Income-tax Act, 2025: What It Means for Indian Taxpayers from 1 April 2026

The Income-tax Act, 2025 received Presidential assent in August 2025 and applies from 1 April 2026 — i.e. tax year 2026-27 onwards. It replaces the 1961 Act with 536 sections across 23 chapters, dropping obsolete provisions and rewriting language in plain English (ClearTax, 2025). Rates and slabs are largely retained — the rewrite focuses on simplification, not new tax burdens.

For most filers this isn't a "you owe more" change. It's a "your section numbers don't exist any more" change. Investment proofs, tax-saving plans, audit reports, TDS certificates, assessment orders — all reference the new sections from FY 2026-27. This post covers what stays, what shifts, and how to prepare.

Why was the Income-tax Act rewritten?

The 1961 Act had been amended over 70 times across six decades, leaving 819 sections, dozens of provisos per section, and circular cross-references that lawyers, CAs, and AOs disagreed on routinely. The 2025 Act collapses that to 536 sections in 23 chapters and groups related provisions together (ClearTax, 2025).

The government's brief to the Income-tax Simplification Committee was: same revenue, simpler language, fewer provisos, single tax-year terminology. The output is shorter, more readable, and — crucially — preserves the existing tax base. You will not pay more under the new Act simply because of the rewrite.

What are the new tax slabs for FY 2025-26?

The new regime is the default. Under FY 2025-26 (AY 2026-27), resident individuals with taxable income up to ₹12 lakh pay zero income tax because the Section 87A rebate was raised to ₹60,000 (Bajaj Finserv, 2025). Basic exemption climbs to ₹4 lakh.

Old regime (with Section 80C, 80D, HRA, etc.) still exists but you must opt in via Form 10-IEA. For most salaried taxpayers under ₹15 lakh CTC, the new regime gives a lower bill — even without claiming deductions.

Which familiar sections are renumbered?

The 80-series deductions (80C, 80D, 80G, 80TTA) get a new chapter location with new section numbers under the 2025 Act. Section 87A rebate is renamed and re-numbered. Capital gains sections (45, 54, 54F) live in a re-titled chapter. TDS provisions (192-206) are consolidated and re-numbered.

Here's the practical point: every PAN-level system that pulls section codes — payroll software, investment-proof portals, AIS, Form 26AS, ITR utility — must be updated for FY 2026-27. If your HR system still labels EPF as "80C", you'll see mismatches between salary slips and the new ITR form. Push your payroll vendor for a Q4 FY 2025-26 update.

What stays the same?

Tax rates, slab structure, basic exemption levels, surcharge, cess, and standard deduction all stay the same. AIS, Form 26AS, TDS certificates (Form 16/16A), and ITR forms continue — with field-level updates for new section codes. Audit thresholds, presumptive taxation under 44AD/44ADA/44AE, and capital gains computation rules continue (ClearTax, 2025).

Faceless assessment, e-verification, and the dispute-resolution committee mechanism continue under re-numbered sections. Form 15CA/15CB for foreign remittance continue.

What changes operationally for filers?

Three things. First, the "previous year" and "assessment year" pair is replaced by a single "tax year" concept — closer to international practice and easier to explain. Second, definitions are consolidated into one chapter rather than scattered across the Act. Third, provisos are reduced; many old explanations are merged into the main section.

In our ITR work, the single biggest source of filer confusion is "which year is which" — AY 2026-27 means income earned in FY 2025-26. The new Act collapses both into a single tax year reference. For FY 2025-26 the filing is still under the 1961 Act (last year of the old Act). FY 2026-27 onwards switches to the 2025 Act.

When does the new Act apply to which year?

The Income-tax Act, 2025 applies from 1 April 2026, which means:

• FY 2025-26 (AY 2026-27) — filed by 31 July 2026 — still under the 1961 Act.
• FY 2026-27 onwards — first year governed by the 2025 Act; first filing in mid-2027.

So practically, the ITR you'll file this July is the last one under the old Act. Plan your FY 2025-26 tax-saving investments using existing section codes (80C, 80D). For FY 2026-27, start using the new section references — your CA or filing tool will provide a mapping.

How does it affect TDS, AIS, and Form 26AS?

TDS sections (192 for salary, 194 for various payments, 195 for non-resident remittance) are consolidated into a single re-numbered chapter under the 2025 Act. The functional flow doesn't change: deductors deduct, deposit by 7th of next month, file quarterly TDS returns (24Q/26Q/27Q/27EQ), and issue Form 16/16A (OnlineTDS, 2026).

AIS continues to capture financial transactions PAN-wise. Form 26AS shows TDS, TCS, and advance tax credit. The field labels remain familiar; only the section references update for FY 2026-27.

For salaried-filing flow, see our best way to file taxes in India walkthrough.

Should you switch from old to new regime?

For most filers under ₹15 lakh CTC with no major 80C/HRA/home-loan claims, the new regime gives a lower bill — even before the ₹60,000 rebate. For filers with home-loan interest (Section 24), HRA, large 80C, and 80D claims, the old regime can still win — but the gap has narrowed sharply.

Run both calculations using your actual investment proofs. The portal's "Tax Calculator" will auto-compute both. Switch via Form 10-IEA before the financial year ends if you want to stay on the old regime for FY 2025-26.

Frequently asked questions

When does the Income-tax Act, 2025 apply?

The Act applies from 1 April 2026, governing tax year 2026-27 onwards. FY 2025-26 (AY 2026-27) is the last year filed under the 1961 Act. First filing under the new Act will be in mid-2027 (ClearTax, 2025).

Will my tax bill change because of the new Act?

No. The Act preserves existing slab rates, surcharge, cess, and standard deduction. The changes are structural: section numbers, definitions, and language. Your tax liability for the same income stays identical, subject to the standard annual Finance Bill rate updates.

Is Section 80C disappearing?

No. The deduction continues with the same ₹1.5 lakh cap and the same eligible investments (EPF, PPF, ELSS, life insurance premium, home-loan principal). Only the section number changes under the 2025 Act's new chapter scheme. Your tax-saving plan does not need a rewrite.

What is the difference between "previous year", "assessment year", and "tax year"?

Under the 1961 Act, "previous year" was the year income was earned (e.g. FY 2025-26) and "assessment year" was the year it was assessed and filed (e.g. AY 2026-27). The 2025 Act collapses both into a single "tax year" — easier to explain and matches international conventions.

Do I file FY 2025-26 ITR under the old or new Act?

Under the 1961 Act. The new Act applies from 1 April 2026, so all assessment work for income earned up to 31 March 2026 (FY 2025-26) continues under the old Act. File ITR by 31 July 2026 for non-audit, salaried cases (ClearTax, 2026).

How to prepare

Two steps. First, file FY 2025-26 ITR under the old Act, picking new vs old regime based on your numbers. Second, for FY 2026-27 onwards, get your CA/payroll vendor to share the new section-number mapping by Q4 of FY 2025-26 so investment proofs, Form 16, and ITR forms all align.

For end-to-end ITR support including regime choice, see our ITR filing service. For the broader 2026 tax/GST deadline calendar, see our India tax compliance calendar 2026.