Summary: The Income-tax Act, 2025 came into force on 1 April 2026, but the Income-tax Act, 1961 continues to govern earlier tax periods and related proceedings under the savings provisions of Section 536. This creates practical compliance challenges for tax practitioners handling returns, assessments, reassessments, TDS, tax audits and appeals across two legislative frameworks. The applicable law must be identified primarily by the relevant income or transaction period rather than the date on which the compliance activity is performed. TDS requires particular attention because the new Act consolidates withholding provisions under Sections 392, 393 and 394 and introduces revised section codes and reporting forms. Tax audits for FY 2025-26 continue under Forms 3CA/3CB and 3CD, while Tax Year 2026-27 introduces Form 26 under Section 63. Practitioners must also distinguish the Income-tax Rules, 1962 from the Income-tax Rules, 2026, verify challan tagging, update accounting software and use the correct statutory references in notices and appeals. Careful identification of the applicable period, regular reconciliation and timely client communication can prevent avoidable procedural errors during the transition.
Income-tax Act 2025 Transition: TDS, Tax Audit, Forms and Old-Year Proceedings
Every tax practitioner I know has had at least one moment this year of pausing mid-task and asking, “Wait, which Act am I working under?”
It’s a fair question. The Income-tax Act, 2025 came into force on 1 April 2026, but a large part of our work this season, from ITRs and tax audits to assessments and notices, still relates to FY 2025-26 and earlier. For the first time in our professional lives, two income-tax laws are running side by side.
Having spent the last few months working through this transition, I’ve found that the law itself is not the hard part. The new Act is largely a restructuring, and for most taxpayers the tax liability hasn’t changed. The real risk is procedural: an old section number quoted on a new transaction, a challan tagged to the wrong year, or a notice answered under the wrong procedure. These are small errors, but they take a disproportionate amount of time to fix.
So here is the approach I follow, and the areas where I think we need to be most careful.
Start with the period, not the section
The simplest rule I’ve found is to ask one question before anything else: which period does this income, transaction or proceeding belong to?
If it relates to a period up to 31 March 2026, the 1961 Act generally governs it. If it relates to Tax Year 2026-27 onwards, the 2025 Act applies. The date on which we actually do the work is irrelevant. A return filed, an audit signed or an assessment completed in October 2026 for FY 2025-26 is still a 1961 Act matter.
Once you train yourself to identify the period first, most of the confusion disappears.
The old Act isn’t really gone
Section 536(1) of the 2025 Act repeals the 1961 Act. But sub-section (2) immediately saves almost everything connected with it, and this is the provision every practitioner should read at least once in full.
Clause (c) is the important one. It says the 1961 Act continues to apply to proceedings pending on 1 April 2026, and also to proceedings started on or after that date for any tax year beginning before 1 April 2026. That covers notices, assessments, reassessments, rectifications, penalties, revisions and appeals, and they must follow the 1961 Act procedure. Clause (e) keeps matters already pending before authorities, the Tribunal and courts running as if the new Act had never been enacted.
What this means for us is straightforward. If a client receives a reassessment notice today for AY 2023-24, the reply, the objections and any appeal must be built on the 1961 Act and its procedure. Citing the new Act’s provisions in such a reply would be a basic error, and one that’s easy to make when your reference material has started shifting to the new numbering.
TDS is where most of the trouble is
If I had to pick one area where clients are most likely to get things wrong this year, it would be TDS. Not because the rates have changed, but because accounting and payroll systems have had to be reconfigured, and not everyone has done it properly.
The test for which Act applies is the earlier of credit or payment. If that event happened on or before 31 March 2026, it’s a 1961 Act deduction. If it happened on or after 1 April 2026, it falls under the 2025 Act.
A common situation illustrates the trap. Suppose a business books a professional fee invoice of ₹80,000 in its accounts on 28 March 2026 and pays it on 15 April 2026. Many accountants will look at the April payment date and apply the new Act. That’s wrong. The credit happened first and before 1 April, so TDS falls under Section 194J of the old Act and belongs to Q4 of FY 2025-26.
