutual funds remains at ₹1.25 lakh. Short-Term Capital Gains on listed equity continue to attract a rate of 20%. 

Removal of Redundant Exemptions

The 2025 Act has cleaned up several exemptions that had become either obsolete or operationally irrelevant. For instance, the exemption relating to transfer of land by an industrially sick company and the provisions relating to stock exchange demutualisation have been removed from the exceptions to the definition of “transfer.” The definition of Virtual Digital Assets has been broadened and given clearer recognition, ensuring that cryptocurrencies and other digital assets are treated as taxable capital assets with explicit statutory backing. 

Carry Forward and Set-Off

The savings clause in the 2025 Act ensures continuity of capital loss carry-forward. Losses computed under the 1961 Act that remain unabsorbed can be carried forward and set off against capital gains computed under the new Act, subject to the existing eight-year limitation. The rule that long-term capital losses can only be set off against long-term capital gains remains unchanged. 

Key Takeaway

The capital gains regime under the 2025 Act is structurally cleaner but substantively consistent with the post-2024 amendments. Practitioners should update their section references but can rely on existing case law and interpretational precedents for most computational questions. 

III. Gifts (Income from Other Sources) 

Taxation Framework Retained

Under the 1961 Act, the taxation of gifts was governed by Section 56(2)(x), which brought within the tax net any sum of money, immovable property, or specified movable property received by any person without consideration (or for inadequate consideration) exceeding ₹50,000 in a financial year. This regime, which had evolved from the now-repealed Gift Tax Act, 1958, was a donee-based taxation system — the recipient, not the donor, bore the tax liability. 

The 2025 Act retains this framework under its reorganised “Income from Other Sources” provisions (Sections 92 to 95). The threshold of ₹50,000 continues to apply. The list of exempted categories — gifts from relatives (as defined under the Act), gifts on the occasion of marriage, inheritances, and gifts from registered charitable trusts or institutions — remains substantially the same. 

Clarification on Relatives

An important clarification in the 2025 Act (carried forward from recent interpretational guidance) is that lineal ascendants and descendants include both maternal and paternal relatives. The restrictive definition of “relative” continues to exclude cousins, nephews, nieces, and their spouses. Gifts from such persons, if exceeding the ₹50,000 threshold, remain fully taxable in the hands of the recipient. 

Virtual Digital Assets

The Finance Act, 2022 had extended the net of Section 56(2)(x) to gifts of Virtual Digital Assets. The 2025 Act codifies this position more explicitly, ensuring that the receipt of cryptocurrencies, NFTs, and other digital assets without consideration attracts the same gift taxation provisions as traditional movable property. 

Presentation and Accessibility

While the substance of gift taxation has not changed, the 2025 Act presents these provisions in a more accessible format. The use of schedules for exemption categories and cleaner drafting of the valuation rules (particularly for immovable property where stamp duty value is involved) reduces the interpretational burden. The clubbing provisions relating to gifts between spouses and to minors continue to apply as before. 

Key Takeaway

Gift taxation under the 2025 Act is a case of “old wine in a new bottle.” The rules are identical in substance, but the presentation is improved. Taxpayers must continue to exercise caution when receiving high-value gifts from non-relatives and ensure proper documentation to avoid adverse tax consequences. 

IV. Business & Profession 

Significant Structural Overhaul

Perhaps the most notable transformation in the 2025 Act is in the head “Profits and Gains of Business or Profession.” Under the 1961 Act, business income provisions spanned Sections 28 to 44DB — a vast range that included charging provisions, deductions, depreciation, specific disallowances, presumptive taxation, and special provisions for specific industries. The sheer number of sections, combined with multiple provisos and explanations within each, made this the most litigated head of income. 

The 2025 Act consolidates these provisions under Sections 26 to 66, with a more logical grouping. Charging provisions, allowable deductions, depreciation, specific disallowances, and presumptive taxation schemes are arranged sequentially, reducing the need for extensive cross-referencing. 

Presumptive Taxation

The presumptive taxation schemes under Sections 44AD, 44ADA, and 44AE of the 1961 Act continue in substance under the new framework. The thresholds and rates remain unchanged — the enhanced turnover limit of ₹3 crore for eligible businesses (where cash receipts do not exceed 5% of total turnover) and ₹75 lakh for professionals (with the same cash receipt condition) are preserved. The 2025 Act, however, presents these schemes more clearly, reducing the interpretational disputes that had arisen around eligibility conditions and the interplay with regular computation provisions. 

Depreciation and Capital Allowances

The depreciation provisions under the new Act retain the block-of-assets concept and the Written Down Value (WDV) method. The rates of depreciation, additional depreciation, and the rules governing transfer of assets within a block remain substantively the same. However, the 2025 Act eliminates certain redundant provisions — for instance, the specific reference to set-off of unabsorbed depreciation against deemed profits under presumptive taxation has been clarified and tightened. 

TDS Consolidation for Business Payments

One of the most impactful changes for businesses is the consolidation of TDS provisions. Under the 1961 Act, TDS on business payments was governed by over 60 separate sections (Sections 192 to 194T), each with its own thresholds, rates, and exceptions. The 2025 Act collapses this into primarily three sections: Section 392 (TDS on salary), Section 393 (TDS on all other payments, structured through comprehensive tables), and Section 394 (TCS). This consolidation is expected to significantly reduce deductor errors and ease compliance for businesses. 

Removal of Angel Tax and MAT Reforms

The abolition of the so-called “Angel Tax” (which was earlier applicable to startups receiving share premium above fair market value) and the reforms to Minimum Alternate Tax (MAT) are noteworthy. Under the Finance Bill, 2026, the set-off of brought-forward MAT credit is now permitted under the new regime (to the extent of one-fourth of tax liability), and MAT is being repositioned as a final tax at a reduced rate of 14%, encouraging companies to transition to the new concessional regime. 

Key Takeaway

For businesses and professionals, the 2025 Act offers genuine compliance relief through structural consolidation, particularly in TDS and presumptive taxation. While tax rates and policy remain stable, the reduced complexity should translate into fewer errors, less litigation, and a more predictable compliance environment. 

Conclusion 

The Income Tax Act, 2025 is best understood not as a tax policy overhaul but as a legislative modernisation exercise of historic proportions. The tax rates, slabs, and core computational principles remain largely unchanged. What has changed is the way these provisions are organised, presented, and made accessible to the taxpayer. 

For each of the four heads examined in this article — Salaries, Capital Gains, Gifts, and Business & Profession — the pattern is consistent: substantive continuity paired with structural improvement. The consolidation of scattered provisions, the elimination of redundant sections, the use of schedules and tables for exemptions, and the unified Tax Year concept all contribute to a law that is shorter, cleaner, and more navigable. 

Practitioners and taxpayers would do well to invest time in understanding the new section mapping, updating their internal systems and documentation, and training their teams on the revised framework. The dual-law environment — where the 1961 Act continues to govern income earned up to 31st March, 2026, while the 2025 Act applies from 1st April, 2026 onwards — will require careful management for at least the next several years. 

The transition is not merely a change of section numbers. It is an opportunity to build a cleaner, more efficient, and more transparent tax compliance culture — one that the new Act is deliberately designed to facilitate. 

Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional for guidance specific to their circumstances. The provisions discussed are based on the Income Tax Act, 2025 as passed by Parliament and the Finance Bill, 2026 as introduced. Subsequent amendments, notifications, and rules may alter the position stated herein.

— Team TaxFlash | www.taxflash.in —