The Income-tax Act, 2025: what actually changed

The Income-tax Act, 2025 came into force on 1 April 2026 and replaced the Income-tax Act, 1961, which had governed direct taxation in India for sixty-four years. It is accompanied by the Income-tax Rules, 2026.

The first thing to say is what did not change, because that is where most of the anxiety sits. Slab rates are unchanged. The deductions people know by heart still exist. The structure of assessment, appeal and penalty will feel familiar to anyone who has worked through it before. PAN, TAN, and the faceless assessment and appellate frameworks all continue.

What changed is the architecture

The 1961 Act had grown through six decades of amendment into something genuinely difficult to navigate: overlapping provisions, provisos stacked on provisos, and cross-references that took practitioners real effort to untangle. The 2025 Act reorganises the same substance into a shorter, more readable statute, with explanations and provisos absorbed into the main text and tables used where the old Act used narrative.

The consequence for anyone in practice is that section numbers you have used for years now point somewhere else, or nowhere. That is not a small thing. Engagement letters, internal checklists, standard notices, template replies and accounting software configurations all carry embedded references to the old numbering.

The transition is not retrospective

The new Act applies from Tax Year 2026-27 onwards. FY 2025-26 remains governed by the 1961 Act, including the return filed for it. Pending assessments, appeals and notices relating to periods before 1 April 2026 continue under the old law.

Section 536(3) of the new Act provides that a reference to a tax year is to be read as a reference to the corresponding previous year under the old Act. That is a transitional mapping provision; it does not alter the tax treatment of those earlier years.

What we are doing for clients

Most of our direct tax work this year has been transition work rather than new advice: checking that positions taken under the old law still hold under the new one, and that filings are going on the right form. The positions themselves have largely survived. The paperwork around them has not.

If you hold long-dated documentation that cites the 1961 Act — shareholder agreements with tax gross-up clauses, transfer pricing studies, trust deeds, ESOP schemes — those references are worth reviewing before someone else reviews them for you.