Income Tax Act 2025: What Actually Changes From 1 April 2026

After 64 years, India has replaced its income-tax law. Parliament passed the Income-tax Act, 2025 in August 2025; it received presidential assent on 21 August 2025 and takes effect from 1 April 2026 — i.e., from the financial year 2026-27. The current FY 2025-26 continues to run entirely on the 1961 Act.

The government’s stated goal is readability, not rate change: the new Act drops from 819 sections (plus thousands of explanations and provisos) to roughly 536 sections, cuts word count by about half, and removes redundant provisions. Your tax bill should not change because of the switch — the rates, slabs and most deductions carry over.

The big headline: one "tax year"

The 1961 Act forced every taxpayer to juggle two clocks — the previous year in which income was earned and the assessment year in which it was taxed. The new Act merges them into a single concept: the tax year. Income earned from 1 April 2026 to 31 March 2027 is simply “tax year 2026-27”, assessed and taxed within that frame (with defined exceptions for search cases).

Practical effect: forms, notices and TDS paperwork will reference one year instead of two. Expect some confusion during the first transition year — save this guide for your files.

What changes for businesses and professionals

• Section 194T — TDS on payments to partners: firms and LLPs must deduct TDS at 10% when salary, remuneration, commission or interest paid to a partner exceeds ₹20,000 in the year. This is brand new — partnership accounts need a TDS process from 1 April 2026.
• Rationalised TDS chapters: the Act consolidates and renumbers TDS sections; software and standing instructions will need updates.
• Clearer virtual-digital-asset treatment: the 30% VDA regime (from the 1961 Act’s 115BBH) carries into the new Act with tightened definitions.
• Faceless-first administration: faceless assessment, appeal and collection continue as the default architecture.

What does NOT change

• Tax slabs and rates: the FY 2025-26 structure (0–30%, ₹12 lakh rebate shield) continues under the new Act.
• Major deductions & regimes: the two-regime system, standard deduction, and retirement-savings rules carry over.
• Compliance calendar: ITR due dates, advance-tax instalments and TDS deadlines keep their current rhythm.
• Existing registrations, PAN, pending assessments: all continue seamlessly; the new Act includes transition provisions so no proceeding dies mid-way.

How to prepare during 2025-26

1. Tag documents by tax year going forward — start the single-year habit now so 2026 is effortless.
2. If you run a firm/LLP: set up partner-payment records now; decide how 194T compliance will run in your accounting software.
3. Update payroll & accounting vendors: ask them for their Income-tax Act 2025 readiness plan and timeline.
4. Follow only official updates: the department is publishing FAQs and cross-reference tables on incometax.gov.in; social-media summaries frequently overstate “abolished deductions”.

One honest caveat: detailed rules and forms under the new Act will be notified closer to 1 April 2026. Treat this guide as the confirmed skeleton; validate specifics against the official notifications as they land.

Frequently Asked Questions