New Income Tax Act 2025 from 1-4-2026 – What Will Change for Taxpayers? (Part-1)

 

The New Income Tax Act, 2025 is now set to come into force from 1st April 2026. After more than six decades of the Income Tax Act, 1961, the country will finally move to completely a new tax law.

The main objective behind bringing the New Income-tax Act, 2025 is not to impose new taxes but to make the law simpler, more structured and easier to understand. Over the last six decades, the Income Tax Act, 1961 had become lengthy and complicated due to continuous amendments. The Act had grown to about 819 sections with 511 rules and nearly 399 forms, making compliance difficult even for professional.

The new Act attempts to reorganize the entire law in a more logical and reader-friendly manner. The number of sections has been reduced to about 536, the rules have been brought down to around 333 and the number of forms has also been substantially reduced. This clearly shows that the intention of the Government is not to increase the tax burden but to simplify the drafting, improve clarity and make the law easier to comply with.

While the Government has presented the new law as a step towards simplification, taxpayers and professionals are now asking a very practical question – what will actually change from 1-4-2026? Will everything become new overnight, or will the old law continue to follow us for years?

The real challenge is not in reading the new law but in understanding how the transition will take place. Whenever a new law replaces an old one, the biggest issue is not the future, but the past. Income tax matters normally run for many years, so the old Act cannot disappear in one day.

From 1st April 2026, the New Income Tax Act, 2025 will apply for the Tax Year beginning on that date. The Government has replaced the old concepts of “Previous Year” and “Assessment Year” with the concept of “Tax Year”.

Income earned in Tax Year 2026-27 will be taxed under the new Act, but this does not mean the Income Tax Act, 1961 will disappear from that date. In fact, both Acts will continue to operate side by side for several years.

All assessments relating to earlier years will continue to be governed by the old Act. For example, if the department issues a notice for Assessment Year 2024-25 or 2025-26, the proceedings will still be completed under the Income Tax Act, 1961. Appeals pending before CIT(A), ITAT, High Court or Supreme Court will also continue under the old law. Even reassessment notices relating to earlier years will be issued under the old provisions. Therefore, taxpayers should be ready to deal with two Acts at the same time – the old one that refuses to leave, and the new one that has just arrived.

This situation is not new in tax history. Whenever a major law changes, transitional provisions protect actions taken under the old law. The new Income Tax Act also contains saving clauses to ensure that past proceedings, rights, liabilities, penalties and appeals remain valid. Without such provisions, the tax system would collapse, because lakhs of cases are always pending.

One important point for taxpayers to understand is that the change of law does not mean that past mistakes will disappear. If income has escaped assessment in earlier years, the department can still reopen those cases under the old Act within the permitted time. Penalties and prosecutions of earlier years will also continue. In simple words, the new Act will govern the future, but the past will continue to live under the old Act.

Another practical question being asked is whether tax rates, deductions and exemptions will change from 1-4-2026. As of now, the new Act does not introduce major policy changes. The Government has mainly rewritten the law in a simpler language and better structure. Therefore, most provisions relating to salary, house property, business income, capital gains, deductions, TDS and return filing remain broadly similar. Taxpayers expecting major relief in tax rates may feel disappointed, but professionals may feel relieved that the basic structure has not been disturbed.

However, even if the provisions remain the same, the change in section numbers, terminology and arrangement will require fresh understanding. For more than 60 years, taxpayers have become familiar with section numbers like 10, 24, 36, 43B, 54, 80C, 143(3), 147, 148 and many others. With the new Act, all these numbers will change. In the initial years both taxpayers and officers may find themselves searching for the correct section like looking for an old address in a new city.

Another important impact will be on notices, forms and return filing. New forms will have to be notified under the new Act. Software systems, tax audit formats, TDS returns and reporting utilities will also need modification. Considering the increasing use of technology, the transition will be both legal and technical.

Professionals will have an additional challenge. For the next few years, they will have to handle cases under both the old Act and the new Act at the same time. One case may relate to Tax Year 2026-27 under the new Act, while another case in the same office may relate to Assessment Year 2019-20 under the old Act. This dual system will require extra care, because applying the wrong provision may lead to serious consequences.

Taxpayers should therefore not assume that everything will become simple from 1st April 2026. The language of the law may have become simpler, but compliance will continue to remain strict. In fact, with increased digital monitoring, AIS reporting and data matching, the department’s ability to detect mistakes has become stronger than ever before. A simpler law does not mean a softer law.

In the coming weeks, we will discuss various aspects of the New Income Tax Act, 2025 in detail, including the concept of Tax Year, changes in different heads of income, new TDS structure, reassessment provisions and increased powers of the department. Understanding these changes in advance will help taxpayers avoid confusion when the new law actually comes into force.

The new Act may start from 1-4-2026, but its understanding must start from today.

[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com.  Other articles & response to queries are available at www.theTAXtalk.com]