Income Tax Act, 2025 is Here: What Professionals Must Know

The introduction of the Income-tax Act, 2025 marks a significant shift in India’s tax framework, effective from 1st April 2026. While the reform primarily aims at simplification and clarity, it has also created a sense of uncertainty among professionals who are already engaged in multiple compliance responsibilities and may not have the time for an in-depth reading of the new law. A common concern emerging across the fraternity is how to prepare for the new compliance requirements and what immediate steps need to be taken at the start of the new financial year. This article attempts to address these concerns by focusing on the key facets of the new law that will impact day-to-day compliance from the very beginning of the transition period, enabling professionals to navigate this change with confidence and preparedness.

(The article has been preared in a mixed format for better understanding)

OBJECTIVE AND SCOPE OF THE NEW ACT

Does The Income Tax Act, 2025 Completely Replace The Income Tax Act, 1961? 

Ans: Yes. The 1961 Act was repealed on 01.04.2026.The repeal of the 1961 Act does not disturb anything relating to tax years before April 1, 2026. For example, if the taxpayer’s assessment for the assessment year 2023–24 was completed under the old Act, that assessment will continue to be valid even after the new Act comes into force. Similarly, any pending proceedings relating to earlier years will continue as per the relevant transitional provisions.

CONCEPT OF ‘TAX YEAR’ Vs. ‘ASSESSMENT YEAR’

• Concept of “Tax Year”: A tax year is a twelve-month period within a financial year, replacing the “previous year” term from the Income-tax Act, 1961.
• Assessment Process: Income from a tax year is assessed after that year ends, maintaining the system where income is evaluated post-earning period, despite the removal of the “Assessment Year” term. Under the 1961 Act, income tax is charged on the “total income” of a “previous year” for a specific “assessment year”.
• Effective Date: The concept applies from April 1, 2026, starting with income earned in FY 2026-27, referred to as Tax Year 2026-27 under the Income Tax Act 2025. In the 2025 Act, the charge is now on the “total income” of the “tax year” at the rates provided for that specific tax year by any Central Act.
• Accounting Periods: Businesses do not need to change their accounting years or financial statements as the tax year remains aligned with the standard financial year (April 1 to March 31).

Author Note– Tax Year = Previous Year = April 1 to March 31

When the Income-tax Act, 2025 refers to a “tax year” starting on 1st April 2025 or earlier, how should that be understood? 

Ans. Section 536(3) of the Income-tax Act, 2025 provides that any reference of a tax year shall be read as a reference to the corresponding ‘previous year’ under the old Act. This provision is transitional and does not change the tax treatment applicable to those years. Example: If the new Act refers to ‘tax year 2024-25,’ it corresponds to the ‘previous year 2024-25’ under the old Act, which in turn corresponds to Assessment Year 2025- 26.

TDS PROVISIONS AND TDS PAYMENTS

Does the fundamental obligation to discharge income-tax through TDS/TCS, advance tax, or self-assessment tax continue under the Income-tax Act, 2025?

Ans. YES. The transition from the Income-tax Act, 1961 to the Income-tax Act, 2025 does not alter the fundamental policy, rates, or timelines for TDS and TCS compliance.

What change has been introduced in the Income Tax Act, 2025 with respect to the Tax Deducted at Source (TDS) provisions contained in the Income Tax Act, 1961? 

• The overall TDS policy remains largely unchanged, but the Income Tax Act, 2025 introduces a simplified, tabular presentation of these provisions.
• All TDS sections from the 1961 Act (Sections 192 to 194T) have been consolidated into two main sections in the 2025 Act: Section 392 and Section 393.
• Section 392: TDS on ‘Salaries’.
• Section 393: TDS on other payments, including rent, commission, brokerage, and transfers of specified immovable property.
• TDS/TCS rates and thresholds under the new Act generally remain consistent with those in the Income Tax Act, 1961.

Which Act will govern the TDS obligations during the transition period?

• The governing legislation is determined by the timing of the triggering event, which is the earlier of the date of credit or the date of payment:
• Sums paid or credited on or before Mar 31, 2026: Governed by Income-tax Act, 1961. Accordingly, existing challans and payment codes linked to the 1961 Act must be utilized for depositing tax deducted prior to Apr 1, 2026.
• Sums paid or credited on or after Apr 1, 2026: Governed by New Income-tax Act, 2025. Precaution by Professionals: For transactions on or after 01 April 2026, deductors must quote relevant table items of section 393 (TDS) or 394 (TCS) of the Income Tax Act, 2025. Using old section numbers (e.g., 194C, 194J, 194H) for these transactions may cause system-level validation errors.In such cases, the deductor will be required to file a correction statement to rectify the section reference in the TDS return.
• Example 1: A payment to a contractor on 5th April 2026 requires quoting Section 393(1) [Table: Sl. No. 6(i)] in the Q1 Tax Year 2026-27 return, instead of Section 194C.
  • Example 2: Professional fees credited in March 2026 but paid in April 2026 fall under the 1961 Act because the credit occurred before the transition date.
  • Example 3: An advance payment made in March 2026 but credited in the books in April 2026 remains governed by the 1961 Act.
  • Example 4: For an ongoing monthly contract, payments for March 2026 (credited 31.03.2026) follow Section 194C of the 1961 Act, while April 2026 payments (credited 30.04.2026) follow Section 393(1) of the 2025 Act.
  • Example 5: Interest income credited on 31 March 2026 but paid in April 2026 is governed by the 1961 Act.
  • Example 6: Payment to a contractor on 28 March 2026 is governed by the 1961 Act since the triggering event occurred prior to April 1, 2026.
• Tax deductors should update their ERP and payroll systems to the new section numbering for transactions starting Apr 1, 2026 to avoid return filing errors.

