Income-tax Act, 2025: What Changes for Businesses

The Income-tax Act, 2025 came into force on 1 April 2026 and replaced the Income-tax Act, 1961, which had governed income tax for more than six decades. Parliament passed the Bill on 12 August 2025 and the President gave assent on 21 August 2025 (PIB, 1 April 2026). The Central Board of Direct Taxes (CBDT) notified the Income-tax Rules, 2026 and new forms on 20 March 2026 so that the Act could work from day one.

The government describes the new Act as a simpler, reader-friendly rewrite "without altering the underlying tax policy". That is broadly true, but a business still has to change how it describes almost everything: the year, the section numbers in its tax audit and TDS returns, and the form numbers it files. This guide covers what changed, what stayed the same and how the switch-over works. Section numbers below are from the text of the Act as passed by Parliament_Bill.pdf), read with the amendments made by the Finance Act, 2026.

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

It came into force on 1 April 2026. Section 1(3) of the Act fixes that date, and it applies to income earned from that day. The first year taxed under it is the financial year 2026-27, which the new Act calls tax year 2026-27.

What is a "tax year" and how does it replace the assessment year?

A tax year is the twelve-month financial year starting on 1 April, and it is now the only year the law uses. Under the 1961 Act, income of the "previous year" 2025-26 was assessed in "assessment year" 2026-27, a source of endless confusion. Section 3 of the 2025 Act drops both terms: income earned from April 2026 to March 2027 is simply the income of tax year 2026-27, and the return, advance tax and TDS statements all refer to that same year.

For a business or profession set up during a year, the first tax year runs from the date it was set up to 31 March (section 3(2)). A company incorporated on 10 September 2026, for example, has a first tax year from 10 September 2026 to 31 March 2027.

During the transition you will see both labels. The income tax department's tax payments FAQ tells taxpayers to choose AY 2026-27 for payments relating to FY 2025-26 (such as self-assessment tax paid in 2026) and Tax Year 2026-27 for payments relating to FY 2026-27 (such as advance tax for the current year), so that the credit lands in the right year.

Which Act applies to FY 2025-26 and which to FY 2026-27?

The year in which income is earned decides the Act, not the date you file or pay. Income of FY 2025-26 (AY 2026-27) stays under the 1961 Act, even though its returns, audits and self-assessment tax fall due after 1 April 2026. Income of FY 2026-27 onwards is taxed under the 2025 Act.

Section 536 (repeal and savings) sets out the switch-over:

• Pending and future proceedings for old years. Assessments, reassessments, rectifications, penalties and appeals for any year beginning before 1 April 2026 continue under the procedure of the 1961 Act, even if started later (section 536(2)(c) and (d)).
• Options carry over. An election, declaration or option exercised under the old Act, such as a company's choice of a concessional tax rate, is treated as exercised under the matching provision of the new Act (section 536(2)(f)).
• Losses carry over. Business losses, speculation losses and house property losses brought forward under the old Act can be set off under the new Act in the manner of the old sections (section 536(2)(m)). Capital losses carry forward for up to eight years from the year they were first computed (section 536(2)(n)).
• MAT credit carries over. Unused MAT credit under section 115JAA of the old Act is treated as credit under the new Act (section 536(2)(l)), and the department's FAQ confirms it remains usable within 15 years from the year it first arose.
• Circulars and notifications continue. Circulars, notifications, approvals and registrations issued under the old Act stay in force so far as they fit the new Act (section 536(2)(j)).
• Interest after 1 April 2026. Where a refund for an old year falls due, or a default in paying a sum due for an old year happens, after 1 April 2026, interest for the period after that date follows the new Act (section 536(2)(g)).

TDS works on the same principle, but by the date of payment or credit. The department's FAQ says that a sum paid or credited on or before 31 March 2026 stays under the 1961 Act, and a sum paid or credited on or after 1 April 2026 falls under the 2025 Act, whichever of payment or credit happens first.

How is the new Act structured?

The Act has 536 sections in 23 chapters and 16 schedules. Exemptions, deductions and rate concessions that the 1961 Act scattered across long sections with provisos and explanations are now often set out in tables, and many lists of exempt income have moved into the schedules. All the TDS sections of the old Act (sections 192 to 194T) now sit in two sections: section 392 for salaries and section 393 for everything else, with tables for residents, non-residents and payments to any person.

Which section numbers matter most for a business?

The provisions a business uses every year all have new numbers. The table below maps the common ones. The new numbers are from the Act; the old numbers are the matching sections of the 1961 Act.

Did tax rates and thresholds change?

