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| TL;DR Summary |
| The Income Tax Act, 2025 is in force from 1 April 2026, but your FY 2025-26 return is still filed entirely under the old 1961 Act. TDS section references, payroll terminology, and challan formats change from Tax Year 2026-27 – tax rates and deductions stay the same. |
For FY 2025-26 (AY 2026-27), your income tax return is filed entirely under the Income Tax Act, 1961 – same sections, same forms, same challan formats. The Income Tax Act, 2025 applies only from Tax Year 2026-27 onward (income earned from 1 April 2026), bringing renumbered sections, new forms, and “Tax Year” terminology, while tax slabs, rates, and deduction limits remain unchanged.
The new Act is in force – but this year’s return is still filed under the old one. We untangle which compliance obligations change now, and which apply only from next year.
If you’re a business owner or finance lead in India right now, you’ve probably felt a very specific kind of whiplash. Every second LinkedIn post is talking about the “new Income Tax Act,” your software vendor has been emailing about “section renumbering,” and yet the ITR your CA is preparing this July looks… exactly like last year’s.
That’s not a mistake – it’s how the transition was designed. At PKC, we’ve spent the last few months answering some version of one question: “Do I need to worry about the new Act right now?” The honest answer is partly yes, mostly not yet. Here’s the untangled version.
Two Acts, One Filing Season
Let’s start with the one fact that clears up most of the confusion. The Income Tax Act, 2025 came into force on 1 April 2026, replacing the 1961 Act entirely. But for FY 2025-26 (AY 2026-27), it’s still the old Act that governs your ITR filing.
In plain terms: whatever your business earned between April 2025 and March 2026 is computed and assessed entirely under the old law – same section numbers, same forms. It’s only returns for FY 2026-27 onward that fall under the new Act.
| EXAMPLE: Say your company earned professional fee income in December 2025 and will earn similar income in December 2026. The December 2025 receipt is reported in the ITR for FY 2025-26 – filed under the 1961 Act, using Section 194J-style references. The December 2026 receipt lands in Tax Year 2026-27 – filed under the 2025 Act, using the new Section 393 code. Same client, same nature of income, two different rulebooks purely because of the date it was earned. |
What Changes in the Text vs. What Changes in Your Tax Bill
A lot of the online commentary gets more dramatic than the Act’s actual content justifies. Structurally, the 2025 Act is closer to a recodification than a policy overhaul – 819 sections become 536, 47 chapters become 23, and dense prose gives way to tables and formulas wherever possible.
The old Act had been amended more than 4,000 times across 64 years. Sections were added, dropped, and renumbered so inconsistently that understanding one provision sometimes meant chasing five cross-references. The new Act’s clean, sequential numbering – no more alphabet-soup suffixes like 80C, 80CCC, 80CCD, 80CCE – is a direct fix for that. But renumbering isn’t redesigning: the substance behind the most common sections hasn’t moved at all.
Section 80C becomes Section 123 – the ₹1.5 lakh limit and eligible investments (LIC, PPF, ELSS, tuition fees) don’t change. Section 80D, the health insurance deduction, becomes Section 126 – same substance, new number. Salary TDS consolidates under Section 392, other payments under Section 393.
One change here is genuinely structural, not cosmetic: sections aren’t even the primary reference point for some payments anymore. TDS challans and returns will use a new numeric payment code system – 1001 to 1067 – instead of individual section numbers. That’s something your accounting team will need to relearn, not just relabel.
“Tax Year” Replaces “Previous Year” and “Assessment Year”
If section renumbering is the change practitioners will feel most, “Tax Year” is the one that’ll show up constantly in conversation – with clients, auditors, your own finance team.
Two things worth being precise about, because this is where people slip. First, the calendar itself hasn’t moved – Tax Year still runs 1 April to 31 March, exactly matching the existing financial year. This is purely terminology. Second, the switch is forward-looking, not retroactive – historical filings and Form 26AS downloads for periods up to FY 2025-26 keep the Assessment Year label.
| ↳ WHERE YOU’LL ACTUALLY SEE IT: Form 168 replaces Form 26AS. Form 131 replaces Form 16A. Form 141 arrives as a new unified challan-cum-statement. Form 138, the salary TDS return, now references the old 80C deduction as “Schedule XV read with Section 123.” If your payroll software is still mapping declarations to ‘80C,’ that mapping needs to change before your first Tax Year 2026-27 payroll run. |
What Changes Immediately for FY 2026-27 Onward
So, what actually belongs on your radar for this April-to-March cycle, even though July’s filing isn’t affected?