The structure has also changed significantly. Salary TDS now sits in Section 392, and nearly all other TDS provisions are consolidated into tables under Section 393, with TCS under Section 394. For Tax Year 2026-27 transactions, we have to quote the relevant table entry and payment code. Old references like 194C or 194J will not work for these transactions.
The forms have changed too, and this is where I’d suggest keeping a reference sheet handy until the new numbers become second nature:
| Old form | New form | Purpose |
|---|---|---|
| 24Q | 138 | Salary TDS statement |
| 27Q | 144 | Non-resident TDS statement |
| 16 | 130 | Salary TDS certificate |
| 26QB, 26QC, 26QD, 26QE | 141 | Consolidated challan-cum-statement |
| 26AS | 168 | Annual tax credit statement |
Non-salary resident TDS moves to Form 140, and TCS statements to Form 143.
One more point that deserves attention is challan tagging. On the portal, payments for Tax Year 2026-27 must be made by selecting the 2025 Act and the correct tax year. If a challan gets allocated to AY 2026-27 by mistake, it sits against FY 2025-26 records, and sorting that out is tedious. I’d strongly recommend checking this before every payment for the rest of the year.
Before filing Q2 and Q3 statements, it’s worth sitting with the client’s accountant and reconciling the section codes in their software against the Section 393 table. A direct question to the TDS software vendor, asking whether their current release maps statements to the new forms, can save a lot of trouble later.
Form 3CD has had its last season
The tax audits we’ve just completed for FY 2025-26 were correctly done on Forms 3CA/3CB and 3CD, and the Department’s FAQs confirm these forms continue for assessment years up to 2026-27.
From Tax Year 2026-27, though, things change. Tax audit now falls under Section 63 of the 2025 Act, which corresponds to Section 44AB, and the report goes in Form 26 under Rule 47 of the Income-tax Rules, 2026. It replaces Forms 3CA, 3CB and 3CD with a single consolidated form, and every reference in it relates only to the new Act and Rules. Form 26 is due one month before the return due date under Section 263(1), so the first filings will happen in 2027.
My advice here is not to wait. Form 26 is not just Form 3CD with a new name. It’s restructured, with separate schedules and more detailed reporting requirements. Clients have already closed half of Tax Year 2026-27. If we tell them now what records and data the new form will need, we avoid a scramble in August and September 2027.
Don’t forget the Rules
The Income-tax Rules, 2026 were notified on 20 March 2026 through Notification No. 22/2026 and came into force on 1 April 2026. For the most part, they carry forward the operational provisions of the 1962 Rules without changing tax policy. But the 1962 Rules continue to govern periods and proceedings under the 1961 Act.
So the same discipline applies. If you’re preparing a valuation or computation for FY 2025-26, rely on the 1962 Rules. And since CBDT has already corrected a number of errors in the 2026 Rules through a later notification, make sure you’re working from the updated text and not an early download.
A few habits worth building
From my own working through this transition, these are the habits I’d suggest:
1. Identify the period before choosing the Act or section.
2. Get section references updated in clients’ accounting and payroll systems for all transactions from 1 April 2026.
3. Check every challan for the correct Act and tax year before payment.
4. Use only the new TDS and TCS forms for Tax Year 2026-27 quarters.
5. Reply to old-year notices strictly under the 1961 Act and its procedure.
6. Brief clients on Form 26 well before the first filing.
7. Keep ICAI’s section-wise mapping of the 2025 Act to the 1961 Act close at hand while the new numbering settles in.
None of this is complicated. But in a year where two laws apply side by side, a little discipline about which one you’re using goes a long way.
The views expressed in this article are personal. Readers should refer to the bare Act, the Income-tax Rules, 2026 and relevant CBDT notifications before applying any provision.
CA Rahul R. Mohite is a practising Chartered Accountant based in Pune.
