Last reviewed: 25 September 2026. India has a new direct tax law. The Income-tax Act, 2025 comes into force on 1 April 2026, replacing the six-decade-old 1961 Act with a simpler, consolidated and modern code. This guide - the first in our series - explains what has changed at a high level: the effective date, the leaner structure, the new 'Tax Year' concept, the continuity of the new regime, the section numbers clients ask about most, and what taxpayers should do to prepare.
At a glance
Why a new Act
Over sixty years, the 1961 Act accumulated countless amendments, provisos and explanations, making it hard to navigate. The Government's own comparison, when the Bill was tabled, put the 1961 Act at 819 sections in 47 chapters. The 2025 Act consolidates this into 536 sections in 23 chapters, with clearer language and more use of tables - aimed at reducing the compliance and interpretation burden rather than raising taxes.
The new Act is not frozen. The Finance Act, 2026 has already amended it - for example the return due dates in section 263(1), the revised-return window in section 263(5) and several TCS rates in section 394 - so read any provision in its amended form, not the text as first enacted.
Effective date and continuity
The new Act applies from 1 April 2026, i.e. for FY 2026-27 onwards, and the 1961 Act is repealed from that date. Earlier years - including FY 2025-26 (AY 2026-27) - remain governed by the old Act, and section 536 lets pending assessments and proceedings continue under the old law.
The headline changes
- A single Tax Year aligned to the financial year, replacing the dual 'previous year' and 'assessment year' terms.
- A leaner, consolidated structure with clearer drafting and tables.
- Continuity of the default new tax regime, with the old regime available where eligible.
- Substance of most obligations retained, with updated references and forms.
Old section to new: the ten clients ask about most
| Subject | 1961 Act | 2025 Act |
|---|---|---|
| LIC, PF, ELSS deduction | 80C | Section 123 |
| Tax audit | 44AB | Section 63 |
| Presumptive taxation | 44AD / 44ADA / 44AE | Section 58 |
| TDS on professional or technical fees | 194J | Section 393(1), Table S.No. 6(iii) |
| Filing the return of income | 139(1) | Section 263(1) |
| Processing and intimation | 143(1) | Section 270(1) |
| Reassessment notice | 148 | Section 280 |
| Rectification of mistakes | 154 | Section 287 |
| Interest for advance-tax default | 234B | Section 424 |
| New tax regime | 115BAC | Section 202 |
The table-row references in section 393 are taken from the Act as enacted; confirm them against the amended text before quoting them in a TDS return. Our TDS section mapping carries the full 194-series list.
Worked example: which Act applies?
A Thane proprietor has three matters on his desk in October 2026:
- An intimation for AY 2026-27 (income of FY 2025-26) that disallows a deduction. This is a 1961 Act year, so it is an intimation under section 143(1), and the correction route is rectification under section 154 - not section 287.
- A consultant's fee paid on 10 May 2026. The payment falls in tax year 2026-27, so any TDS is under section 393(1), Table S.No. 6(iii) (old 194J), and is reported in the new-form TDS statement.
- His advance tax for tax year 2026-27. This runs under the 2025 Act, so a shortfall attracts interest under sections 424 and 425 (old 234B and 234C).
The rule of thumb: the year the income or payment belongs to decides the Act, not the date the notice or the question arrives.
For foreign companies and NRIs: DTAA relief now sits in section 159 (old 90) and TDS on payments to non-residents in section 393(2) (old 195). Our NRI tax hub and CA services for NRIs page cover what changes for them.
The rest of this series explains the tax-year concept, the new regime and presumptive taxation, and the 2026 rules and form mapping in more detail.
Frequently asked questions
When does the Income-tax Act, 2025 come into force?
It comes into force on 1 April 2026, replacing the Income-tax Act, 1961, which stands repealed from that date. It applies from the financial year 2026-27 onwards.
Does the old Act still matter?
Yes, for earlier years. Income of FY 2025-26 (AY 2026-27) and before is governed by the 1961 Act, and transitional provisions allow pending proceedings to continue under the old law.
Is this a change in tax rates or just structure?
Primarily structure. The 2025 Act is a simplification and consolidation - fewer sections, clearer language and tables - rather than a wholesale change in tax rates, though the government continues to make rate and threshold changes through the Budget. The Finance Act, 2026 has already amended the 2025 Act.
How many sections does the new Act have?
The new Act has 536 sections in 23 chapters. The Government's comparison put the 1961 Act at 819 sections in 47 chapters.
What is the biggest conceptual change?
The introduction of a single 'Tax Year' that aligns with the financial year, replacing the confusing 'previous year' and 'assessment year' terminology.
Does the new regime remain the default?
Yes. The new tax regime continues as the default under the 2025 Act (section 202, old 115BAC), with the option to choose the old regime where eligible.
Will my compliance change a lot?
The substance of most obligations continues, but references, forms and terminology are updated. Businesses should refresh their understanding, update software mappings and confirm the new references for their filings.
What should taxpayers do to prepare?
Understand the tax-year concept, note that the new Act applies from FY 2026-27, update accounting and payroll systems to the new references, and confirm the current position for any specific provision as rules and forms are notified.
What happens to my pending appeal or an old-year notice?
Proceedings for years that began before 1 April 2026 - assessment, reassessment, rectification, penalty, revision and appeals - continue under the 1961 Act and its procedure, even if they start after 1 April 2026 (section 536(2) of the 2025 Act). Pending appeals continue where they are. Interest for the period from 1 April 2026 on refunds and defaults is the exception: it is charged under the new Act.
Are my 12A, 80G or lower-TDS approvals still valid?
Yes. Under section 536(2)(j), registrations, approvals, certificates, circulars and notifications issued under the 1961 Act continue as if made under the corresponding provision of the 2025 Act, for as long as they would otherwise have run.
We help you understand the transition and update your compliance, systems and filings for the 2025 Act.
Income Tax FilingVirtual CFOTalk to CA Somesh Chandak & Associates - we guide businesses through the new Act transition.
WhatsAppLinkedInSchedule a callDisclaimer: This article is for general guidance only. The new Act's detailed provisions evolve as rules and forms are notified and as Finance Acts amend it; please confirm the current position before relying on it.