| 1 | TDS & TCS section references moveAll TDS sits under Section 393 (replacing the 194-series), TCS under Section 394. Some sections split into more granular categories needing manual review. |
| 2 | Payroll restarts on “Tax Year” termsEmployers recompute TDS from 1 April 2026 referencing “Tax Year 2026-27,” and investment declarations must cite the new Act’s provisions. |
| 3 | PAN-quoting thresholds resetRevised thresholds for cash deposits, jewellery purchases, and fixed deposits apply to Tax Year 2026-27 transactions; FY 2025-26 transactions still follow the old thresholds. |
| 4 | Challan formats bifurcateNew formats apply to 2025-Act payments from Tax Year 2026-27 – but any FY 2025-26 self-assessment or advance-tax payment still uses the existing 1961-Act-era format. |
| 5 | Old TDS codes are already being rejectedThe CPC has started rejecting old codes from Q1 FY 2026-27. An un-updated ERP means deductees may not see credit in Form 26AS – which can trigger notices. |
| EXAMPLE: A manufacturing client pays a consulting retainer of ₹80,000/month to an external advisor. Under the old regime, TDS was deducted under Section 194J at 10%. From Tax Year 2026-27, the same payment is tagged under Section 393 with a TRACES payment code in the 1001–1067 range – the 10% rate is unchanged, but if the ERP is still generating a 194J challan after April 2026, the CPC will bounce it, and the advisor’s Form 26AS credit won’t reflect the deduction. |
What Stays the Same
It’s worth being just as clear about what hasn’t changed – a good share of the anxious calls we’ve fielded turn out to be about non-issues.
| STAYS THE SAME | CHANGES |
| Tax slabs & rates | Section numbers & forms – renumbered |
| ₹1.5L deduction (Sec 123, old 80C) | TDS/TCS codes on challans – new numeric format |
| ₹75,000 standard deduction | “Assessment Year” → “Tax Year” terminology |
| PAN / TAN / faceless assessment | PAN-quoting thresholds (from Tax Year 2026-27) |
| Filing deadlines | Challan formats (from Tax Year 2026-27) |
Employer NPS contributions up to 10% of basic salary remain deductible even under the new default regime – still relevant if you’re structuring compensation packages. And there’s a small taxpayer-friendly addition: belated filers can now claim TDS refunds, a modest benefit that didn’t quite exist in this form before.
In the tax department’s own framing: this is a simpler structure with clearer language and a stronger digital focus, while the core tax principles stay largely the same. It’s a rewrite of the rulebook’s language and layout – not a rewrite of how much you owe.
A Compliance Checklist for the Transition Year
✓ File FY 2025-26 (AY 2026-27) exactly as before – old sections, old forms, old challan formats. File FY 2025-26 (AY 2026-27) exactly as before – old sections, old forms, old challan formats. For companies, our ITR-6 filing guide for AY 2026-27 covers the exact due dates and common mistakes to avoid this cycle.
✓ Update payroll and accounting software section mappings before your first Tax Year 2026-27 transaction.
✓ Refresh employee investment declaration templates to cite the new Act’s section and Schedule numbers.
✓ Brief your finance team on “Tax Year” terminology now, so communications don’t misuse “Assessment Year” post-1 April 2026.
✓ Build a dual-label reconciliation view for year-on-year comparisons spanning the 2026 cutover.
✓ Watch for TCS rate revisions and the retirement of Section 194LD if it affects your transaction types.
✓ Confirm challan formats at the point of payment – the right format depends on which year’s income it relates to, not the date you’re paying.
| PKC’s Advisory on the Transition: The Income Tax Act, 2025 is a genuinely significant reform – six decades of accumulated amendments compressed into a cleaner structure. But “significant” and “urgent for this year’s filing” are two different things, and conflating them is where most of the current confusion comes from. Our advice to clients has been consistent: treat FY 2025-26 as a normal filing year, and treat the run-up to April 2026 as a systems and process transition – not a tax planning emergency. The rates haven’t moved. The deductions haven’t shrunk. What’s changed is the map, not the destination. PKC’s Tax Advisory team is helping clients map existing compliance calendars – old sections, old forms, old references – onto the new Act’s structure, before it has to happen under audit pressure. This transition work is part of PKC’s broader Income Tax Advisory services, covering tax planning, filing, and compliance review for businesses navigating exactly this kind of regulatory shift. If you’d like a walkthrough of what needs updating for your business, our team is glad to help. |
Frequently Asked Questions
Which Act applies to my ITR for FY 2025-26?
The Income Tax Act, 1961. The new Act governs returns for FY 2026-27 onward.
What’s the biggest structural change under the Income Tax Act 2025?
Consolidating 819 sections into 536 (47 chapters into 23), and replacing “Previous Year”/ “Assessment Year” with a single “Tax Year” concept under Section 2(105).
Do tax rates and slabs change under the new Act?
No. Slabs and rates are unchanged under both regimes; deduction limits carry forward under their renumbered sections.
When do businesses need to start complying with the new Act?
From Tax Year 2026-27 (income from 1 April 2026). But TDS coding on payroll and vendor payments needs updating before that, since old codes are already being rejected by the CPC from Q1 FY 2026-27.
Does the new Act affect TDS and advance tax obligations differently?
Rates and thresholds are unchanged; provisions reorganize under Section 392 (salary) and Section 393 (other payments), with numeric codes 1001-1067 replacing section references on returns and challans. FY 2025-26 payments still use the old formats.
Will my CA firm need to change how it prepares my company’s filings?
Not for this year. From Tax Year 2026-27, firms file under new section numbers, forms, and terminology – a referencing and systems update, not a change in how tax is computed.