ADVANCE TAX PAYMENT

• There are no changes to advance tax provisions or interest rates for shortfalls in the Income-tax Act, 2025.
• The Income-tax Act, 1961 governs advance tax payments for FY 2025-26 (AY 2026-27), including the final instalment due on 15 March 2026 and any subsequent interest for shortfalls.
• Advance tax for the tax year 2026-27 (FY 2026-27) will be governed and discharged under the Income-tax Act, 2025.

SELF ASSESSMENT TAX PAYMENT

Self-assessment tax for AY 2026-27 (FY 2025-26) is paid in July 2026. Which Act governs this payment? 

Ans. Self-assessment tax is merely a mode of discharging the tax liability, and the applicable law is determined by the year of income, not by the date of payment. The section 140A of the Income-tax Act, 1961 shall govern the payment of self-assessment tax in this situation.

What precautions should taxpayers take during the transition year (FY 2026-27) while making tax payments? 

• The government is ensuring that tax filing portals support both Acts simultaneously during the transition period.
• Taxpayers must select the correct Assessment Year (AY 2026-27) for payments related to FY 2025-26.
• Taxpayers must select Tax Year 2026-27 for payments related to FY 2026-27 to ensure proper tax credit.
• For example, self-assessment tax for FY 2025-26 paid in June 2026 requires selecting AY 2026-27.
• Advance tax for income earned between April 2026 and March 2027 requires selecting Tax Year 2026-27.

Will the Annual Information Statement continue under the new Act? 

Ans. Annual Information Statement will continue for tax periods governed by the Income-tax Act, 1961 (up to AY 2026–27), and from Tax Year 2026–27 onwards under the Income-tax Act, 2025, it will stand replaced by Form No. 168 as the evolved Annual Information Statement.

What will happen to refund claims arising under the Income-tax Act, 1961 that are pending on the commencement of the Income-tax Act, 2025? 

Ans. Rights, benefits, obligations or liabilities that arose under the old Act continue to exist. Thus, if a taxpayer was entitled to claim a refund under the old Act for any tax year prior to the commencement of the new Act, he still remains entitled to that refund even after the new Act comes into force.

RETURN FILING FRAMEWORK DURING TRANSITION

What are the key provisions relating to filing of return of income under the Income-tax Act, 2025? 

• The Income-tax Act, 2025 consolidates filing provisions into Section 263.
• Section 263 unifies the rules for original (sub-section 1), belated (sub-section 4), revised (sub-section 5), and updated (sub-section 6) returns.
• The core framework regarding mandatory filing, specific due dates, and categories of obligated persons remains consistent with the previous Act.

What is the due date for filing return of income under the Income-tax Act, 2025? 

Ans. Under Section 263(1) of the Income-tax Act, 2025, the due dates for filing the return of income remain exactly the same as they were under the old Act. The specific due dates based on the category of the taxpayer are as follows:

• 31st July: For any other assessee (typically individuals and entities not subject to audit).
• 31st August: For an assessee having income from business or profession whose accounts are not required to be audited (including partners of such firms or their spouses governed by Section 10), provided Section 172 does not apply.
• 31st October: For companies, and any assessee whose accounts are required to be audited (including partners of such firms or their spouses governed by Section 10), provided Section 172 does not apply.
• 30th November: For any assessee (including partners of a firm or their spouses governed by Section 10) where the provisions of Section 172 apply.

Will taxpayers be required to file two returns (for AY 2026-27 as well as TY 2026-27) during the transition year (FY 2026-27)? 

Ans. NO. The obligation to file the return for the Tax Year 2026-27 will arise after the end of the Tax Year and it is similar to the framework existing in Income Tax Act, 1961. The timelines for filing Income Tax returns during transition period (as proposed in Finance Bill, 2026) are tabulated as under:

In simple words, the obligation to file the return for the Tax Year 2026-27 will arise after the end of the Tax Year. The Income Tax Returns, Forms etc. for the Tax Year 2026- 27 shall be notified by the Government well before the due dates.

