Insights · Direct tax
The Income-tax Act, 2025 takes effect: what changes from 1 April 2026
The Income-tax Act, 2025 replaces the Income-tax Act, 1961 with effect from the tax year beginning 1 April 2026. The rewrite is structural rather than a change of policy, but it touches section references, terminology, and compliance forms across the board.
The Income-tax Act, 2025 comes into force for the tax year beginning 1 April 2026, replacing the Income-tax Act, 1961. It is principally a consolidation and simplification exercise: the substantive policy on what is taxed, and at what rate, continues to be set by the annual Finance Act. The new Act reorganises and renumbers provisions, removes redundant sections, and adopts plainer drafting.
What changes in practice
The most visible change is terminology. The new Act uses a single concept of the 'tax year' in place of the earlier 'previous year' and 'assessment year' distinction. Provisions have been regrouped and renumbered, so familiar section references — to audit, deductions, or tax deducted at source — will need to be re-mapped to their new locations.
Compliance instruments have been refreshed to match. The income-tax return forms for AY 2026-27 were notified ahead of the financial year, and the tax-audit reporting format has been restructured under the new framework.
What stays the same
Heads of income, the residential-status tests, the broad scheme of deductions, and the rate structure continue substantially as before, subject to the Finance Act. Returns already filed for earlier years remain governed by the 1961 Act, and transitional provisions carry forward losses, depreciation, and pending proceedings.
What the firm is doing
The firm is re-mapping standard workpapers, engagement letters, and client checklists to the new section references, and reviewing internal templates that cite the 1961 Act. For most clients no immediate action is required for routine filings; the practical impact is felt in documentation and in any agreement that refers to specific sections of the earlier Act.
References
This article is for general information and is not professional advice. Thresholds and rules change; your position should be confirmed for your facts before it is acted upon.