Union Budget 2026 is set to be presented on February 1, and like every year, taxpayers have high expectations — not just on tax relief, but also on ease of compliance. As a result, taxpayers will once again be keenly watching what the Budget delivers for them.
The new income tax law, which will replace the Income-tax Act, 1961, is scheduled to come into force from April 1. In this context, Union Budget 2026 is expected to set the tone for the full-fledged rollout of the new regime just two months later.
The government decided to replace the Income-tax Act, 1961 as the law had become extremely complex over six decades. Nearly 65 major amendments, over 4,000 changes, hundreds of exemptions, and several outdated provisions made it difficult for the average taxpayer to understand. This complexity contributed to a shrinking tax base, rising litigation, and a heavier compliance burden.
What does the new law aim to change?
As the government claims, the Income Tax Act, 2025 is not about changing tax rates, it is about changing how taxpayers experience the tax system. The idea is to make the law easier to read, easier to follow, and less intimidating for ordinary taxpayers.
To begin with, the new law replaces complicated legal language with simple and straightforward wording, making it easier for people to understand their tax obligations. Several old, outdated, and redundant provisions have been removed to reduce confusion and clutter.
The structure of the law has also been streamlined. The number of sections and chapters has been reduced and reorganised in a more logical and user-friendly manner, so taxpayers do not have to navigate through scattered provisions.
One major change is the introduction of a single “Tax Year”, replacing the confusing concepts of ‘Assessment Year’ and ‘Previous Year’. This is aimed at making compliance clearer and more intuitive.
In addition, provisions such as Tax Deducted at Source (TDS), which were earlier spread across multiple sections, have now been consolidated in one place. The law also places strong emphasis on faceless and digital processes, with the goal of reducing human interface and improving transparency.
Overall, the focus is to simplify compliance and make the tax system more predictable and taxpayer-friendly.
The government claims that this will reduce litigation, increase transparency, and improve voluntary compliance.
But will simply rewriting the law change everything?
Tax expert Dinkar Sharma, Company Secretary and Partner, Jotwani Associates, believes that the new law was necessary, but not sufficient.
He clearly states, “The New Income Tax Bill, 2025 represents a significant rewriting exercise of the tax law… But rewriting a tax law without anything else is no guarantee of non-intrusive tax administration.”
According to him, the real impact will depend on the decisions taken regarding tax administration in Budget 2026.
Why does the fear of scrutiny and notices persist? In recent years, automatic risk flags in the tax system have increased rapidly. As a result, many routine cases have also been brought under scrutiny.
On this, Dinkar Sharma says, “The important matter has been the expansion of automatic flags of risk without proper contextual screening.”
The new law gives the government the opportunity to introduce better data analytics, higher limits, and provisions like safe harbor for salaried taxpayers and small businesses — to reduce unnecessary scrutiny.
Refund delays: Simple law, still slow system
The Income Tax Act, 2025 certainly attempts to simplify the process, but refund delays remain one of the biggest problems for taxpayers.
Dinkar Sharma puts it succinctly, “Refund delays are more a system and accountability issue rather than a legal one.”
Experts believe that if the Budget 2026 strengthens provisions for interest on administrative delays, pre-verification refunds, and real-time data matching, common taxpayers could get significant relief.
Faceless assessment: Right idea, weak implementation?
Faceless assessment was introduced to reduce corruption and increase transparency. The new law further strengthens it. But the experience on the ground has often been the opposite.
On this, Dinkar Sharma says, “Faceless assessments are conceptually valid but invariably uneven in execution.”
He suggests that mandatory virtual hearings in complex cases, clear rules of natural justice, and the inclusion of periodic review systems are necessary.
The Income Tax Act, 2025 has reset the foundation of tax law — with fewer sections, clearer language, and a digital focus. But whether taxpayers will get relief or not will be decided by the Union Budget 2026.
As Dinkar Sharma says, “The New Income Tax Bill, 2025 has provided a reset of the legal base, while Budget 2026 will decide whether a facilitative approach to tax administration… will prevail.” Now taxpayers are looking ahead to February 1st — because the law has changed, and the question is whether the tax system will change as well?