Income Tax Act 2025: Reforms, Share Buyback, TCS Rate Changes

Income Tax Act 2025 is set to transform the Indian direct tax landscape starting April 1, 2026, by replacing the six-decade-old 1961 law with a modern, simplified framework. Introduced in the Union Budget 2026-27, this revenue-neutral reform focuses on clarity and ease of compliance rather than changing existing tax slabs.

By nearly halving the number of sections and introducing a single “Tax Year” concept, the new Act aims to reduce litigation and make filing easier for ordinary citizens. Here, we break down the major shifts from new buyback rules for promoters and higher STT on speculative trading to the rationalised TCS rates and the updated 14% MAT final tax rate.

Income Tax Act 2025

The Income Tax Act 2025 represents significant Direct Tax Reforms 2026 in India. These notes outline Budget 2026 tax proposals. It is very important for everyone from individual earners to large companies—to get a handle on these new rules so they can plan their finances better. The act aims for simpler understanding and improved compliance. It is designed to be revenue-neutral, not altering tax slabs or rates.

India is transitioning toward a more modern and digitized fiscal framework designed to reduce the complexity of direct taxation. This comprehensive reform aims to move away from archaic legal jargon to a more user-centric system that fosters trust and voluntary transparency.

New Income Tax Act

The new system goes live on April 1, 2026. It replaces the old ways of doing things with a much more straightforward approach for taxpayers. This new law replaces the decades-old Income Tax Act of 1961. It focuses on clarity and simplicity. The government will soon release easier-to-understand tax rules and shorter forms. These updates are designed to take the guesswork out of filing your taxes. This will give taxpayers enough time to learn its requirements. It aims for better compliance by citizens.

Tax Administration Changes

A Joint Committee will form with the Ministry of Corporate Affairs and Central Board of Direct Taxes. Its goal is to integrate Income Computation and Disclosure Standards (ICDS) into Indian Accounting Standards (IndAS). Separate accounting for ICDS will cease from the tax year 2027-28. The definition of “accountant” for Safe Harbour Rules will also be rationalized. These tax administration reforms India aim to support growth for local advisory firms.

Other Tax Proposals

These proposals cover various aspects of the new income tax bill 2025. They aim to simplify tax structures and prevent misuse of rules.

• Share Buyback Taxation: Buybacks are now taxed as Capital Gains for all types of shareholders. To stop misuse, promoters must pay an additional buyback tax. This tax is 22% for corporate promoters and 30% for non-corporate promoters.
• TCS Rate Rationalization:
  • TCS on scrap and minerals is rationalized to 2%. This also applies to alcoholic liquor.
  • TCS on tendu leaves is reduced from 5% to 2%.
  • For remittances under the Liberalised Remittance Scheme (LRS) over ten lakh rupees:
    • 2% for education or medical treatment.
    • 20% for other purposes.
• Securities Transaction Tax (STT) Hikes:
  • STT on Futures increases to 0.05% from 0.02%.
  • STT on Options premium rises to 0.15% from 0.1%.
  • STT on exercise of Options increases to 0.15% from 0.125%.
    These changes aim to manage speculative market activity.

Minimum Alternate Tax (MAT) Updates

MAT credit set-off is now allowed only for companies moving to the new tax regime. Companies can set off up to 1/4th of their tax liability using available MAT credit. From April 1, 2026, MAT becomes a final tax. Its rate is reduced to 14% from the current 15%. Accumulated MAT credit until March 31, 2026, remains available for set-off.

Key Mechanisms of Income Tax Act 2025 Reforms

The 2025 reforms introduce strategic shifts in how capital market transactions are treated to ensure horizontal equity among different classes of investors. By restructuring the tax triggers for buybacks and market speculation, the Act seeks to align India’s fiscal policy with global standards of efficiency and transparency.

How Buyback Taxation Changes

The income tax act 2025 simplifies how share buybacks are taxed. All shareholders now face Capital Gains tax. This makes the system more uniform. Promoters pay extra tax to deter inappropriate practices. This approach reduces tax arbitrage opportunities.

Impact of STT Revisions

The Securities Transaction Tax increase impacts capital markets. Higher STT raises transaction costs for traders, especially those dealing in Futures and Options. This aims to balance market activity with financial stability. It reflects efforts to regulate speculative trading more closely.

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