In 2025, India is undergoing one of its most significant overhauls of the tax system in decades. The Income-tax Act, 1961 is being replaced by the Income Tax Act, 2025 (a.k.a. Income-tax (No. 2) Act, 2025), which along with other changes (budget announcements, GST reforms, TDS/TCS updates), constitutes sweeping business tax reforms 2025. These reforms affect domestic companies, foreign businesses in India, startups, investors, and ecosystem players. Businesses should start preparing now because many changes take effect from April 1, 2025 (or later as notified).  

Key Elements of the New Tax Landscape 

1. Income Tax Act, 2025 – Overhaul of Direct Tax Law

Notified in August 2025 and effective 1 April 2026 (unless specified otherwise), the Income Tax Act, 2025 replaces and modernises the six-decade-old Income-tax Act, 1961. The goal is to simplify compliance, reduce litigation, and align India’s tax system with global standards.  

Key highlights include: 

• Complexity reduction: The law has been streamlined from roughly 819 sections to 536 sections, reorganised into 23 chapters and 16 schedules for easier navigation.  
• Terminology change: The older terms “Assessment Year” and “Previous Year” are replaced by a unified term, “Tax Year”, which aligns with India’s financial year starting April 1.  
• Modern compliance and clarity: The Act introduces faceless assessments, more efficient dispute-resolution mechanisms, and clearer definitions of deductions, exemptions, and procedural rules. It also consolidates provisions, making compliance less ambiguous for taxpayers. 

2. Budget 2025-26: Direct Tax Proposals

The Union Budget 2025-26 introduced several new tax laws 2025 for businesses, focusing on simplification, incentivizing investment, and easing compliance. While there was no change in headline corporate tax rates for domestic or foreign companies many supporting measures were rolled out that will directly impact businesses, startups, and foreign investors.  

Key highlights include: 

• Revised Income Tax Slabs (New Regime): For individuals (including business owners and salaried professionals), the basic exemption limit under the new regime has been raised, with zero tax up to ₹12 lakh (including standard deduction). This impacts payroll structuring, ESOP taxation, and overall compensation planning.
• Enhanced Section 87A Rebate: The rebate limit under Section 87A has been significantly increased, further reducing tax liability for individuals under the new regime.
• TDS/TCS Simplification: Thresholds for tax deduction and collection at source have been raised, easing compliance on smaller transactions. Further, if TDS is already deducted by the buyer under section 194Q, the seller need not collect TCS under section 206C(1H), eliminating overlap.
• Presumptive Tax for Non-Residents: A new presumptive taxation scheme applies to non-resident entities providing services or technology to Indian companies in electronic manufacturing facilities. About 25% of gross receipts will be deemed taxable, translating to an effective tax rate of <10%, encouraging foreign service providers to support India’s manufacturing ecosystem.
• IFSC Incentives Expanded: Sunset clauses for International Financial Services Centre (IFSC) units have been extended, with new benefits for ship-leasing, global insurance offices, and treasury centres.
• Extension of Investment Deadlines for Sovereign Wealth & Pension Funds: Exemption from tax for income from dividends, interest, long-term capital gains for investments made by sovereign wealth/pension funds is extended to March 31, 2030.
   
• Carry-forward of Losses in Amalgamations Limited: For amalgamations/business reorganisations, carry-forward and set-off of accumulated losses & unabsorbed depreciation will be limited to eight financial years from the year the loss was first computed by the original/predecessor entity
• Transfer Pricing (TP) Reform: The Budget introduces a block-period system for transfer pricing assessments. Instead of determining the arm’s length price (ALP) for international and specified domestic transactions every single year, businesses can now compute it over a three-year block period for similar transactions. This shift reduces repetitive disputes, improves predictability for multinational enterprises, and aligns with global best practices.
• Crypto / VDA Reporting Obligations Expanded: Proposed obligation for “reporting entities” (e.g. exchanges) to furnish information regarding transactions in virtual digital assets (VDAs). 

