After more than six decades, India has replaced the Income-tax Act, 1961 (“Old Act”) with the Income-tax Act, 2025 (“New Act”). This is not a tax reform in the traditional sense — there are no new taxes, no changes to tax rates, and no overhaul of tax policy. Think of it as a thorough renovation of an old building: the structure has been redesigned to be cleaner, simpler, and easier to navigate, while the rooms inside remain essentially the same.
This note summarises the key aspects of the change and what it means for you practically.
At a Glance
| Effective date | 1 April 2026 |
| Tax rates & policy | No changes |
| Replaces | Income-tax Act, 1961 |
| Pending matters | Protected & continue |
Why Was the Law Replaced?
The Income-tax Act, 1961 had been amended nearly 65 times, with over 4,000 amendments introduced through annual Finance Acts. Over time, this led to:
- Extremely complex language with thousands of provisos (over 1,200) and explanations (over 900)
- Fragmented provisions spread across multiple sections, requiring experts to cross-reference extensively
- Outdated provisions that were no longer relevant but still sat in the statute
- Dual-year terminology — ‘previous year’ and ‘assessment year’ — that confused even experienced practitioners
| The government announced a comprehensive review in July 2024, with the explicit goal of making the direct tax law “concise, lucid, easy to read and understand.” After extensive stakeholder consultation, including over 20,000 public suggestions and inputs from tax authorities in the UK and Australia, the new law was passed by Parliament and notified as the Income-tax Act, 2025. |
What Was Changed in Form and Structure?
The most significant changes are in how the law is presented, not what it says. The table below captures the contrast:
| Aspect | Old Act (1961) | New Act (2025) |
| Chapters | 47 | 23 |
| Effective Sections | 819 | 536 |
| Words (approx.) | 5.12 lakh | 2.60 lakh |
| Provisos | ~1,200+ | Eliminated (converted to subsections) |
| Explanations | ~900+ | Eliminated (integrated into main text) |
| Tables used | 18 | 57+ |
| Income Tax Rules | 511 rules, 399 forms | 333 rules, 190 forms |
How Has Readability Improved?
- Tables and formulas: Wherever multiple conditions, rates, or thresholds existed, they are now presented in structured tables — TDS rates, advance tax instalments, time limits, and interest calculations all use this approach
- Provisos eliminated: All the ‘provided that…’ clauses that were notoriously hard to parse have been converted into clearly numbered sub-sections.
- Consolidated provisions: Provisions on the same topic, which were previously scattered across chapters, have been brought together. For example, all salary provisions are now in one place, and non-profit organisation rules (previously spread across 10+ sections) are now in a single dedicated chapter.
- Simpler cross-referencing: Instead of references like Section 133(1)(b)(ii), the new Act uses a logical hierarchy that is easier to cite and locate.
- Schedules: Large sections like the exemptions under the old Section 10 (which had 140+ clauses) have been reorganised into 6 schedules presented as easy-to-read tables
A New Term: ‘Tax Year’
This is perhaps the most visible change for everyday taxpayers. The Income Tax Act 2025 replaces two confusing terms — ‘Previous Year’ and ‘Assessment Year’ — with a single unified term: Tax Year.
| UNDER OLD ACT Previous Year 2026-27 + Assessment Year 2027-28 | UNDER NEW ACT Tax Year 2026-27 |
Example: Income earned Apr 2026 – Mar 2027 = Tax Year 2026-27
| Note: There is no missing year or gap. Income earned in FY 2025-26 is still assessed as AY 2026-27 under the old Act. The Tax Year concept applies only from FY 2026-27 onwards under the new Act. |
Importantly, no change in accounting year or financial statements is required for businesses. The Tax Year is simply aligned to the financial year (1 April to 31 March), just with one clean name.
What Has NOT Changed?
This is the most important reassurance for most taxpayers. The ITA 2025 is a structural overhaul — not a policy reform. Specifically:
- Tax rates: All income tax slabs, surcharges, and cess remain unchanged.
