Income-tax Act, 2025: What Changed From 1 April 2026
India's new Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026. Here is what changed — “tax year”, renumbered sections, simpler drafting — and what stayed the same for taxpayers and students.
By Ledgermint Editorial Team · · 2 min read
Key takeaways
- The Income-tax Act, 2025 replaced the Income-tax Act, 1961 with effect from 1 April 2026.
- The new law uses a single “tax year” in place of “previous year” and “assessment year”.
- It has far fewer sections and uses simpler language, tables and formulas — so familiar section numbers have changed.
- The core concepts (heads of income, deductions, TDS, return filing) carry over; the Act was designed as a simplification rather than a change in tax policy.
- Income earned up to 31 March 2026 is still governed by the 1961 Act.
For more than six decades, Indian income tax was governed by the Income-tax Act, 1961. After years of amendments, the law had become long and difficult to read. Parliament passed the Income-tax Act, 2025 in August 2025, and it took effect from 1 April 2026.
What changed
1. “Tax year” replaces “previous year” and “assessment year”
Under the 1961 Act, income earned in a previous year (for example FY 2025-26) was assessed in the following assessment year (AY 2026-27). The new Act uses one term — the tax year — for the financial year in which income is earned. The first tax year under the new Act is 2026-27.
2. Fewer, renumbered sections
The new Act is much shorter and is organised into fewer chapters, with many provisions presented as tables. A practical consequence: section numbers that every accountant knows (such as the deduction sections) now have new numbers. Software, forms and documentation are being updated to match.
3. Simpler drafting
Long provisos and explanations have been rewritten in plainer language, and obsolete provisions have been removed. The aim is to reduce disputes caused by ambiguous wording.
What stayed the same
- The heads of income — salary, house property, business or profession, capital gains and other sources.
- The broad framework of deductions, exemptions and the old/new regime choice for individuals.
- The TDS/TCS system, advance tax and return filing — although forms and section references are renumbered.
- Tax rates continue to be set each year through the Finance Act.
Which law applies to which year?
| Income earned in | Governed by |
|---|---|
| FY 2025-26 and earlier (returns for AY 2026-27 and earlier) | Income-tax Act, 1961 |
| Tax year 2026-27 onwards | Income-tax Act, 2025 |
So, for a while, accountants will work with both laws — the 1961 Act for pending returns, assessments and appeals of earlier years, and the 2025 Act for current transactions.
What it means if you are learning income tax
Focus on concepts first: how each head of income is computed, how deductions and set-offs work, and how TDS and returns fit together. Those carry over directly. Then learn the new section and form references alongside the old ones, because employers will ask for both during the transition.
This article is a general overview for learners. For any specific transaction, refer to the text of the Act, the rules and CBDT notifications, or consult a qualified professional.
Frequently asked questions
When did the Income-tax Act, 2025 come into force?
What is a “tax year” under the new Act?
Did income tax rates change because of the new Act?
Learn this hands-on
- Income Tax Computation — Intermediate, 40 hours, ₹3,500
- ITR Filing (Individual) — Intermediate, 30 hours, ₹3,500
- TDS Computation — Intermediate, 30 hours, ₹3,000
- Business Taxation — Advanced, 40 hours, ₹3,500
This article is for general education and is not tax, legal or investment advice. Laws and rates change — confirm current rules with official sources or a qualified professional.