3. Start-ups & Ecosystem

• Startup tax holiday extended – Startups incorporated up to April 1, 2030 can continue to avail tax benefits. 
• Section 80-IAC exemption – Eligible startups can claim 100% profit exemption for any three consecutive years within the first ten years of incorporation. 
• Lower compliance costs – Simplification of law, rationalised TDS/TCS thresholds, and GST slab changes will reduce routine hurdles for small businesses. 
• Revalidation required – Some older startup-specific incentives may need to be rechecked under the new law.
• Impact on founders – Revised individual tax slabs affect take-home pay, investment capacity, and compensation structures for entrepreneurs.

4. Indirect Tax / GST / Customs Reforms

• Two-slab GST structure – The GST Council has simplified the regime into 5% and 18% slabs, with a special 40% rate for luxury/demerit goods, effective 22 September 2025. 
• 5% slab – Essentials like dairy products (butter, ghee, cheese) and everyday items such as soaps and toothpaste now taxed at 5%. 
• 18% slab – Standard goods like electronics (TVs, ACs, washing machines) and small cars/motorcycles brought down to 18%. 
• 40% slab – Luxury and demerit items such as aerated drinks, tobacco products, and high-end vehicles continue at 40%. 
• Business adjustments – Companies must reclassify goods/services, revise pricing, and update compliance systems, accounting, and invoicing to reflect new rates. 
• Customs duty changes – Concessions are being offered on imports of raw materials and capital goods used in manufacturing, while duties have increased on certain finished goods. 
•  Rationalisation and clarity – Some customs rates are being reduced or streamlined, and provisional assessments now have clearer timelines to reduce uncertainty.

Impacts on Businesses & Preparation 

The New Income Tax Act, 2025—effective from April 2026—along with related reforms in GST and customs duties, will not affect all businesses in the same way. Established companies, startups, multinationals, and cross-border ventures will each need tailored strategies to adapt. 

Established Indian companies: The main challenge is transitioning compliance processes to align with the new Act. Adjustments in deductions, pension/payout rules, and the shift to block-period transfer pricing will influence long-term contracts. GST and customs changes may also reshape cost structures. 

Startups: They benefit from the extended holiday and simplified eligibility rules, but founders must ensure DPIIT recognition and plan exemption years carefully to maximize benefits. 

Foreign companies and multinationals: Certainty in corporate tax rates is welcome, but the presumptive tax regime for non-residents in electronics/tech services, new transfer pricing rules, and customs duty shifts will require contract and supply chain reviews. 

Tech & cross-border service providers: Withholding tax changes, significant economic presence rules, and the presumptive scheme could all impact how contracts are structured and executed. Entities should revisit agreements for tax efficiency. 

Manufacturing/import-heavy businesses: Higher duties on finished imports versus concessions on inputs push for local value addition. GST changes affect margins, pricing, and working capital. 

Preparation Checklist: 

• Map current structures against upcoming reforms to spot exposures and opportunities. 
• Revisit foreign service/technology contracts to align with withholding and presumptive taxation rules. 
• Validate startup eligibility and lock in recognition for extended incentives. 
• Realign sourcing and supply chains considering customs and GST changes. 
• Build tax planning into budgets, factoring in shifts in compliance timelines, withholding obligations, and cash-flow impacts. 
• Update compliance/documentation systems to leverage simplified processes and avoid disputes. 
• Track notifications for granular rules on implementation. 

 Summary 

In summary, the 2025 business tax changes mark a major shift toward simplification, predictability, and global alignment. While headline corporate tax rates remain stable, the 2025 corporate tax updates, GST rationalisation, customs reforms, and new compliance rules will reshape how businesses operate. Startups gain extended incentives, foreign investors see clearer frameworks, and all companies must adapt to the new Income Tax Act, 2025.  

The takeaway: those who prepare early—by reviewing contracts, reassessing incentives, and updating compliance systems—will navigate the transition smoothly and unlock the opportunities these business tax reforms 2025 are designed to create.