History of Income Tax in India & Why the Income-tax Act, 2025 Became a Necessity

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History of Income Tax in India & Why the Income-tax Act, 2025 Became a Necessity


Income tax in India was first introduced in 1860 by Sir James Wilson to compensate for losses after the 1857 revolt. Post-Independence, multiple fragmented tax laws existed, leading to the enactment of the Income-tax Act, 1961, which governed India’s direct tax system for over six decades.

Over time, frequent amendments, explanations, provisos, and judicial interpretations made the Act lengthy, complex, and litigation-heavy. The law, originally drafted for a manual economy, struggled to align with today’s faceless, digital, and data-driven tax ecosystem.

This made the Income-tax Act, 2025 a structural necessity rather than a policy choice.

Why the Income-tax Act, 2025 Was Required

The objective is simplification and certainty, not increased taxation.
The Government recognised the need for a law that is:

  • Easy to read

  • Easy to interpret

  • Easy to comply with

while retaining the same tax base and policy intent.

Key Highlights of the Income-tax Act, 2025

✅ What to Expect

  • Simplified & plain-language drafting

  • Approx. 40% reduction in sections, removing redundancy

  • Elimination of excessive provisos and explanations

  • Minimal cross-referencing between sections

  • Logical re-grouping of provisions (income, computation, procedure)

  • Better alignment with faceless assessments & digital compliance

  • Lower scope for interpretational disputes

  • Continuity of existing tax principles and jurisprudence

❌ What NOT to Expect

  • No change in tax rates or slabs

  • No automatic removal of exemptions or deductions

  • No retrospective taxation

  • No dilution of anti-evasion or enforcement powers

  • No disruption to ongoing assessments or appeals

👉 The reform focuses on HOW the law is written, not HOW MUCH tax is payable.

Impact on Taxpayers & Businesses

The new Act aims to:

  • Reduce compliance friction

  • Improve voluntary compliance

  • Lower litigation exposure

  • Shift professionals’ role from dispute management to strategic advisory

Conclusion – A Forward-Looking Tax Reform

The Income-tax Act, 2025 reflects India’s move towards
Trust-based | Transparent | Technology-enabled taxation.

The tax burden remains unchanged, but the tax experience improves.

Connect : +91-9921010284     Website: www.eaztaxbiz.com

References

  • Union Budget 2025 – Finance Bill & Explanatory Memorandum

  • CBDT Discussion Paper on Income-tax Act, 2025

  • Income-tax Act, 1961 (as amended up to Finance Act, 2025)




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