- New Tax Regime: The concessional new tax regime (formerly Section 115BAC) continues as the default regime under the new Act.
- Old Tax Regime: All deductions and exemptions under the old regime (80C, 80D, HRA, etc.) continue to be available, now referenced via updated section numbers and schedules.
- TDS rates and thresholds: All rates and monetary thresholds remain the same. The TDS provisions have only been consolidated into fewer, more readable sections.
- Due dates: Filing due dates for income tax returns remain identical — 31 July, 31 October, 30 November, etc.
- Advance tax instalments: Same quarterly schedule and percentages (15%/45%/75%/100%) and the same threshold (Rs. 10,000) apply.
- GAAR, transfer pricing, international tax: All anti-avoidance and international tax frameworks continue unchanged.
- Faceless assessments and appeals: These continue without disruption.
- PAN and TAN: All existing PANs and TANs remain valid.
What Happens to Your Existing Matters?
The transition from the old Act to the new Act is explicitly managed through Section 536 of the new Act — a comprehensive repeal and savings clause with 22 sub-clauses. The overarching principle is continuity: the new Act does not disturb anything that happened before 1 April 2026.
- Pending proceedings and notices: All assessment and penalty proceedings relating to periods before 1 April 2026 will continue to be governed by the Old Act — even if the proceedings are initiated or completed after 1 April 2026. If you receive a notice for AY 2024-25 in August 2026, it will still be under the old Act.
- Losses carried forward: Losses determined under the old Act (business loss, capital loss, house property loss) continue to be carried forward under the new Act. Their character and carry-forward period remain unchanged. Unabsorbed depreciation also continues with unlimited carry-forward.
- Deductions and exemptions: Profit-linked deductions (e.g., 80-IA, 80-IBA) which were claimed under the old Act will continue to be available for the remaining eligible period under the new Act. Multi-year deductions (such as preliminary expenses or spectrum licence fee amortisation) also continue seamlessly.
- MAT/AMT credits: Unutilised Minimum Alternate Tax (MAT) or Alternate Minimum Tax (AMT) credits brought forward under the old Act are preserved under the new Act and can be utilised for up to 15 years from the year they first arose.
- Approvals, registrations and circulars: All approvals, registrations (including for charitable trusts), advance pricing agreements (APAs), and existing CBDT circulars and notifications continue to be valid under the new Act, as long as they are not inconsistent with the new provisions.
- Past assessments: Completed assessments and tax demands under the old Act remain valid. Outstanding tax dues continue to be payable and recoverable.
Simplification of TDS and TCS
One of the most practically significant changes is in TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) provisions. Under the old Act, TDS rules were spread across 43 separate sections (Sections 192 to 194T). Under the new Act, all of these are consolidated into essentially two sections:
- Section 392 — TDS on salary
- Section 393 — TDS on all other payments (presented in three tables: payments to residents, payments to non-residents, and cases of no deduction required)
- Section 394 — TCS (all collections in one table)
The rates and thresholds are broadly unchanged. What changes is how they are presented and referenced.
| Note: From 1 April 2026, deductors must quote new section references in TDS returns. Quoting old section numbers (e.g., 194C, 194J) for payments made after 1 April 2026 may lead to system-level errors. Payroll and ERP systems will need to be updated. |
Practical Guidance for the Transition Year (FY 26-27)
The transition year will require careful attention, as both the old and new Acts will operate in parallel:
| Income Period | Governing Act / Reference |
| FY 2025-26 (Apr 2025 – Mar 2026) | Old Act — file as AY 2026-27 (due July/Oct/Nov 2026 as applicable) |
| FY 2026-27 (Apr 2026 – Mar 2027) | New Act — file as Tax Year 2026-27 (due July/Oct/Nov 2027) |
You will not need to file two income tax returns for the same income. The return for Tax Year 2026-27 comes due only after the Tax Year ends (i.e., from July 2027). The e-filing portal will support both sets of filings simultaneously.
