The Income-tax Act, 1961 governed Indian income tax for more than six decades and was amended so often that it had become difficult to read. The Income-tax Act, 2025 replaces it from 1 April 2026. The new Act is mainly a rewrite for simplicity, not a change in tax policy — but every taxpayer and adviser will notice the difference in how the law is organised and referred to.
What has changed
"Tax year" replaces "previous year" and "assessment year"
Under the old Act, income earned in a "previous year" was assessed in the following "assessment year" — so income for 2025-26 was assessed in AY 2026-27. The new Act uses a single concept, the tax year, which is the financial year in which the income is earned. Tax year 2026-27 (1 April 2026 to 31 March 2027) is the first tax year under the new Act.
Fewer, restructured sections
The new Act has far fewer sections than the old one. Provisions are grouped more logically, long provisos and explanations have been converted into sub-sections, and many rules are presented in tables and formulas instead of text. Related provisions — for example, many TDS provisions — have been consolidated.
As a result, section numbers have changed. Familiar references such as 80C, 143(2) or 194J do not carry the same numbers under the new Act. The department has published material mapping the old sections to the new ones.
Obsolete provisions removed
Provisions that had expired or no longer had any effect — for example, deductions and exemptions that applied only to earlier years — have been removed.
What has not changed
- Tax rates and slabs follow the rates in force; the new Act was not a vehicle for rate changes.
- The basic structure of income — heads of income such as salary, house property, business, capital gains and other sources — remains.
- Concepts such as residence, TDS, advance tax, assessment and appeals continue, in reorganised form.
Old years continue under the old Act
The new Act applies from tax year 2026-27. Income for earlier years continues to be governed by the Income-tax Act, 1961. That means:
- Returns for financial year 2025-26 (AY 2026-27) are filed under the 1961 Act.
- Pending scrutiny assessments, reassessments, appeals and penalty proceedings for earlier years continue under the 1961 Act.
- For several years, advisers and taxpayers will work with both Acts side by side.
What taxpayers should do
- Update your references. Investment proofs, employer declarations, agreements and internal policies that refer to old section numbers should be updated.
- Check TDS processes. Businesses should review TDS deduction, rates and return filing under the new section structure, and update accounting software.
- Keep old records. Notices for earlier years will still cite the 1961 Act.
- Review planning. While rates are unchanged, wording changes can affect specific deductions and exemptions; review significant transactions with an adviser.
Frequently asked questions
When does the Income-tax Act, 2025 come into force?
From 1 April 2026. Tax year 2026-27 is the first year governed by the new Act.
What is a tax year under the new Income-tax Act?
The financial year in which income is earned. It replaces the separate concepts of previous year and assessment year used in the 1961 Act.
Have income tax rates changed under the Income-tax Act, 2025?
No. The new Act is a rewrite for simplicity; tax rates continue to be set by the annual Finance Act.
Which Act applies to assessments and appeals for earlier years?
The Income-tax Act, 1961 continues to govern income, assessments, appeals and penalties for years up to 2025-26.
How we help
ASKN & Co. LLP advises individuals and businesses under both the 1961 and 2025 Acts, and handles assessments and appeals for earlier years. See our tax advisory and ITR filing service.
This is a general overview. The new Act and the rules under it should be read with the notifications and clarifications issued by the CBDT.
This article is general information based on the law as at the date shown and is not professional advice. Please consult us before acting on it.