Income Tax Act, 2025: Your business preparation before 1st April, 2026

Income Tax Act 2025 which is going to take effect from 1^st April, 2026 and is the condensed version of the Old Act (Income Tax Act 1961). It spans over 600 pages with 536 sections, condensed from what was previously over 700 sections.

But the new Act is revenue-neutral, with no changes in existing tax rates. Your tax liability won’t change. Your compliance obligations, however, will change significantly.

This article explores the finer nuances of the changed new Act:

 Trigger for the Change: The Income-tax Act, 1961 has been amended nearly 65 times with over 4,000 amendments. A law that became unmanageable to navigate without expert help. Provisions sometimes contradicted each other. Language was archaic and highly legalistic.

The new Act seeks to modernize India’s tax framework, streamline compliance, use contemporary language, and reduce litigation through clarity.

Key Changes:

1. “Tax Year” Replaces “Previous Year” and “Assessment Year”

Currently, we transit between two concepts:

• Previous Year: When you earn income (FY 2025-26)
• Assessment Year: When it’s taxed (AY 2026-27)

The new Act introduces a unified “Tax Year” concept—one framework where the Tax Year runs from 1 April to 31 March.

Action Point: Update internal tax documentation, templates, and communication protocols. Train your finance team on new terminology before 31 March 2026.

2. TDS Consolidation—The Change Affecting Every Business

Under the 1961 Act, TDS provisions were spread across 69 different sub-sections (192 to 194T). The new Act consolidates these into:

• Section 392: TDS on salary
• Section 393: TDS on all other payments (with comprehensive tables)
• Section 394: TCS provisions

Why This Matters:

The  current TDS software, forms, and processes reference old section numbers—everything needs updating.

3. Critical Recent Changes in TDS/TCS (Already in Effect from 1 April 2025):

Before we even reach the new Act, these threshold changes apply now:

• Section 194H (commission): ₹15,000 → ₹20,000
• Rental income TDS: ₹50,000 per month threshold
• Dividend/mutual fund: ₹5,000 → ₹10,000
• Section 206C(1H) TCS on goods sales: OMITTED (major relief)
• Sections 206AB & 206CCA higher rates for non-filers: OMITTED

Section 194T—New TDS on Partner Payments:

Partnership firms/LLPs must deduct 10% TDS if payments to partners exceed ₹20,000 annually. This covers remuneration, commission, bonus, interest—creating new administrative requirements for smaller firms.

Action Points:

• Audit your TDS processes and map old sections to new sections
• Verify you’re following 2025 threshold changes (many businesses missed these)
• Update software and coordinate with providers for new Act compatibility
• Train accounts team on new tables
• Partnership firms: Register for TAN, set up quarterly TDS returns for partner payments

4. Digital and Technology Integration:

The new Act emphasizes technology-led administration. Automated systems will play larger roles in assessments, data processing, and taxpayer communication.

Increased Data Matching:

The department uses AI to match information across:

• Your ITR, TDS/TCS returns, GST returns
• Banking data (Annual Information Returns)
• Third-party reporting (property, investments)

Any inconsistency flags your case for scrutiny. I recently handled a case where ITR showed ₹50 lakh income but GST returns reflected ₹80 lakh turnover—automatic scrutiny notice resulted.

5. NUDGE:

Instead of immediate assessment notices, the department sends “nudges”—reminders to correct potential errors voluntarily. But ignoring these can result in harsher treatment; the department views it as deliberate non-compliance.

Action Points:

1. Ensure consistency across all filings—ITR, TDS, GST must tell the same story

2. Respond to nudges immediately

3. Upgrade to automated systems if still using manual books

4. Maintain digitally retrievable records—”the file is lost” no longer works

6. Transitional Provisions—The Critical 31 March 2026 Cutoff

Income earned up to 31 March 2026 continues under the 1961 Act, while income from 1 April 2026 onwards follows the 2025 Act.

The Complexity:

Pending assessments, appeals, and proceedings under the old Act continue until completion. For years to come, businesses operate under both Acts simultaneously—old Act for past assessments, new Act for current compliance.

For FY 2025-26 (ending 31 March): File ITR under old Act provisions, use old sections and forms.

For FY 2026-27 (starting 1 April): File ITR under new Act provisions, use new sections and forms (to be notified post-Budget).

Action Points:

• Maintain separate documentation systems—don’t mix old and new Act records
• Train team on both Acts until all old matters close
• Track open assessments to know which regime applies
• Budget for higher compliance costs during transition

7. Important Updates to Note

Updated Return Timeline: Extended from 24 months to 48 months from end of tax year. More flexibility to correct errors, but file early—voluntary disclosure favors you over department discovery.

Forms and Rules: Implementation rules and forms aren’t ready yet. Watch for CBDT notifications post-Budget 2026-27 (expected 1 February 2026).

• Industry-Specific Changes:

• Startups: Tax holiday extension to 1 April 2030 for incorporation
• Digital Business: Equalisation levy on online ads abolished from 1 April 2025
• Manufacturing: New presumptive taxation (25% of consideration as profit) for non-resident tech service providers to electronics facilities
• Financial Services: Section 194LBC TDS reduced from 25%/30% to 10% for securitization trusts

8. You May Need Professional Guidance If:

• Complex structures (multiple entities, international operations)
• Ongoing tax disputes or litigation
• Sector-specific provisions apply (financial services, startups, IFSC)
• Turnover exceeds ₹10 crores
• Significant TDS/TCS obligations
• Undergoing restructuring or M&A

Even if managing internally, have a professional review your transition plan before 1 April 2026.

Final Remarks:

For businesses that prepare well, this transition offers opportunity to upgrade systems, train teams comprehensively, build better compliance frameworks, and establish good relationships with tax authorities.

The businesses that will struggle are those that wait and procrastinate. The businesses that will thrive are those preparing now.

Stay informed. Stay compliant. Stay ahead.

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In case you have any concern and queries or need any support regarding taxation, you may like to contact us.

Abhinarayan Mishra, FCA, FCS; Managing Partner, SAM Law Associates LLP; KPAM & Associates, Chartered Accountants, Dwarka, New Delhi;  +9910744992, ca.abhimishra@gmail.com;samlawassociates18@gmail.com