- Advance tax: The first advance tax instalment for Tax Year 2026-27 falls due on 15 June 2026 under the new Act. The last instalment for FY 2025-26 (AY 2026-27) — due 15 March 2026 — falls under the old Act.
- TDS during the transition: The rule is straightforward: the Act applicable is determined by when the ‘earlier of credit or payment’ occurs. Any payment or credit on or before 31 March 2026 is governed by the old Act; any payment or credit on or after 1 April 2026 is governed by the new Act.
Key Takeaways
No new taxes: Tax rates, exemptions, and policy remain the same. Your tax liability does not change because of this legislation. Seamless continuity: All your existing rights, pending refunds, carry-forward losses, deduction claims, approvals, and registrations are fully protected. One year, one law: Each financial year is governed by one Act. FY 2025-26 stays under the old Act; FY 2026-27 onwards falls under the new Act. Update your systems: Businesses and employers will need to update payroll, ERP, and accounting systems to reference new section numbers from April 2026. Simpler navigation ahead: The new Act — at roughly half the length of the old one — should make income tax compliance and understanding significantly easier over time.
To Watch Out
Interpretation of the new Act: The new act is written in a way that can be interpreted on its own using standard tax law principles. However, it has been made clear that the aim of the new law is only to simplify the language, not to bring in any major policy changes. It is important to see how the courts and authorities interpret this law going forward.
Frequently Asked Questions
What is the Income Tax Act 2025 and when does it come into effect?
The Income Tax Act 2025 (ITA 2025) is India’s new direct tax legislation that replaces the Income-tax Act, 1961. It comes into effect from 1 April 2026. It does not introduce new taxes or change tax rates — it is a structural simplification of the existing law, making it shorter, cleaner, and easier to read.
Does the new Income Tax Act 2025 change my tax liability or income tax slabs?
No. All income tax slabs, surcharges, and cess remain exactly the same under the new Act. Your tax liability will not change because of this legislation. Both the new tax regime (formerly Section 115BAC) and the old tax regime with deductions like 80C, 80D, and HRA continue to apply.
What happens to my pending tax notices, refunds, or losses under the old Income-tax Act, 1961?
All pending assessments, notices, carry-forward losses, refund claims, and deduction entitlements are fully protected under Section 536 of the new Act. Any proceedings related to periods before 1 April 2026 continue to be governed by the old Act, even if they are completed after that date.
What is the ‘Tax Year’ concept introduced in the Income Tax Act 2025?
The new Act replaces the dual terminology of ‘Previous Year’ and ‘Assessment Year’ with a single term called ‘Tax Year.’ For example, income earned from April 2026 to March 2027 is simply called Tax Year 2026-27. This change applies from FY 2026-27 onwards and requires no changes to business accounting or financial statements.
How does TDS change under the new Income Tax Act 2025?
The TDS provisions, previously spread across 43 separate sections (Sections 192 to 194T), are now consolidated into Section 392 (TDS on salary), Section 393 (TDS on all other payments), and Section 394 (TCS). The rates and thresholds remain unchanged. However, from 1 April 2026, deductors must quote new section numbers in their TDS returns — quoting old references like 194C or 194J for payments made after that date may cause system-level errors.
Do businesses need to update their payroll or ERP systems for the new Income Tax Act?
Yes. Since the section numbering has changed significantly, businesses and employers will need to update their payroll, ERP, and accounting software to reference the new section numbers under the Income Tax Act 2025 from 1 April 2026 onwards. The actual tax rates and compliance timelines, including income tax return filing due dates, remain the same.
What are the income tax return filing due dates under the new Act?
The filing due dates for income tax returns remain unchanged — 31 July, 31 October, and 30 November, as applicable. For FY 2025-26, the return is filed as AY 2026-27 under the old Act. For FY 2026-27 (Tax Year 2026-27), the return is filed under the new Act from July 2027 onwards.
Need to know more?
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