Income Tax Act 2025 is Live — What Changed from 1 April 2026

On 1 April 2026, India’s Income Tax Act, 1961 was formally repealed after 65 years of governing direct taxation in this country. In its place, the Income Tax Act, 2025 — which received Presidential assent on 21 August 2025 — became the operative law for all income earned from Tax Year 2026-27 onwards.

This is not a new tax law. No new tax has been introduced. Tax rates are unchanged. The deductions you have been claiming continue to exist. What has changed is almost everything else — the section numbers, the form numbers, the terminology, the structure, and the rules under which compliance is done.

This blog is the starting point for the entire “New Act 2025 Decoded” series. It covers what the new Act is, what changed structurally, what stayed the same, and what every taxpayer, business, CA, and CFO must do right now.

Part 1 — What is the Income Tax Act 2025

The Income Tax Act, 2025 is a comprehensive recodification of India’s direct tax law. It contains 536 sections across 23 chapters and 16 schedules — compared to over 819 sections in the 1961 Act. The reduction is not because provisions were removed, but because scattered sub-sections, provisos, explanations, and cross-references have been integrated into the main text, making the law significantly more readable.

Part 2 — What Changed: The Five Big Shifts

Change 1 — Tax Year Replaces Previous Year and Assessment Year

Under the 1961 Act, income earned in the “Previous Year” was assessed in the “Assessment Year” — creating two different year references for the same income. This caused persistent confusion, especially for taxpayers who confused which year’s ITR was being filed for which year’s income.

The Income Tax Act, 2025 eliminates both terms. A single concept — “Tax Year” — now covers the 12-month period from 1 April to 31 March in which income is earned. The period following Tax Year 2026-27 in which the return is filed is called the “Succeeding Tax Year”.

Change 2 — TDS Provisions Consolidated Under Section 393

This is the most operationally significant change for accounts teams. Under the 1961 Act, TDS provisions were spread across individual sections — 192 (salary), 194C (contractors), 194J (professional fees), 194H (commission), 194I (rent), 194A (interest) and so on. Every accounts team had these section numbers memorised.

The Income Tax Act, 2025 consolidates all non-salary TDS provisions under a single Section 393 — Tax to be Deducted at Source. Within Section 393, payments are identified not by section numbers but by payment codes (numeric codes like 1023, 1024, 1026, 1027, 1028). Salary TDS is now under Section 392.

Using the old section number “194C” in a TDS return filed for Tax Year 2026-27 onwards is a defective return. Every TDS software, ERP, and accounting system must be updated to use the new payment codes before the first quarterly return of Tax Year 2026-27.

Change 3 — All Form Numbers Changed

The Income Tax Rules, 1962 have been completely superseded by the Income Tax Rules, 2026 with effect from 1 April 2026. Every form that taxpayers, employers, deductors, and auditors have been using is either renumbered or redesigned.

Change 4 — CBDT Circulars Now Legally Binding

Under the 1961 Act, CBDT circulars were generally treated as advisory — courts had repeatedly held that while they bound the tax department, they did not always bind taxpayers. Businesses routinely argued positions contrary to CBDT circulars in assessments and appeals.

Section 400(2) of the Income Tax Act, 2025 makes CBDT guidelines — including circulars on TDS classification, valuation of perquisites, and treaty interpretation — legally binding on both the tax department and all deductors. Adopting a position contrary to a CBDT circular is now a directly actionable non-compliance, not a debatable tax position.

Change 5 — Old Act Governs All Pre-April 2026 Matters

A critical and frequently misunderstood point: the Income Tax Act, 1961 does not disappear on 1 April 2026 for practical purposes. Section 536 of the new Act (the Repeal and Savings clause) provides that:

• All income earned up to 31 March 2026 (FY 2025-26) continues to be governed by the 1961 Act
• ITR for FY 2025-26 (AY 2026-27) must be filed under the 1961 Act — not the 2025 Act
• All pending assessments, appeals, and proceedings relating to years before 1 April 2026 continue under the 1961 Act
• Tax demands, orders, and notices issued under the 1961 Act remain valid and enforceable
• The e-filing portal will facilitate compliance under both Acts concurrently during the transition

This dual system will operate for several years — the 2025 Act for Tax Year 2026-27 onwards, and the 1961 Act for all earlier years and pending matters.

