New Income Tax Act to Reshape ITR Filing Landscape by FY28

New Delhi: India’s direct tax system is set for a historic restructuring as the Income Tax Act, 2025 replaces the long-standing Income Tax Act of 1961. With the new law scheduled to come into force on April 1, 2026, the government has confirmed that fresh Income Tax Return (ITR) forms—aligned with the updated legal framework—will be notified before the beginning of the 2027–28 financial year. The Central Board of Direct Taxes (CBDT) has already begun developing the new forms, which will apply to income earned under the new legislation.

Income Tax Act, 2025 to Replace 1961 Framework

On August 21, 2025, Parliament officially enacted the Income Tax Act, 2025, marking the most extensive redrafting of India’s tax legislation in over six decades. The law will supersede the Income Tax Act of 1961, which has governed India’s taxation system for 64 years. The objective of the transition is to simplify statutory language, eliminate unnecessary complexity, and provide clearer guidance to taxpayers across income groups.

According to Minister of State for Finance Pankaj Chaudhary, the government aims to make the new framework more accessible, particularly for individual taxpayers and small businesses. The updated legislative design forms part of a broader initiative to modernize India’s direct tax administration and bring it closer to international best practices. The government has emphasized that the restructuring focuses on ensuring legal clarity, consistency in definitions, and streamlined procedures.

The CBDT has been directed to implement the provisions of the new Act and is currently redesigning the ITR formats to reflect the updated legal structure. These forms will apply to income earned from FY27 onward. The government has stated that the notification of the redesigned forms will take place before March 31, 2027, ensuring taxpayers and professionals receive adequate time to familiarize themselves with the new compliance requirements.

The CBDT committee responsible for ITR simplification is conducting a structured consultative process involving tax experts, institutional stakeholders, and field units of the Income Tax Department. The intention is to ensure that the new forms remain compliant with the Income Tax Act, 2025 while being substantially easier to understand and file. The redesign exercise includes a complete review of all existing formats, both for annual ITRs and quarterly TDS returns. The forms are being restructured to align with revised definitions, updated exemption categories, amended deduction provisions, and procedural changes introduced under the new law. Efforts are also focused on removing redundant sections and minimizing technical terminology to improve usability for filers.

The Directorate of Systems, in partnership with the Tax Policy Division, is overseeing the technical development, digital architecture, and legal conformity of the forms. Enhancements will include improved e-filing compatibility, real-time data validation, and integration with digital tax-filing utilities. The new forms will incorporate provisions arising from the reclassification of income heads, revised compliance timelines, and changes in reporting requirements introduced under the 2025 Act.

The government has clarified that ITR forms applicable to income earned in FY26 will continue to follow the Income Tax Act of 1961. Therefore, the existing ITR structure will remain in use until the new legislation becomes operational, ensuring continuity during the transition period.

Legal Implications and Compliance Outlook

The Income Tax Act, 2025 introduces structural modifications aimed at simplifying tax compliance, reducing litigation, and improving predictability within tax administration. The law revises several key components of the existing framework, including taxpayer classifications, definitions of income heads, exemption and deduction thresholds, and procedural requirements for assessments and appeals.

The new Act also provides unified timelines for various compliance processes such as assessments, refunds, and appellate procedures. Penalty provisions have been restructured to enhance clarity around consequences for non-compliance, under-reporting, or misreporting of income. These changes are intended to reduce interpretational disputes and create a more streamlined statutory environment.

The Ministry of Finance has stated that all operational changes under the new law will be prospective. No retrospective modifications will be introduced, and the transition from the 1961 Act to the 2025 Act will be carried out with transparency. Alongside the notification of the new ITR forms, the government will release detailed guidance notes, explanatory manuals, FAQs, and training material for tax professionals, taxpayers, and software developers.

The updated compliance framework is expected to introduce changes across reporting obligations, exemption calculations, documentation requirements, and digital verification standards. Taxpayers will be required to review their filing practices in light of the revised definitions, procedural updates, and new timelines established under the Act. The government has emphasized that sufficient lead time will be provided to all stakeholders to adapt to these changes before the new forms become mandatory in FY28.

The enactment of the Income Tax Act, 2025 and the planned notification of redesigned ITR forms before FY28 mark a critical milestone in India’s tax administration reform. The government’s focus on simplification, digital enablement, and legal clarity aims to modernize the compliance ecosystem for individuals, businesses, and tax professionals. As CBDT advances its consultative redesign process, stakeholders across the tax landscape are preparing for a significant shift in filing procedures and statutory reporting standards.