Mostly no: the new Act restates the old thresholds. A few checks from the text:

• Tax audit (section 63): required when business turnover exceeds ₹1 crore, or ₹10 crore if cash receipts and cash payments are each no more than 5% of the totals. For professionals the limit is gross receipts above ₹50 lakh.
• Books of account (section 62): a business must keep books if its income exceeds ₹1,20,000 or turnover exceeds ₹10 lakh in any of the three preceding years. For individuals and HUFs the limits are ₹2,50,000 and ₹25 lakh. Our guide on books of account for a private limited company covers the company law side.
• Presumptive income (section 58): 6% of turnover received through banking or online modes and 8% of the rest, for turnover up to ₹2 crore (₹3 crore if cash receipts are no more than 5%). Professionals declare 50% of receipts up to ₹50 lakh (₹75 lakh with the same cash condition).
• Company tax options: 22% under section 200 and 15% for new manufacturing companies under section 201, the same rates as the old sections 115BAA and 115BAB.
• Advance tax: payable once the year's tax is ₹10,000 or more (section 404), with interest under sections 424 and 425 at the same rates as before. Our advance tax guide has the instalment dates.
• TDS rates: the department's FAQ says the rates and thresholds are "largely the same". See our guide to TDS on rent, professional fees and contractors for the section 393 table.

The bigger rate change for companies came from the Finance Act, 2026 rather than the rewrite itself. It cut the rate of minimum alternate tax under section 206 from 15% to 14% and made MAT a final tax for companies that stay in the old regime. Credit for MAT paid under the old Act can now be set off only by domestic companies that move to the concessional rates under section 200 or 201, and only up to 25% of the tax payable for the year (Finance Act, 2026, section 50, from 1 April 2026).

What changes in income tax returns and due dates?

Returns for tax year 2026-27 will be the first filed under section 263 of the new Act, in 2027. The Finance Act, 2026 rewrote the due date table in section 263(1)(c):

A revised return can be filed within twelve months from the end of the tax year, or before the assessment is completed if that is earlier (section 263(5), as substituted by the Finance Act, 2026). Returns for FY 2025-26 are still filed under section 139 of the old Act; our guide to belated and revised returns covers the 31 December 2026 deadline for that year.

What changes for TDS and TCS compliance?

From 1 April 2026, deductors must quote the table item of section 393 (or section 394 for TCS) instead of the old section number. The department's FAQ warns that quoting 194C, 194J or 194H for a payment made after that date "may result in system-level validation errors", and gives the example of a contractor paid on 5 April 2026, which must be reported under section 393(1) [Table: Sl. No. 6(i)].

Other points from the same FAQ:

• Deposit due dates are unchanged. Rule 218 of the Income-tax Rules, 2026 takes over from rule 30 of the old Rules.
• Interest for late deduction (1% a month) and late deposit (1.5% a month) is unchanged, now under section 398(3)(a).
• A lower or nil deduction certificate under old section 197 remains valid for payments in tax year 2026-27 if it was issued for that year's receipts.
• Tax deducted under the old Act on a credit made before 1 April 2026 is not deducted again when the payment is made later.
• The quarterly TDS statement for non-salary payments to residents is now Form 140, in place of Form 26Q.

If your accounting or payroll software still prints old section codes on vouchers and challans, update it before the next quarterly statement. Our TDS return filing service handles the new forms.

What stays the same?

The basic obligations do not change. Business income is still computed on the books, expenses are still allowed or disallowed on familiar principles, and tax is still paid through TDS, TCS, advance tax and self-assessment tax. The department's FAQ states that the modes of payment are unchanged and that the Act "does not modify the framework governing the manner of tax payments". The Annual Information Statement continues for years up to AY 2026-27; from tax year 2026-27 it is replaced by Form 168.

What should a business do now?

1. Relabel the current year. Use "tax year 2026-27" for income from April 2026 in your books, advance tax challans and correspondence, and keep "AY 2026-27" for FY 2025-26 matters.
2. Update section codes. Map every TDS and TCS ledger to the section 393 or 394 table item, and update tax audit checklists and accounting software.
3. Check your carried-forward balances. List brought-forward losses, unabsorbed depreciation and MAT credit at 31 March 2026, with the year each arose, so they can be claimed under the new Act.
4. Review the company tax option. With MAT credit now usable only in the new regime and capped at 25% of tax, companies still in the old regime should recompute whether moving to section 200 now pays.
5. Finish FY 2025-26 under the old Act. Belated and revised returns for that year, and any notices for earlier years, still follow the 1961 Act.

If you would like us to review your first year under the new law, our income tax return filing service covers businesses, firms and companies.

Frequently asked questions

Is the Income-tax Act, 1961 repealed?

Yes. Section 536(1) of the Income-tax Act, 2025 repeals the 1961 Act from 1 April 2026. The repeal does not wipe out what happened under it: rights, liabilities, pending proceedings and later proceedings for years beginning before 1 April 2026 continue under the old Act's procedure, so assessments and appeals for FY 2025-26 and earlier years still run under the 1961 Act.

What is the difference between tax year and assessment year?

Under the 1961 Act, income was earned in the "previous year" and assessed in the following "assessment year", so FY 2025-26 income belonged to AY 2026-27. The 2025 Act uses one term, the tax year, which is the financial year in which the income is earned. Income from April 2026 to March 2027 is tax year 2026-27 for every purpose.

