December often brings a rush of financial planning, and this year, it’s more crucial than ever. With the new Income Tax Act, 2025, set to reshape the framework starting from April 1, 2026, and significant updates to the default tax regime for the current Financial Year 2025-26 (Assessment Year 2026-27), taxpayers need to be informed.
This month’s updates focus on the immediate compliance deadlines and the foundational shift towards a simpler, taxpayer-centric system.
1. Key December Compliance Deadlines (FY 2024-25)
December 10, 2025:
Extended due date for filing the Income Tax Return (ITR) for audit cases (e.g., corporate assessees or non-corporate assessees requiring an audit for AY 2025-26).December 15, 2025:
Due date for the Third Instalment of Advance Tax for the current financial year (AY 2026-27). This is vital for those with non-salary income.December 31, 2025:
Last Date to File Belated or Revised ITR for the Financial Year 2024-25 (AY 2025-26). Missing this deadline means you can only file an Updated Return (ITR-U), which comes with higher tax payments and, crucially, no refund eligibility.
2. Major Update: The New Income Tax Act, 2025
While the Act is effective from April 1, 2026, its development has been a central theme, with the government working to notify all rules and 180 forms by December 31, 2025. This signals the foundational changes coming soon.
The “Tax Year” Concept
The new Act introduces a significant terminology change:
- It replaces the confusing dual terms of ‘Previous Year’ (year income is earned) and ‘Assessment Year’ (year income is taxed) with a single, unified term: ‘Tax Year’. This period will run from April 1 to March 31.
Benefit: This structural simplification aims to reduce ambiguity and make it significantly easier for the average taxpayer to understand which period their tax filing relates to, streamlining international alignment.
3. Benefits and Advantages of the Revised New Tax Regime (FY 2025-26)
The default New Tax Regime (Section 115BAC), introduced in the last Budget for the current Financial Year 2025-26, is designed to benefit individual taxpayers:
Advantages and Benefits
Nil Tax up to ₹12 Lakh:
For an individual, the effective tax-free income limit has been raised to ₹12 Lakh (from the earlier ₹7 Lakh) due to:
- Basic Exemption up to ₹4 Lakh (New Slab Rate).
- Enhanced Rebate under Section 87A (Up to ₹60,000 in tax benefit, which effectively makes income up to ₹12 Lakh tax-free).
Higher Standard Deduction:
Salaried individuals and pensioners can claim a Standard Deduction of ₹75,000 (increased from ₹50,000). This means a salaried person is effectively tax-free up to ₹12.75 Lakh (₹12 Lakh + ₹75,000) under the new regime.Simpler Structure:
Lower tax rates are offered in exchange for forgoing most exemptions and deductions (like 80C, 80D, HRA). This simpler structure reduces the compliance burden.Relief for Middle and High-Income Earners:
The introduction of a new, gradual 25% slab (for income between ₹20 Lakh and ₹24 Lakh) and a lower overall rate structure reduces the tax liability for many taxpayers across different brackets.
4. Disadvantages
Limited Tax Planning:
The biggest drawback is the loss of popular tax-saving deductions like Section 80C investments (PPF, ELSS, Life Insurance premiums), Section 80D (Health Insurance), and Section 24(b) (Home Loan Interest for self-occupied property).Less Beneficial for High Deduction Claimants:
Taxpayers who make significant investments or have substantial home loan interest payments might find the Old Regime more beneficial, as the tax savings from their deductions could outweigh the lower slab rates of the New Regime.Default Option:
The New Regime is the default option. If you wish to continue with the Old Regime (to claim deductions), you must explicitly opt out while filing your ITR. Taxpayers with business or professional income must opt out before the ITR due date by filing Form 10-IEA.
Conclusion:
The month of December 2025 serves as a critical junction for every taxpayer. While the countdown to the revolutionary Income Tax Act, 2025 (effective April 1, 2026) continues—ushering in the simpler, unified ‘Tax Year’ and a cleaner, digitally-integrated structure—the immediate focus must remain on the current financial year’s crucial decisions.
Final Compliance:
Do not overlook the December 31st deadline for filing your Belated or Revised ITR for FY 2024-25. Missing this window forfeits your right to a tax refund and leaves you facing higher penalties via the ITR-U option.
Default vs. Choice:
The New Tax Regime (FY 2025-26) is the default and presents a compelling offer: Tax-free income up to ₹12.75 Lakh (including the enhanced Standard Deduction of ₹75,000) and simpler filing.The Deduction:
The Old Tax Regime remains the wiser choice only for those taxpayers with substantial, documented investments in traditional tax-saving instruments (80C, 80D, HRA, home loan interest) whose benefits outweigh the New Regime’s lower rates.