Income-tax Act 2025: Key Changes Every Taxpayer Should Know

The Income-tax Act 2025 came into force on 1 April 2026, replacing the Income-tax Act, 1961 after more than six decades. Parliament passed the new law in August 2025, it received Presidential assent on 21 August 2025, and the Income-tax Rules, 2026 were notified on 20 March 2026 to put it into operation.

For most taxpayers, the headline message is reassuring: the new Act is primarily a rewrite for clarity, not a new tax policy. Rates, the broad treatment of income and familiar systems such as PAN, TAN and faceless assessment continue. What changes is the language, the numbering and some of the concepts you will see on forms and notices. Here is what every taxpayer and business should know.

Key takeaways

• The Income-tax Act 2025 applies from 1 April 2026, so income earned in the tax year 2026-27 onwards is governed by it.
• The Act has 536 sections and 16 schedules, compared with over 800 sections in the 1961 Act, with provisos and explanations folded into the main text and many rules shown as tables.
• “Previous year” and “assessment year” are replaced by a single “tax year”.
• Section and form numbers have changed, so documents such as Form 16 and Form 26AS now carry new numbers.
• Returns, audits and proceedings for FY 2025-26 and earlier years continue under the 1961 Act through transition provisions.

Why a new Income-tax Act 2025?

Over the years the 1961 Act grew through hundreds of amendments. Sections such as 80-IA or 80-IB sat alongside provisions numbered with multiple letters, and a single sentence could run across several provisos. That made the law harder to read and increased the room for disputes.

The Government’s stated aim was a simpler, modern code with a reduced compliance burden. According to the Income Tax Department, rules have been reduced from 511 to 333 and forms from 399 to 190. The drafting uses shorter sentences, tables and formulas, and removes provisions that had become obsolete.

The main changes at a glance

1. A single “tax year”

Under the old law, income earned in a “previous year” was assessed in the following “assessment year”. This was a common source of confusion, especially for first-time filers. The new Act uses one term, the tax year, which is the financial year from 1 April to 31 March. Income earned from 1 April 2026 to 31 March 2027 is income of tax year 2026-27. Our upcoming guide on the tax year concept explains this in more detail.

2. New section numbers

Almost every provision has moved. A few commonly used examples are shown below. Always check the official mapping before quoting a section in a return or reply.

Provision	Income-tax Act, 1961	Income-tax Act, 2025
Exempt incomes	Section 10	Section 11
New tax regime	Section 115BAC	Section 202
Rebate for resident individuals	Section 87A	Section 156
Return of income	Section 139	Section 263
TDS provisions	Sections 192 to 194T	Consolidated in section 393

3. TDS and TCS in tables

TDS provisions that were spread across dozens of sections are now largely consolidated, with the nature of payment, threshold and rate set out in tables. For deductors, this means updating accounting software, deduction masters and vendor communication to refer to the new provisions.

4. New form numbers

The Income-tax Rules, 2026 renumber most forms. For example, the salary TDS certificate earlier called Form 16 is now Form 130, Form 16A is Form 131, the employee declaration in Form 12BB is Form 124, and the annual tax statement earlier known as Form 26AS is Form 168.

5. What has not changed

• Tax rates and slabs: the new Act did not itself change the slab rates, which continue as set by the Finance Act.
• Heads of income: salary, house property, business or profession, capital gains and other sources remain.
• Core deductions: popular deductions continue, although under new section numbers.
• Administration: PAN, TAN, e-filing and the faceless assessment framework continue.

What happens to earlier years?

This is the question we hear most often. The transition provisions ensure that the old law continues to apply to periods before 1 April 2026. In practice:

• The return for FY 2025-26 (assessment year 2026-27) is filed under the 1961 Act.
• A tax audit for FY 2025-26 is conducted under section 44AB, with Form 3CD. See our guide to the tax audit for FY 2025-26.
• Pending assessments, appeals and reassessments relating to earlier years continue, and registrations and approvals granted under the old Act generally remain valid where consistent with the new law.

This means that for the next few years, many businesses will work with both Acts in parallel.

A practical checklist for businesses

1. Update your accounting and payroll systems so that TDS sections, forms and certificates reflect the new numbering from tax year 2026-27.
2. Revise templates for invoices, vendor declarations, investment proof collection and salary certificates that quote old section numbers.
3. Brief your finance team on the tax year concept and on which Act applies to which period.
4. Keep a mapping sheet of the sections you use regularly, cross-checked with the official comparison published by the Department.
5. Review agreements that refer to specific sections of the 1961 Act, such as tax clauses in contracts, and consider whether updates are needed.
6. Watch for guidance in the form of FAQs, circulars and amendments. The Taxation and Other Laws (Amendment) Act 2026 has already made further changes.

Tips for individual taxpayers

For salaried individuals, the change will be visible mainly in paperwork. Your employer will issue the TDS certificate in Form 130 for tax year 2026-27, and you will submit investment details to your employer in Form 124. When you check your tax credits, look for Form 168. If an older notice or document refers to a 1961 Act section, that is normal, as long as it relates to a year before 1 April 2026.

Frequently asked questions

When did the Income-tax Act 2025 come into force?

It came into force on 1 April 2026. It received Presidential assent on 21 August 2025, and the Income-tax Rules, 2026 were notified on 20 March 2026.

Have income tax rates changed under the new Act?

The new Act is mainly a simplification. It did not itself change the tax rates or slabs; these continue to be set through the annual Finance Act.

Which law applies to my return for FY 2025-26?

The Income-tax Act, 1961. The new Act applies to income of tax year 2026-27 onwards, and the transition provisions keep earlier years under the old law.

Do I need to learn the new section numbers?

It helps to know the ones you use often. For everything else, the Department’s comparison tables are the safest reference.

This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.