Speaking to CNBC-TV18, Badala said the new law does not alter the fundamentals of taxation, but focuses on streamlining a system that had become increasingly complex over decades. “Both the 1961 Act and the 2025 Act are the same in substance. Nothing changes in principle—the way you calculate income, the way you calculate tax,” he said.
Instead, the overhaul aims to simplify the structure of the law, which had become difficult to interpret due to years of amendments, provisos and overlapping provisions. “If you look at the number of sections and words, there is a significant reduction—almost 35–40%,” Badala noted, adding that the new Act uses simpler language and a more organised structure, with redundant provisions removed.
However, he cautioned that the shift will not be seamless. “The path to simplicity is not that simple,” he said, pointing out that taxpayers and professionals will need to navigate both the old and new laws simultaneously for some time.
For instance, returns for FY26 will still be filed under the Income Tax Act, 1961, while advance tax payments and filings for FY27 will fall under the new regime. This dual framework means taxpayers may need to refer to two sets of rules, forms and procedures depending on the relevant financial year. “For the first time, we are busy interpreting and analysing the rules and forms… these have led to an increase in compliance burden and some complexity,” Badala added.
One notable structural change is the introduction of a single “tax year”, replacing the earlier distinction between previous year and assessment year. From FY27 onwards, the financial year and tax year will align, which Badala said removes a long-standing source of confusion for individuals.
On tax rates, Parizad Sirwalla, Partner at KPMG in India said there is no change in slabs under the new law. “There is no change in income tax slabs. Both the old and new regimes continue to coexist. The new tax regime remains the default option,” she said.
While rates remain unchanged, some exemptions have been tweaked. Sirwalla highlighted that the house rent allowance (HRA) exemption limit has been increased from 40% to 50% of base salary for cities such as Bengaluru, Hyderabad, Pune and Ahmedabad, bringing them on par with metros.
“This provides meaningful relief to salaried employees in these cities and could influence their choice between the old and new tax regimes,” she said, while noting that stricter disclosure norms—such as declaring the relationship with the landlord—have been introduced to curb misuse.
Sirwalla added that the choice between the two regimes remains dependent on individual circumstances. For those earning up to around ₹12.75 lakh, the new regime continues to be more beneficial due to rebates and standard deductions, while very high earners also benefit from surcharge caps. However, for middle-income taxpayers, the decision becomes more nuanced.
“The enhanced HRA exemption could make the old regime more attractive for some taxpayers,” she said, particularly for those paying high rents in large urban centres.
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As FY27 begins with a new legislative framework, the broader takeaway is clear: while the Income Tax Act 2025 simplifies the language and structure of the law, taxpayers may face short-term confusion as they adjust to new forms, rules and a dual compliance system.
