After 65 years, India has a new income-tax law. The Income-tax Act, 2025 received Presidential assent on 21 August 2025 and came into force on 1 April 2026. The structure of the law changed dramatically. Your tax bill, in almost every case, did not. This guide separates the two — what is genuinely new, what is only renumbered, and which Act applies to you right now.
In this guide
The timeline · The simplification, in numbers · What actually changed · What did not change · Five myths, corrected · Who is affected, and when · FAQ
How we got here: the timeline
The original Income-tax Bill was introduced in the Lok Sabha on 13 February 2025 and referred to a Select Committee chaired by Baijayant Panda. After the committee's recommendations, that bill was withdrawn on 8 August 2025 and a revised version — the Income-tax (No. 2) Bill, 2025 — was introduced in its place.
The revised bill passed the Lok Sabha on 11 August 2025 and the Rajya Sabha on 12 August 2025. Presidential assent followed on 21 August 2025, making it the Income-tax Act, 2025.
The Act came into force on 1 April 2026. It applies to income earned from tax year 2026-27 onwards — that is, income earned from 1 April 2026. Everything before that date remains the territory of the 1961 Act.
Why the seven-month gap between assent and commencement? Deliberately. Forms had to be renumbered, the portal re-engineered, TDS systems rebuilt, and taxpayers given a full financial year boundary to switch at. A tax law that starts mid-year creates two part-years of chaos; starting on 1 April keeps the change clean.
Why a re-write was needed at all
The 1961 Act was not badly drafted — it was drafted for 1961. Every Finance Act since then bolted on new provisions, and the only way to add detail without renumbering the whole statute was the proviso and the explanation. Sections grew suffixes (44AB, 44AD, 44ADA, 115BAA, 115BAC), provisos grew provisos, and reading a single rule often meant assembling four amendments passed decades apart. The 2025 Act does not change the policy that accumulated; it re-states it in one coherent draft. That distinction — new statute, same policy — is the key to everything below.
The simplification, in numbers
The 1961 Act had been amended every year for six decades. The result was a statute nobody could read end to end — provisos stacked on provisos, explanations explaining explanations. The 2025 Act is a ground-up re-draft of the same law. The compression is real:
| Measure | 1961 Act | 2025 Act |
|---|---|---|
| Sections | 819 | 536 |
| Chapters | 47 | 23 |
| Schedules | 14 | 16 |
| Provisos | ~1,200 | Removed / absorbed into main text |
| Explanations | ~900 | Removed / absorbed into main text |
The schedule count went up, and that is deliberate. The new Act replaces long prose with tables and formulae wherever it can — TDS rates, exemptions and deduction lists now sit in schedules and tabular sections instead of paragraph after paragraph of qualifying language.
Be careful with what these numbers do and do not mean. A shorter statute is easier to read, but it is not a smaller tax system — the rules that lived in those 1,200 provisos did not vanish; most were absorbed into cleaner main text, schedules or tables. The compliance you owed in March 2026 is, in substance, the compliance you owe in April 2026. What changed is how quickly you can find the rule, and what number it answers to.
What actually changed
1. One "tax year" replaces previous year and assessment year
The most visible change for ordinary taxpayers. The 1961 Act made you earn income in a "previous year" and get assessed in the following "assessment year" — two labels for every twelve months of income, and a permanent source of confusion in challans, notices and filings. The 2025 Act defines a single tax year in Section 3: the financial year beginning 1 April. You earn in a tax year, you file for that tax year. We unpack this with worked examples in our guide to the new "tax year" and the end of PY/AY confusion.
2. Every section has a new number
With 819 sections compressed into 536, the familiar landmarks moved. Section 80C is now Section 123. The 87A rebate is now Section 156. Tax audit moved from 44AB to 63. Return filing moved from 139 to 263. Salary TDS moved from 192 to 392, and the entire non-salary TDS family — the old 194-series and Section 195 — was consolidated into a single table-based Section 393. The full cross-reference, including forms, is in our old vs new section number mapping.
