India’s tax law just underwent its most significant rewrite in six decades. The Income Tax Act, 2025 replaces the Income Tax Act, 1961 with effect from 1 April 2026 — but for most taxpayers and businesses, the transition is designed to be seamless. Here is what you need to know.

The headline: same policy, cleaner law

The new Act does not introduce new taxes, alter tax rates, or increase compliance burden. Its purpose is structural — to present the same tax policy in language that is simpler, more logical, and easier to navigate. The 1961 Act had accumulated over six decades of amendments, provisos, and explanations that made even routine provisions difficult to read. The 2025 Act consolidates and restates them.

In numbers: the legislation moves from 819 sections to 536, while the Income Tax Rules shrink from 511 rules and 399 forms to 333 rules and 190 forms. The reduction is in complexity, not in substantive coverage.

The concept of “Tax Year” — what changes

The most visible terminology change is the replacement of “Previous Year” and “Assessment Year” with a single concept: the Tax Year. Under the 1961 Act, income earned in the Previous Year 2025–26 was assessed in Assessment Year 2026–27 — two different year references for the same income, a persistent source of confusion.

Under the new Act, income earned in FY 2026–27 is simply referred to as Tax Year 2026–27. The year of earning and the year of assessment are the same reference. No change in substance, no change to your accounting period — just a cleaner label.

Return filing during the transition year

A question we have already received from several clients: do I need to file two returns? The answer depends on the year. For income earned in FY 2025–26, you file a return for AY 2026–27 using the existing ITR forms under the old Act — due by 31 July 2026 in most cases. The return for Tax Year 2026–27 (income of FY 2026–27) is not due until July 2027, under the new Act’s revised forms.

There is no double filing for the same income. The two obligations relate to two different financial years.

TDS: the cut-off date is 1 April 2026

TDS obligations follow a straightforward rule: the Act that governs is determined by when the payment or credit occurs, whichever is earlier. If that date falls on or before 31 March 2026, the 1961 Act applies; on or after 1 April 2026, the new Act applies.

Under the new Act, all TDS provisions (previously Sections 192 to 194T) have been consolidated into two sections — Section 392 (salary) and Section 393 (all other payments). Rates and thresholds are unchanged. However, deductors making payments from April 2026 onwards must quote the new section numbers when filing TDS returns, or risk processing errors.

Carry-forward of losses and pending proceedings

Losses validly determined under the 1961 Act carry forward seamlessly into the new Act — same character (business, capital, speculation), same remaining carry-forward period. The transition does not reset or interrupt the clock. Equally, all pending assessments, appeals, reassessments, and proceedings relating to years before 1 April 2026 continue under the 1961 Act until their final resolution, regardless of when that resolution occurs.

A note for CFOs and practising CAs

For finance professionals and chartered accountants, the practical disruption of this transition is limited. The core architecture of Indian income tax — heads of income, computation mechanisms, deduction framework, appellate hierarchy — remains structurally identical. What changes is the numbering, the language, and the presentation. Section 80C becomes Schedule XV read with Section 123. Sections 192 to 194T consolidate into Sections 392 and 393. The substance is the same.

The primary area requiring immediate action is systems — ERP, payroll, and TDS return preparation utilities need to be updated to reflect new section references from April 2026 onwards. Beyond that, the transition is largely one of familiarisation rather than substantive relearning. The CBDT has also confirmed that all existing circulars, notifications, and instructions issued under the 1961 Act continue to remain valid under the new Act to the extent they are not inconsistent with it.

NRI considerations

For Non-Resident Indians with income or investments in India, the new Act carries over the existing framework with no material changes. Residential status tests remain identical — the 182-day rule, the 120-day rule for individuals with Indian income exceeding ₹15 lakh, and the deemed residency provision are all retained in the same form under Section 6 of the new Act.

The concessional tax regime for NRIs — covering investment income, long-term capital gains on foreign exchange assets, and reinvestment exemptions — is preserved in Sections 213 to 217 of the new Act, corresponding to Sections 115C to 115I of the old Act. NRE account interest continues to be exempt. The foreign currency computation mechanism for capital gains on shares and debentures of Indian companies is retained under Section 72.

One practical point worth noting: TDS section numbers change from 1 April 2026. If you receive professional fees, rent, or other income from Indian payers, ensure your payer is quoting the correct new section numbers — incorrect section references in TDS returns can affect your credit and create unnecessary reconciliation issues.

The transition has been carefully designed with continuity as its governing principle. For most businesses and individual taxpayers, the practical disruption should be minimal — provided the cut-off date logic on TDS and the portal’s dual compliance framework are understood clearly.

If you have specific questions about how the transition affects your assessments, pending matters, or TDS arrangements, we are glad to advise.