Part 3 — Key Section Mapping: Old Act vs New Act

The most commonly referenced sections and their equivalents under the new Act:

Part 4 — What Stayed the Same

The Income Tax Act, 2025 is not a new tax law — it is a recodified tax law. These fundamentals are unchanged:

• Tax rates and slabs under both old and new regime — unchanged
• Rs.12 lakh basic exemption under new regime — retained
• All existing deductions (80C, 80D, HRA, standard deduction, home loan) — retained under new section numbers
• Capital gains rates updated by Finance Act 2024 — carried forward as is
• GST and income tax are separate systems — GST is not affected by this change
• Existing faceless assessment scheme — continues without interruption under new Act
• DTAA (Double Tax Avoidance Agreements) — all treaties continue to apply
• PAN and Aadhaar requirements — continue under Section 246

Part 5 — Immediate Action Checklist

1. Update all TDS/ERP software with new payment codes under Section 393 — before the first Q1 TY 2026-27 TDS return.
2. Retrain accounts and finance teams — “Assessment Year”, “194C”, “Form 16A”, “Form 26Q” are old references.
3. Issue Form 130 (not Form 16) for salary TDS certificates for Tax Year 2026-27.
4. Issue Form 131 (not Form 16A) for non-salary TDS certificates for Tax Year 2026-27.
5. File Form 140 (not Form 26Q) for quarterly non-salary TDS returns from Tax Year 2026-27.
6. Switch to Income Tax Rules, 2026 for all compliance from 1 April 2026 — Rules, 1962 are superseded.
7. Review positions contrary to CBDT circulars — these are now directly actionable under Section 400(2).
8. FY 2025-26 ITR (AY 2026-27) — still filed under old Act. Do not mix up the two.

Key Takeaways

• Income Tax Act, 2025 is live from 1 April 2026. Presidential assent received 21 August 2025. 536 sections, 23 chapters, 16 schedules.
• No new taxes. Same rates, same deductions. The change is structural, not financial.
• “Tax Year” replaces both “Previous Year” and “Assessment Year” — one unified concept from Tax Year 2026-27.
• All TDS sections (194C, 194J, 194H, 194I, 194A, etc.) are consolidated under Section 393 with numeric payment codes.
• All form numbers changed — Form 16 → 130, Form 16A → 131, Form 26Q → 140, Form 3CD → Form 26.
• CBDT circulars are now legally binding on all deductors under Section 400(2).
• Income Tax Rules, 1962 superseded by Income Tax Rules, 2026 from 1 April 2026.
• Old Act continues to govern FY 2025-26 and all earlier periods — ITR for AY 2026-27 is still under 1961 Act.

Frequently Asked Questions

⚠  DISCLAIMER This article is published for general informational and educational purposes only and does not constitute legal, tax, or professional advice. The provisions of the Income Tax Act, 2025 and the Income Tax Act, 1961 are subject to amendment through Finance Acts, CBDT Circulars, Notifications, Rules, and judicial decisions at any time. Section references, form numbers, rates, and thresholds mentioned in this article reflect the law as understood on the date of publication and may not reflect subsequent amendments or clarifications. Fimaco Private Limited has taken reasonable care in compiling this content; however, no representation is made as to the completeness, accuracy, or ongoing validity of the information herein. Readers are strongly advised to verify all provisions from the official Income Tax portal (incometax.gov.in) and consult a qualified Chartered Accountant before making any compliance or business decisions. For professional support, contact us at info@fimaco.in or visit fimaco.in.