3. Forms are renumbered too
From 1 April 2026, the compliance paperwork follows the new Act. Form 13 (lower-TDS applications) becomes Form 128. Forms 15CA and 15CB (foreign remittances) become Forms 145 and 146. Form 16 becomes Form 130, Form 26AS becomes Form 168, and the property-TDS challan family (26QB to 26QE) merges into a single Form 141.
4. Consolidation of scattered provisions
Related rules that lived in separate sections now live together. The presumptive-taxation trio for residents — 44AD, 44ADA and 44AE — becomes a single Section 58. The exemptions of old Section 10 are reorganised into Section 11 read with Schedules II to VII. The non-salary TDS provisions collapse into one section with a rate table. Fewer places to look; fewer cross-references to chase.
5. Plain drafting
Shorter sentences. Defined terms used consistently. Tables instead of provisos. For practitioners this is the quiet revolution: the answer to "what rate applies" is now usually a row in a table rather than a chain of provisos read together with three explanations and a circular.
6. A longer window to fix mistakes
One genuinely taxpayer-friendly mechanic carries into the new Act with its recent improvement intact: the updated-return facility. The window to file an updated return — extended to 48 months by the Finance Act 2025 — continues as new Section 267 (old 140B). A missed or understated year can be corrected for four years, with additional tax that rises the longer you wait.
What did not change
This is the part most coverage gets wrong, so let us be precise. The 2025 Act is a re-write, not a rate change. The following carry over unchanged:
- Tax slabs and rates. The new-regime slabs set by the Finance Act 2025 (nil to ₹4 lakh, then 5% bands up to 30% above ₹24 lakh) continue. Rates remain the business of annual Finance Acts, exactly as before.
- The ₹12 lakh rebate. The Section 87A rebate of up to ₹60,000 — zero tax on taxable income up to ₹12 lakh under the new regime — continues as new Section 156.
- Deduction limits. The old 80C limit of ₹1.5 lakh survives intact as new Section 123, read with Schedule XV. 80D health-insurance limits continue as Section 126.
- Heads of income. Salary, house property, business or profession, capital gains, other sources — the same five heads.
- Capital gains rates. The regime set from 23 July 2024 — 12.5% LTCG without indexation, 24-month holding period for property — continues unchanged.
- Residential status rules. The 182-day test, the 120-day rule for high-income visiting NRIs, deemed residency and RNOR all carry over. Old Section 6 even keeps its number. See our guide to NRI taxation under the new Act.
- Tax audit thresholds. ₹1 crore (₹10 crore for predominantly digital businesses) and ₹50 lakh for professions — unchanged, now housed in Section 63.
Read the new Act as a renovated building, not a new address. The rooms are rearranged and the corridors are shorter, but the rent is the same.
And what happens to the past?
A repeal this large needs careful plumbing, and the new Act provides it. Everything validly done under the 1961 Act — assessments, registrations, certificates, approvals, pending proceedings — is preserved. A scrutiny notice for AY 2024-25 continues under the old Act with old section numbers. Carried-forward losses computed under the old law remain available. An 80G approval or a 12A registration does not lapse because the section it was granted under now has a different number. The two Acts will run side by side for years: the old one winding down past years, the new one governing tax year 2026-27 onwards.
Five myths, corrected
Myth 1: "The new Act changes my tax rates." It does not. Slabs, rebates and deduction limits are carried over as they stood. Any future rate change will come through a Finance Act amending the 2025 Act — as Budget 2026 already does.
Myth 2: "I file under the new Act this year." No. The return you file during 2026 covers FY 2025-26 (AY 2026-27) and is governed entirely by the 1961 Act — old sections, old forms. Your first new-Act return comes in 2027. The mechanics are in our guide to filing your first return under the 2025 Act.
Myth 3: "Old notices and certificates are now invalid." No. Proceedings for periods up to FY 2025-26 continue under the 1961 Act with the old section numbers. A notice quoting Section 143 or a certificate quoting Section 197 for those years is exactly as valid as before.