Which ITR form should be used for AY 2026-27?

• ITR Forms for AY 2026-27: Forms (ITR-1 to ITR-7) under the Income-tax Act, 1961, will be notified soon and made available on the e-filing portal before the due date.
• Applicable Assessment Year: Taxpayers must select AY 2026-27 when filing returns for income earned during FY 2025-26.
• Governing Legislation: All filings for AY 2026-27 and prior years remain governed by the Income-tax Act, 1961, regardless of whether the filing occurs after April 1, 2026.
• Revised Returns: Under Section 139(5) of the 1961 Act, revised returns can be filed until the expiry of the assessment year (proposed as March 31, 2027, for AY 2026-27) or until the assessment is completed, whichever is earlier.
• Belated Returns: Per Section 139(4) of the 1961 Act, belated returns for AY 2026-27 may be furnished by December 31, 2026, or before the assessment is finished.
• Updated Returns (ITR-U): Updated returns under Section 139(8A) can still be filed for AY 2026-27 even after the new Act takes effect, subject to prescribed time limits and additional tax requirements.
• Earlier Assessment Years: The window for filing revised or belated returns for AY 2025-26 or earlier expires before April 1, 2026. After this date, only updated returns (ITR-U) may be filed for those years.
• Future Returns: New ITR forms under the Income-tax Rules, 2026, will be notified well before the due dates for Tax Year 2026-27.
• Portal Support: The e-filing portal will continue to support the ITR forms applicable under the 1961 Act for earlier assessment years.

Are AY 2026-27 and Tax Year 2026-27 the same?

Ans. These are two entirely separate compliance obligations:

(i) For AY 2026-27 (income of FY 2025-26): File the return using old ITR forms on the e-filing portal, selecting AY 2026-27. The due date is 31st July, 2026 or 31st August for non-audit cases, etc.

(ii) For Tax Year 2026-27 (income of FY 2026-27): This return is not due until July 2027. However, the taxpayer should keep track of income, TDS, and advance tax payments under the new Act framework from April 2026 onwards. The e-filing portal will support compliances under both the Acts simultaneously.

How should taxpayers keep records for the transition year to ensure smooth filing under both Acts? 

Ans. Taxpayers should:

(i) Maintain clear demarcation of income, expenses, TDS, and advance tax between FY 2025-26 (governed by old Act) and FY 2026-27 (governed by new Act);

(ii) Ensure all challans correctly reflect AY 2026-27 or Tax Year 2026-27 as applicable;

(iii) Reconcile Form 26AS / Annual Tax Statement for each year separately;

(iv)Keep a section-mapping reference handy (old Act section to new Act section) for accurate reporting;

(v) File returns well before due dates to have buffer time for any transition issues in portal.

Summary Overview

• For TDS/TCS: The governing Act is strictly determined by the “earlier of the event of credit or payment”. If either event occurs on or before March 31, 2026, the Income-tax Act, 1961 applies; if it occurs on or after April 1, 2026, the Income-tax Act, 2025 applies,.
• For Advance Tax: The applicable Act is linked to the tax year to which the income pertains (the year the income is earned). For instance, an advance tax instalment paid in March 2026 for FY 2025-26 is governed by the old Act, while instalments starting June 2026 for FY 2026-27 are governed by the new Act,.
• For Self-Assessment Tax: The applicable law is determined by the year of income, not by the date of payment. Self-assessment tax is merely a mode of discharging tax liability, so tax paid in July 2026 for income earned in FY 2025-26 remains governed by the 1961 Act.
• For ITRs (Income Tax Returns): The governing Act is determined by the period during which the income was earned, even if the actual filing date falls after the new Act has commenced. ITRs for income earned during FY 2025-26 will be filed under the 1961 Act (as Assessment Year 2026-27), whereas ITRs for income earned in FY 2026-27 will be filed under the 2025 Act (as Tax Year 2026-27),.

The core foundational principle across all these compliances is that rights, liabilities, and obligations are tied to the specific period the income was earned or the transaction triggered, ensuring a seamless continuity of the old Act for earlier periods.

Mapping of Important Forms

1. PAN, TAN & Basic Declarations

2. TDS, TCS & Foreign Remittances

3. Charitable & Registered Non-Profit Organisations (NPOs)

4. Returns, Audit & Assessment

*******

Disclaimer – This article is intended for educational and informational purposes only and is based on the provisions of the Income-tax Bill, 2025, the Finance Bill, 2025, and the Income-tax Act, 1961 as amended up to date. While due care has been taken in preparing this article, the author does not accept any liability for any loss or damage arising from reliance on the contents of this article.

The discussion herein is a general analysis of the transition provisions and compliance aspects and should not be construed as professional advice. Readers are advised to examine the relevant provisions of law, rules, notifications, and circulars and seek appropriate professional guidance before taking any action.

The views expressed are personal and do not represent any professional or regulatory authority.