Income Tax Act 2025 vs Income Tax Act 1961: Key Changes Explained
What changed when India's new Income-tax Act came into force? This practical comparison explains the new Tax Year, reorganized provisions, compliance obligations and how older tax matters are protected.
What changed on 1 April 2026?
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 with effect from 1 April 2026. Its principal purpose is to reorganize and simplify direct tax legislation, not to impose a new tax merely because the Act has changed. The new Act governs Tax Year 2026-27 onwards; the old Act remains relevant for earlier years by virtue of the repeal and savings provisions.
The new statute contains 536 sections and 16 schedules, compared with 819 sections and 14 schedules in the earlier legislation, according to the Income Tax Department. A shorter statute does not mean that all exemptions, obligations or taxpayer rights have disappeared.
Income Tax Act 1961 vs 2025: comparison table
| Subject | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Applicable period | Tax periods beginning before 1 April 2026, subject to savings | Tax Year 2026-27 onwards |
| Year terminology | Previous Year and Assessment Year | Tax Year |
| Number of sections | 819, as counted in official comparison | 536 |
| Schedules | 14 | 16 |
| New/default tax regime | Section 115BAC | Section 202 |
| TDS provisions | Spread across several sections | Consolidated substantially in Section 393 |
| Drafting | Layered provisos, explanations and cross-references | Reorganized provisions, tables and clearer cross-references |
| Pending older-year proceedings | Continue under applicable old law | Protected by Section 536 savings |
What does Tax Year mean under the 2025 Act?
Tax Year ordinarily means the twelve-month period of a financial year beginning on 1 April. It replaces the two expressions Previous Year (the period when income is earned) and Assessment Year (the following year in which that income is assessed) used under the 1961 Act. A newly established business or newly arising source of income can have a shorter first Tax Year.
The change does not require businesses to alter their accounting financial year.
Important statutory terms and definitions
- Person
- The statutory category of taxpayers, including individuals, Hindu undivided families, companies, firms and other specified entities; the applicable definition must be read in the relevant Act.
- Assessee
- A person who is liable to tax or another sum under the law, or in relation to whom relevant tax proceedings are taken, as provided in the statutory definition.
- Total income
- Income computed in accordance with the applicable Act after giving effect to the relevant computation, aggregation and deduction provisions.
- Tax Year
- The period specified under the 2025 Act for attributing income to a financial year, ordinarily April to March.
- Previous Year and Assessment Year
- Expressions used in the 1961 Act for the income-earning year and the corresponding assessment year respectively.
- Virtual Digital Asset
- A statutory category covering specified digital representations of value, subject to the precise definition, inclusions, exclusions and notifications in force.
Definitions can vary between Acts and may be subject to qualifications. Always read the precise statutory text before applying a definition to a transaction.
Are section numbers the same?
No. Many provisions have been relocated, consolidated or renumbered. For example, the default tax regime formerly found in Section 115BAC of the 1961 Act is addressed in Section 202 of the 2025 Act. TDS provisions formerly scattered across numerous sections are substantially grouped in Section 393. A numerical similarity between provisions does not establish that they have identical legal effect.
When drafting notices, tax opinions, appeals, returns or agreements, cite the provision applicable to the relevant tax period and verify the current wording. The official comparison facility can help locate corresponding provisions.
Have tax slabs, exemptions and deductions changed?
The enactment of the 2025 Act was primarily a legislative simplification exercise. It should not be described as automatically creating new tax rates or abolishing all deductions. Actual rates, rebates, exemptions and thresholds depend on the relevant statutory provisions and Finance Act for the applicable tax year.
The new tax regime remains the default for eligible taxpayers under Section 202, with an option to opt out where permitted and subject to conditions. Choices or options validly exercised under the old Act may continue under applicable savings rules. Verify the applicable year before claiming a deduction or quoting a tax slab.
What changes for TDS, TCS and compliance?
The new Act reorganizes tax deduction at source provisions, including their consolidation under Section 393, making related rules easier to locate. Tax collection at source, advance tax, returns and reporting continue to be relevant obligations. The detailed requirements, forms, rates and deadlines must be checked against the Act, applicable Finance Act and Income-tax Rules, 2026.
Existing PAN, TAN and faceless administrative mechanisms continue. The new rules and forms aim to reduce complexity, but taxpayers should not assume that earlier-year filings can be made using new-year forms.
Which Act applies to old notices, returns and appeals?
Section 536 contains repeal and savings provisions. Proceedings concerning a tax year beginning before 1 April 2026, including assessments, reassessments, rectifications, penalties, revisions and appeals, generally continue under the 1961 Act as provided in the transitional framework. A notice issued after 1 April 2026 may therefore still correctly refer to the 1961 Act if it concerns an earlier period.
For example, self-assessment tax for AY 2026-27 is paid under the 1961 Act, while advance tax for Tax Year 2026-27 falls under the 2025 Act. Existing valid approvals and registrations may be preserved subject to the statutory conditions.
Practical checklist for taxpayers and professionals
- Identify the income-earning financial year before choosing the Act.
- For periods before 1 April 2026, check the 1961 Act and the savings provisions.
- For Tax Year 2026-27 onwards, use the 2025 Act and relevant rules.
- Confirm the correct section number, return form and payment category.
- Review any old notices or pending litigation before changing legal references.
- Check annual Finance Act amendments for tax rates, thresholds and reliefs.
- Retain supporting records, challans, TDS credits and acknowledgments.
Frequently asked questions
Is the Income-tax Act, 1961 completely irrelevant after April 2026?
No. It continues to apply to earlier periods and related proceedings under Section 536.
Is Tax Year 2026-27 the same as AY 2026-27?
No. Tax Year 2026-27 refers to income earned in FY 2026-27 under the new Act. AY 2026-27 relates to income earned in FY 2025-26 under the old Act.
Does the 2025 Act automatically increase income tax?
No. The replacement legislation was intended mainly to simplify and reorganize the law. Applicable rates must be checked for the particular tax year.
Do taxpayers need a new PAN or TAN?
No. The existing PAN and TAN systems continue.
What happens to an appeal pending under the 1961 Act?
Proceedings concerning earlier periods generally continue under the old Act pursuant to the transitional savings framework.
Official sources and further reading
Use official government guidance to verify current provisions, forms, deadlines and tax-year-specific amendments.
Disclaimer: This is general legal information, not individualized tax advice. Verify the applicable statute, Finance Act, rules and notifications before filing or acting.