The Income Tax Act, 2025 — what actually changes
A new law replaces the Income Tax Act, 1961 from 1 April 2026. Here's what's genuinely different, what's just renamed, and what stays exactly the same.
Verified 1 September 2026
When does it apply?
The Income Tax Act, 2025 was passed by the Lok Sabha on 11 August 2025 and comes into force on 1 April 2026. Income earned up to 31 March 2026 (FY 2025-26) is still assessed under the old Income Tax Act, 1961. The new Act governs income earned from 1 April 2026 onwards — what it calls "Tax Year 2026-27" — and the first returns filed under it will happen in 2027.
The big structural change: one "Tax Year" instead of two overlapping years
The 1961 Act used two confusing, overlapping terms: the Previous Year (the year you earned the income) and the Assessment Year (the following year, when that income was assessed and taxed). So income earned in FY 2024-25 was taxed in AY 2025-26 — two different labels for what most people just think of as "last year's income" and "this year's return."
The 2025 Act replaces both with a single Tax Year: a 12-month period from 1 April to 31 March, same as the financial year, used for both earning and filing. Under the new system, income earned in Tax Year 2026-27 is simply reported for Tax Year 2026-27 — no separate assessment-year label. This is a naming and compliance simplification, not a change to when you owe tax or when returns are due (aside from one filing-deadline change noted below).
A shorter, simpler law
Over 65 years of amendments left the Income Tax Act, 1961 with more than 800 sections spread across 47 chapters, full of cross-references and repealed-but-not-removed provisions. The Income Tax Act, 2025 consolidates this into 536 sections across 23 chapters, rewritten in plainer language, with redundant and obsolete provisions removed and related rules grouped together (for example, all TDS provisions organised in one logical sequence).
Familiar forms, new numbers
Several well-known forms have been renumbered — the purpose of each stays the same, only the label changes:
| Old (Income Tax Act, 1961) | New (Income Tax Act, 2025) | Purpose |
|---|---|---|
| Form 16 | Form 130 | Annual TDS certificate from your employer |
| Form 26AS | Form 168 | Annual tax statement / Annual Information Statement |
| Form 12BB | Form 124 | Statement of investment declarations to your employer |
| Forms 15G & 15H | Form 121 | Declaration for nil/lower TDS deduction (merged into one form) |
What does not change
- Tax rates and slabs. These come from each year's Finance Act, not this Act, and are unaffected by the transition. See our tax calculator for FY 2025-26/2026-27 figures.
- The choice between old and new tax regime. Both regimes continue to exist; the new regime remains the default (now formalised under Section 202 of the 2025 Act).
- Existing deductions and exemptions. Popular deductions like 80C, 80D and HRA are carried forward and renumbered, not removed — the Act itself doesn't automatically eliminate any exemption; that still requires a specific Finance Bill amendment.
- Returns already filed. Filings made on or before 31 March 2026 remain valid and are unaffected by the new law; pending assessments, appeals and carried-forward losses are preserved through a repeal-and-savings provision (Section 536).
Other notable provisions
The Act gives clearer statutory recognition to virtual digital assets (cryptocurrency, NFTs and similar assets) as a defined category of capital asset — the 30% flat tax rate on gains from such assets, without the ability to offset losses, is retained rather than changed. The law also gives greater statutory weight to faceless, digital tax administration and AIS-based reporting that the tax department has been building toward in recent years.
Frequently asked questions
Does the Income Tax Act, 2025 mean I pay more or less tax?
Not by itself. The Act restructures the law; your actual tax liability depends on the slabs, deductions and rebates set out in the applicable Finance Act, which you can check with our tax calculator.
Do I need to do anything differently for FY 2025-26 (AY 2026-27) filing?
No. FY 2025-26 income is filed under the Income Tax Act, 1961, using the familiar Assessment Year terminology. The Tax Year concept applies from FY 2026-27 (Tax Year 2026-27) onward.
Is "Tax Year" the same as "Financial Year"?
They cover the same 1 April–31 March period. "Financial Year" remains in general use as an accounting term; "Tax Year" is the specific term the new Act uses for income-tax purposes.
This page summarises publicly reported provisions of the Income Tax Act, 2025 for general understanding. Rules, forms and procedures may be refined through CBDT notifications before and after the Act takes effect on 1 April 2026 — confirm specifics on incometax.gov.in before relying on them for filing or compliance decisions.