Myth 4: "Deductions like 80C are gone." The deductions survive; only the numbering changed. 80C is Section 123, 80D is Section 126, 80G is Section 133 — same limits, same conditions.
Myth 5: "The old and new regimes were merged." No. The default new regime (old 115BAC) continues as Section 202, and the old regime remains an opt-in, exactly as under the 1961 Act.
Who is affected, and when
| You are… | During 2026 | From 2027 |
|---|---|---|
| A salaried individual | File FY 2025-26 return under the 1961 Act, as always. Your employer's TDS from April 2026 onwards is already governed by the new Act (Section 392). | First return under the 2025 Act, for tax year 2026-27. Form 16 becomes Form 130. |
| A business owner | FY 2025-26 books, tax audit (44AB, Forms 3CA/3CB/3CD) and return follow the 1961 Act. | Tax audit under Section 63; presumptive schemes under Section 58; returns under Section 263. |
| An NRI | Residency tests unchanged. Remittances from 1 April 2026 already use Forms 145/146 instead of 15CA/15CB. | New-Act return in 2027; lower-TDS applications via Form 128. |
| A deductor (TDS) | Deductions from 1 April 2026 fall under Sections 392/393; new statement forms (138, 141) apply. | Full new-Act compliance cycle. |
Notice the asymmetry: TDS and forms switched over on 1 April 2026, but return filing switches over only in 2027. For one transition year you will quote new form numbers while filing an old-Act return. That is by design, not an error.
What you will actually notice, day to day
For most individuals, honestly, very little this year. The 2026 filing season looks like every other filing season. The visible changes arrive gradually: a salary certificate called Form 130 instead of Form 16, an annual statement called Form 168 instead of 26AS, investment-proof declarations citing Section 123 instead of 80C. Businesses and deductors feel it sooner — TDS returns, challans and certificates all changed numbers on 1 April 2026, and payroll and accounting software needed updating on day one.
One more thing worth knowing: future Budgets amend the 2025 Act, not the repealed 1961 Act. Budget 2026 already follows this pattern. So the new section numbers are not a transitional curiosity — they are the permanent vocabulary of Indian income tax from here on. The sooner old references are mapped, the less friction later.
If your affairs span both Acts — pending assessments, carried-forward losses, cross-border income — the transition deserves a proper review. Our taxation practice advises on Income-tax Act 2025 transition questions for businesses, individuals and non-residents.
Frequently asked questions
On 1 April 2026. It received Presidential assent on 21 August 2025 and applies to income earned from tax year 2026-27 onwards, i.e. income earned from 1 April 2026.
No. The 2025 Act is a re-write of the law, not a rate change. Tax slabs, the heads of income and deduction limits all carry over unchanged — for example, the old Section 80C limit of ₹1.5 lakh continues as new Section 123. Rates are set by annual Finance Acts, as before.
The 1961 Act. Returns filed during 2026 cover income of FY 2025-26 (AY 2026-27) and remain fully governed by the 1961 Act — old section numbers and old forms. The first returns under the 2025 Act, for tax year 2026-27, are filed in 2027.
Sections drop from 819 to 536 and chapters from 47 to 23. Around 1,200 provisos and 900 explanations have been removed or absorbed into the main text, and prose is replaced with tables and formulae wherever possible. Schedules rise from 14 to 16 to carry those tables.
A single 12-month financial year beginning 1 April, defined in Section 3 of the 2025 Act. It replaces the dual "previous year" and "assessment year" system of the 1961 Act. You earn income in a tax year and file for that same tax year.
Only for periods up to FY 2025-26. From tax year 2026-27 the new numbers apply: 80C becomes 123, 80D becomes 126, 87A becomes 156, 44AB becomes 63, 139 becomes 263 and 115BAC becomes 202. The substance of each provision is unchanged.
Have a transition question of your own — a pending notice, a planned transaction, a filing that straddles the two Acts? Write to the firm and a partner will respond.