- Income earned up to 31 March 2026 (financial year 2025-26 and earlier) continues to be assessed under the Income-tax Act, 1961.
- The new Act is a restructuring and simplification of the law, with a single “tax year” concept replacing the previous-year / assessment-year pair — it was presented as a rewrite, not a change in rates.
- Contracts, policies and compliance checklists that cite 1961-Act section numbers should be reviewed: the numbering is different.
- Qalve’s practice and Insights pages avoid income-tax section numbers for this reason and describe the obligation instead.
What changed, and what did not
Parliament passed the Income-tax Bill, 2025 in August 2025 and it received assent as Act 30 of 2025. The Act was brought into force from 1 April 2026. Public explanations by the Central Board of Direct Taxes described it as a re-drafting exercise — a shorter statute with fewer chapters, consolidated provisions, tables in place of long provisos and a single “tax year” — rather than a change in the rate structure. A taxpayer’s economic outcome for the same facts is therefore not meant to change; the vocabulary, numbering and some procedures do.
| Question | Governing law | Note |
|---|---|---|
| Income earned in FY 2025-26 or earlier | Income-tax Act, 1961 | Returns for FY 2025-26 (assessment year 2026-27) are filed under the earlier Act |
| Income earned in 2026-27 and later | Income-tax Act, 2025 | Returns for tax year 2026-27 fall due in 2027 |
| Assessments, appeals and penalties pending on 31 March 2026 | Continue under the 1961 Act | Saving and repeal provisions of the new Act |
| New proceedings relating to periods before 1 April 2026 | Generally the 1961 Act | Limitation periods for reopening continue to run by reference to the old Act |
| TDS on payments made on or after 1 April 2026 | Income-tax Act, 2025 | Check each payment head against the new Act and notified rates |
Transition sequence
- August 2025Income-tax Bill, 2025 passed by Parliament; Act 30 of 2025 receives assent.
- 1 April 2026Income-tax Act, 2025 comes into force; the 1961 Act is repealed for new tax years.
- April – July 2026Employers, deductors and advance-tax payers move to the new Act’s procedures for 2026-27.
- 2026-27 (assessment year)Returns for FY 2025-26 are filed under the 1961 Act; assessments and appeals under it continue.
- 2027First returns for tax year 2026-27 are filed under the 2025 Act.
Where business users feel it first
- Contracts and policies. Indemnities, tax-gross-up clauses and withholding provisions that name a 1961-Act section need a mapping to the equivalent provision, or a “as amended or re-enacted” formulation.
- Tax-deduction at source. The payment categories and thresholds are carried over, but section references, forms and portal fields differ; payroll and accounts-payable systems must be updated before deduction mistakes arise.
- Returns and forms. New or renumbered forms apply from tax year 2026-27; the portal’s master data and your advisers’ templates must match.
- Transfer pricing, cross-border payments and treaty claims. Where a payment is documented by reference to a section of the 1961 Act, check the corresponding provision — the Double Taxation Avoidance Agreements themselves are unchanged.
Transition checklist for a company
- Confirm which year-end returns are still filed under the 1961 Act and set up a separate file for them
- Map every TDS category in payroll and accounts-payable software to the new Act’s provisions
- List contracts and policies that cite a 1961-Act section and plan replacements at the next amendment
- Update tax-audit and transfer-pricing report templates
- Confirm that open assessments and appeals remain in the 1961-Act track and are calendared
- Brief the board and the auditors on the new vocabulary — “tax year” instead of assessment year
What to watch
Rules, forms and administrative circulars under a new Act arrive in stages, and the Department’s portal updates follow them. Questions such as which form replaces which, and how the new Act reads on a particular payment, are exactly the ones to confirm against the current notified text before acting. See Taxation & Regulatory for the practice note and the compliance calendar for indicative dates.
Frequently asked
Do I still need the Income-tax Act, 1961?
Yes, for income earned up to 31 March 2026, for pending assessments, appeals and penalties, and for any new proceedings that relate to earlier years. It remains the governing law for those matters, even though it no longer governs new tax years.
Did tax rates change with the new Act?
The Act was presented as a restructuring, not a rate change. Rates for any particular year are set by the Finance Act for that year; check the Finance Act and the notified rate schedules for the year in question.
What is a “tax year”?
It replaces the earlier pair of “previous year” (the year in which income is earned) and “assessment year” (the year in which it is assessed) with a single period — the twelve months commencing on 1 April — for which income is computed and returned.
Should I wait for new forms before preparing my accounts?
No. Accounts follow the Companies Act and accounting standards, not the tax statute. What waits for the forms is tax reporting, not book-keeping.
This note is time-sensitive: it reflects the Income-tax Act, 2025 coming into force on 1 April 2026, and the rules, forms and circulars under it are still being notified and updated. Confirm against the current official text before acting. Not a substitute for advice from an advocate or chartered accountant on your facts.