The Income-tax Act, 2025 came into force on 1 April 2026 and repealed the Income-tax Act, 1961. It is not a new tax: rates, heads of income and most of the rules are carried over. What changes is the structure, the numbering and the vocabulary, and for the next few years every company will work under both Acts at the same time.
Two Acts, one calendar
The rule of thumb is simple. Income earned up to 31 March 2026 belongs to the old Act; income earned from 1 April 2026 belongs to the new one. The Income Tax Department’s transition FAQs put it plainly: the return for income of the financial year 2025-26 is filed for assessment year 2026-27 under the 1961 Act, in the old return forms, by the old due dates.
So in the autumn of 2026 a company files its return for 2025-26 under the 1961 Act, while its accounts team is already deducting tax, paying advance tax and keeping records for 2026-27 under the 2025 Act. Its first return under the new Act falls due in 2027.
The tax year
The 1961 Act used two years for one set of income: the “previous year” in which it was earned and the “assessment year” in which it was assessed. The 2025 Act replaces both with a single tax year, the twelve months of the financial year. Income earned between 1 April 2026 and 31 March 2027 is the income of tax year 2026-27, and is referred to that way throughout, including in notices and forms.
The change is mostly one of language, but it matters in documents. Board minutes, engagement letters, loan covenants and intercompany agreements that refer to an “assessment year” after 2026-27 should be read again and, where needed, amended to refer to the tax year.
Where familiar sections went
The new Act has 536 sections, renumbered from the start. A few that every company uses:
| Subject | 1961 Act | 2025 Act |
|---|---|---|
| Return of income | s. 139 | s. 263 |
| Tax audit | s. 44AB | s. 63 |
| Tax deduction at source (non-salary) | ss. 194C, 194J and others | s. 393 (in tables) |
| Tax collection at source | s. 206C | s. 394 |
| Advance tax | ss. 207–211 | ss. 403–408 |
| Interest on advance tax (default, deferment) | ss. 234B–234C | ss. 424–425 |
| Repeal and savings | — | s. 536 |
The tax audit report changes form as well. Under the Income-tax Rules, 2026 the three old forms (3CA, 3CB and 3CD) are consolidated into a single Form No. 26. The audit for 2025-26, due in 2026, is still reported in the old forms; Form No. 26 applies to audits of tax year 2026-27 onwards.
Withholding from 1 April 2026
For tax deduction and collection at source, the test is the date of payment or credit. The transition FAQs state that TDS obligations are governed by the Act in force in the year in which the sum is paid or credited. A professional fee credited on 28 March 2026 is dealt with under the 1961 Act, even if it is paid in April; one credited on 2 April 2026 is dealt with under the 2025 Act.
Under the new Act, non-salary deductions sit in section 393, arranged as tables. Deductors quote the relevant table item rather than the old section number. Accounting and payroll systems need their withholding codes mapped to those items; a mapping done once, and checked by someone other than the person who did it, avoids a year of mismatched TDS returns.
Proceedings already under way
Section 536 keeps the 1961 Act alive for anything pending on 1 April 2026. Assessments, reassessments, appeals, penalties and rectifications for years before the new Act continue under the old law until they are finished. A company with an open assessment for an earlier year therefore keeps using 1961 Act section numbers in that matter, while its current-year compliance uses the new ones.
A working checklist
- Keep two compliance calendars for 2026-27: one for 1961 Act matters (the 2025-26 return, tax audit and pending proceedings) and one for the new Act.
- Re-map TDS and TCS codes in the accounting system to the section 393 and 394 table items, effective 1 April 2026.
- Review documents that refer to “assessment year” or quote 1961 Act sections, and amend those that operate after March 2026.
- Tell the tax auditor early which report forms apply to which year, and agree the timetable for both.
- Label every notice file with the Act it arises under before anything else is done with it.