Background of new Income‑tax Act 2025
The new Income‑tax Act, 2025 came into force from 1 April 2026 and has generally been accepted across levels. Because this is the first year taxpayers must file returns after the new law’s introduction, some taxpayers are confused whether to file their income‑tax returns under the old law or the new law for the relevant year. The confusion stems from the belief that income earned in a year when the earlier law was in force should not be taxed under the new law simply because the new law exists now. Since income earned in 2025–26 was not earned in the tax year newly defined under the new Act, it is essential for taxpayers to understand when the old and new laws apply during this transition. It must be clear which law applies for filing returns for financial year 2025–26, which forms to use, and what rules will govern revised/late/updated returns.
Which law applies to financial year 2025–26?
For income earned in financial year 2025–26, the return that must be filed—even if required under clause 263 of the new Act—should, per the department’s clarification, be filed under the Income‑tax Act, 1961 for assessment year 2026–27. Although the return may be filed after 1 April 2026, the relevant income period falls before the new law’s commencement, so the old law continues to apply. In other words, during the transition the department has clarified that returns for financial year 2025–26, together with their amendments, penalties, late‑filing consequences and scrutiny procedures, will be dealt with under the old law.
Two separate compliance obligations
Taxpayers will need to file two distinct income‑tax returns labelled for assessment year 2026–27 and tax year 2026–27 respectively. Under assessment year 2026–27, income of financial year 2025–26 will be reported under the old law, while under tax year 2026–27 the income of financial year 2026–27 will be dealt with under the new law. Therefore, taxpayers may have to operate under two different compliance frameworks this year. For example, the return for assessment year 2026–27 will follow the old law, while at the same time advance tax, TDS deductions, and TDS tracking for tax year 2026–27 must comply with the new law; the return for that year’s income will be filed after 1 April 2027on or before due date referring to the new Act.
Types of returns and time limits
For assessment year 2026–27, original returns, belated returns, revised returns and updated returns will all be governed by the old law. A belated return can generally be filed up to 31 December 2026 or until assessment is completed, whichever occurs earlier; a revised return can be filed before 31 March 2027 or until assessment is completed. Updated returns may also be filed within the applicable time limits. In short, limited extra opportunities remain to correct income overlooked or errors discovered late.
Return forms and portal use
For assessment year 2026–27, forms 1 to 7 (return series) will be used with the old law in mind. These forms are available on the e‑filing portal and taxpayers must correctly select the appropriate income category for assessment year 2026–27. During the transition the portal will provide compliance facilities for both the old and the new law, so choosing the correct assessment year or tax year is critically important.
Carryforward losses and other consequences
Losses determined in assessment year 2026–27 may be carried forward to tax year 2026–27 and subsequent years to be set off against future profits, subject to conditions in the law. Timely filing of loss statements is especially important. Even though the old law will cease, some rights under it—such as the right to carry forward losses—will continue after transition. Taxpayers should therefore plan not only for the current year but also for tax planning in later years.
Practical precautions
During the transition taxpayers should keep separate records for financial years 2025–26 and 2026–27, correctly link transactions to the applicable year, reconcile Form 26AS with ledger amounts separately, and maintain ready reference to the relevant section numbers under both the old and new laws that apply to them. Following these steps will reduce confusion between the two laws and lower the chance of filing errors. In particular, in cases subject to audit, carefully verify which law applies for revised and updated returns. A small mistake in the transition period may have significant compliance consequences later.
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