The Income Tax Department’s FAQs on the transition to the Income-tax Act, 2025 clarify the shift to a “dual-track” compliance system effective from 1 April 2026. While the 1961 Act stands repealed, it continues to apply for past years, creating a parallel framework during the transition. Taxpayers will file returns for AY 2026–27 under the old Act, while advance tax for FY 2026–27 will follow the new Act. TDS payments relating to earlier years must use old sections, whereas new deductions will follow updated provisions. Carry-forward of losses and MAT/AMT credits will seamlessly transition without resetting timelines. Pending litigation and appeals will continue under the old Act. The FAQs emphasize preparedness through proper record segregation, section mapping, and system updates. Overall, the transition aims to modernize tax administration while ensuring continuity, requiring taxpayers to carefully manage compliance under both regimes during the shift period.
Arjuna (Fictional Character): Krishna, recently the new Rules were released, but now the Income Tax Department has now released a comprehensive set of FAQs on the transition to the Income Tax Act, 2025. It feels like we are migrating to a new digital world on April 1, 2026. How do we handle this “dual track” system without getting lost?
Krishna (Fictional Character): Arjuna, you are right. This transition is a “defining moment” aimed at providing a modern, transparent tax code. The Department has released these FAQs to serve as a “bridge” to build confidence during the changeover. From April 1, 2026, the 1961 Act stands withdrawn, but it will continue to coexist with the new Act for a transitional period to handle past obligations.
Arjuna (Fictional Character): Krishna, what are the most critical points from this FAQ that every taxpayer and professional must know?
Krishna (Fictional Character): Arjuna, the important critical points from this FAQ are as follows:
1. The “Dual Track” Compliance Era
Starting April 1, 2026, the e-filing portal will support both Acts simultaneously. In July 2026, taxpayers will file their return for AY 2026-27 (for income earned up to March 31, 2026) using the old ITR forms. During the same period, taxpayers will pay Advance Tax for Tax Year 2026-27 under the new Act.
2. Sections to be selected while making the TDS payments:
For TDS payments relating to FY 2025-26 and earlier, even if made after 01.04.2026, taxpayers must use the old TDS sections (192 to 194T) on the Income Tax portal. For deductions pertaining to Tax Year 2026-27 onwards, Section 393 should be selected.
3. Carry forward of losses:
Valid losses (Business, Capital, etc.) determined under the old Act migrate seamlessly to the new Act. However, the original carry-forward period (e.g., 8 years for business loss) does not restart; it continues from the original year.
4. MAT/AMT Credits:
Any unutilized credit for MAT/AMT allowed to be carried forward under the provisions of section 115JAA or 115JD of the Income Tax Act, 1961, are treated as eligible credits under the Income Tax Act, 2025. For example, if a taxpayer has carried forward MAT credit from AY 2024–25, that credit will be available under the new Act and can be used in future years, subject to the conditions prescribed in the Income Tax Act, 2025.
5. Pending Litigation matters:
Any assessment, appeal, or rectification pending as of April 1, 2026, will continue to be disposed of under the 1961 Act as if it were never abolished. Additionally, if any appeal is to be filed after the 1st April 2026, and it relates to Assessment Year 2026–27 or any earlier assessment year, such appeal shall be governed by and disposed of under old provisions of the Income-tax Act, 1961.
Arjuna (Fictional Character): Krishna, what should be the taxpayer’s immediate action plan or lesson to ensure a smooth transition?
Krishna (Fictional Character): Arjuna, the lesson is that “Modernity requires Preparation.” To stay ahead of the curve, every taxpayer should follow this step:
1. Distinguish Records: Maintain a clear separation of income, expenses, TDS, and advance tax between FY 2025-26 (Old Act) and FY 2026-27 (New Act).
2. Section Mapping: Keep a section-mapping reference handy (Old Act section to New Act section) to ensure accurate reporting in your returns.
3. Update Systems: Ensure ERP and payroll systems reflect new section numbering and “Tax Year” terminology from April 2026.
4. Buffer Time: File your returns well before the due dates to have enough buffer time to resolve any unforeseen transition issues on the portal.
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