Is the Income-tax Act, 2025 applicable for FY 2025-26?

No. FY 2025-26 income is taxed under the Income-tax Act, 1961, and its returns for AY 2026-27 are filed under section 139 of the old Act, even though they are filed after 1 April 2026. The new Act applies to income earned from 1 April 2026, starting with tax year 2026-27, whose returns fall due in 2027.

How many sections are there in the Income-tax Act, 2025?

The Act as passed by Parliament has 536 sections arranged in 23 chapters, with 16 schedules. Much of the detail that sat in provisos and explanations of the 1961 Act now appears in tables, and many exemptions have moved into the schedules, which is why section numbers differ almost everywhere.

What is the new section for tax audit under the Income-tax Act, 2025?

Tax audit, section 44AB of the old Act, is section 63 of the new Act. The limits are unchanged: business turnover above ₹1 crore, raised to ₹10 crore where cash receipts and cash payments are each within 5% of the totals, and professional receipts above ₹50 lakh. The audit is also needed where a presumptive-scheme taxpayer declares lower profits than the deemed rate.

What is section 44AD called in the new Income-tax Act?

The presumptive scheme for small businesses, old section 44AD, is serial number 1 of the table in section 58(2) of the new Act. It deems 6% of turnover received through banking or online channels and 8% of other turnover as profit, for turnover up to ₹2 crore, or ₹3 crore where cash receipts are within 5% of turnover. Old 44ADA and 44AE are serial numbers 3 and 2 of the same table.

Which section replaces section 43B in the new Act?

Section 37 of the Income-tax Act, 2025. It allows certain sums only in the year they are actually paid, whatever the method of accounting: taxes and duties, employer contributions to provident and other employee funds, leave encashment, interest to specified lenders and similar items. Payments to micro and small enterprises are also covered, so delayed MSME payments remain a tax issue.

Is MAT still applicable under the Income-tax Act, 2025?

Yes. Minimum alternate tax is in section 206. The Finance Act, 2026 cut the rate from 15% to 14% of book profit from 1 April 2026 and made MAT a final tax for companies staying in the old regime, so it no longer creates new credit for them. Companies that opt for the 22% or 15% rates under section 200 or 201 do not pay MAT (section 206(1)(q)).

Can old MAT credit be used under the new Act?

Yes, but with conditions. Credit carried forward under section 115JAA of the 1961 Act is treated as credit under the new Act. After the Finance Act, 2026, a domestic company can set it off only after opting for section 200 or 201, up to 25% of the tax payable for each year, and not beyond the fifteenth year after the credit first arose.

Do I need a new PAN or TAN under the Income-tax Act, 2025?

No. Nothing in the transition rules asks taxpayers to apply again for a PAN or TAN, and section 536 keeps approvals, registrations and other things done under the old Act in force so far as they fit the new law. What changes is the section and form numbers you quote, not your identity numbers.

Will brought-forward business losses lapse because of the new Act?

No. Section 536(2)(m) lets business, speculation, specified business and house property losses brought forward under the 1961 Act be set off against income computed under the new Act, in the manner of the old sections. The time limits continue to run from the year in which each loss was first computed, so keep a year-wise schedule.

Does a company's section 115BAA option continue under the new Act?

Yes. Section 536(2)(f) treats any option exercised under the 1961 Act and in force on 31 March 2026 as exercised under the corresponding provision of the new Act. A company that opted for the 22% rate under section 115BAA continues under section 200 without a fresh option, subject to the conditions of that section.

What is the due date for filing ITR under the Income-tax Act, 2025?

For tax year 2026-27, section 263(1)(c) as amended by the Finance Act, 2026 sets 31 July 2027 for most individuals, 31 August 2027 for businesses that need no audit, 31 October 2027 for companies and audited businesses, and 30 November 2027 for those needing a transfer pricing report. These are the first returns filed under the new Act.

Which section is quoted for TDS on contractor payments after 1 April 2026?

Section 393(1), Table serial number 6(i), which replaces section 194C. The department's FAQ uses exactly this example and warns that quoting old section numbers for payments made on or after 1 April 2026 can cause validation errors in TDS statements. Rent, professional fees and commission have their own serial numbers in the same table.

What happens to income tax notices for earlier years after the new Act?

They continue under the 1961 Act. Section 536(2)(c) says the old Act applies to proceedings pending on 1 April 2026 and to proceedings started later, including notices, assessments, reassessments, penalties and appeals, for any year beginning before that date. Where a refund falls due or a payment default happens after 1 April 2026, interest for the later period follows the new Act.

Where can I read the official text of the Income-tax Act, 2025?

The Act was published in the Gazette of India after assent on 21 August 2025, and the income tax department publishes the text, with later amendments, on incometaxindia.gov.in. The version as passed by Parliament is also available from PRS Legislative Research. For tax year 2026-27, read it with the Finance Act, 2026, which amended several sections from 1 April 2026.

How KNAP Advisory can help

• Income Tax Return (ITR) Filing
• TDS Return Filing