On 1 April 2026, the Income-tax Act, 1961 — the law that governed every Indian taxpayer for 65 years — stood repealed. In its place came the Income-tax Act, 2025, passed by Parliament in August 2025. If you've seen headlines about a "new tax law" and worried that everything you knew about 80C, ITR filing, or TDS has changed, this guide will set the picture straight. I'll compare the two Acts on everything that matters in practice — and clear up the single biggest confusion of this filing season.
The one-sentence summary
The tax policy has not changed; the law's language, structure and section numbers have. Rates, deductions, exemptions, and the broad compliance framework continue. The 2025 Act is a re-codification: the 1961 Act had been amended roughly 4,000 times over six decades and had become nearly unreadable; the new Act says the same things in cleaner language, with tables and formulas replacing nested provisos and explanations.
Structure: the two Acts side by side
| Income-tax Act, 1961 | Income-tax Act, 2025 | |
|---|---|---|
| Sections | 298 numbered sections, ballooned to 800+ effective provisions via amendments | 536 sections |
| Chapters | 47 | 23 |
| Schedules | 14 | 16 |
| Year concept | "Previous Year" + "Assessment Year" (dual) | Single "Tax Year" |
| Drafting style | Long sentences, provisos, explanations | Shorter sections, tables, formulas |
| Rules | Income-tax Rules, 1962 | Income-tax Rules, 2026 |
"Tax Year" replaces Previous Year and Assessment Year
The 1961 Act used two parallel year concepts: the Previous Year (when you earned the income) and the Assessment Year (the following year, when it was assessed). This confused taxpayers for decades — "FY 2025-26" and "AY 2026-27" describe the same income.
The 2025 Act (Section 3) replaces both with one term: the Tax Year — the financial year (1 April to 31 March) in which the income is earned. Income earned in Tax Year 2026-27 is simply taxed for Tax Year 2026-27. The mechanics are identical; only the naming is sane now. Expect ITR forms, notices and challans to progressively use "Tax Year" terminology.
The most important practical question: which Act governs your return?
This is where most confusion lives right now, so read this table carefully:
| Income earned in | Old name | Governing law | When you file |
|---|---|---|---|
| FY 2024-25 and earlier | AY 2025-26 and earlier | 1961 Act (including all pending notices, assessments, appeals) | Already filed / belated |
| FY 2025-26 | AY 2026-27 | 1961 Act — even though you file after 1 April 2026 | This season — due 31 July 2026 (non-audit) |
| From 1 April 2026 | Tax Year 2026-27 | 2025 Act | In 2027 |
The return you file this July is still under the 1961 Act. The 2025 Act applies to income you are earning right now (from April 2026 onwards), which you will report next year. The date of filing does not decide the governing law — the year you earned the income does.
The 2025 Act also contains savings provisions (Section 536) creating a clean dual track: every notice, assessment, appeal or proceeding relating to periods before April 2026 continues under the 1961 Act, with its old section numbers. So if you receive a notice for an earlier year quoting Section 148 or 143(2) of the 1961 Act, that is correct and current — not outdated.
Section numbers: the great renumbering
Almost every section number has changed. The familiar landmarks now live at new addresses. Verified examples:
| Provision | 1961 Act | 2025 Act |
|---|---|---|
| Definition of Tax Year | s.3 (Previous Year) | s.3 (Tax Year) |
| Popular deductions block (LIC/PF/ELSS etc. → 80C, mediclaim → 80D, and the rest of Chapter VI-A) | ss.80C–80U | ss.122–154 (80C → s.123) |
| New (default) tax regime | s.115BAC | s.202 |
| Rebate for resident individuals | s.87A | s.157 |
| Presumptive taxation (business, professionals, transporters) | ss.44AD, 44ADA, 44AE | s.58 |
| Tax audit (the audit requirement itself) | s.44AB | s.63 (see below) |
| TDS provisions | 40+ sections (194 series etc.) | consolidated, principally s.393 |
| Return of income (filing) | s.139 | s.263 |
| Reassessment | ss.147–148 | ss.279–281 (s.279 assessment, s.280 notice) |
| Capital gains exemption — residential house to residential house | s.54 | s.82 |
| Capital gains exemption — other assets to residential house | s.54F | s.86 |
Nothing was withdrawn in this renumbering — the deductions and exemptions you used under the 1961 Act continue under their new numbers, with the same limits (80C's ₹1.5 lakh cap, for example, continues under s.123, available under the old regime as before).
Practical consequence: from Tax Year 2026-27, notices, TDS certificates, software section codes and CA working papers will carry the new numbers. If a document about a past year carries old numbers, that's correct; if a document about 2026-27 onwards carries old numbers, it needs updating.
TDS: 40+ scattered sections become one consolidated framework
Under the 1961 Act, TDS lived across more than forty sections — 194C for contractors, 194J for professionals, 194H for commission, 194I for rent, and so on — each with its own thresholds and rates spread through the statute. The 2025 Act consolidates deduction-at-source into a single framework (principally Section 393) with rate and threshold tables. For deductors, the rates and thresholds are not the change — the change is where to look them up and the section codes quoted in challans and TDS certificates from Tax Year 2026-27.
Presumptive taxation: a meaningful relief for small businesses
For contractors, traders, and small businesses, the audit thresholds remain stable but move to a new home. The familiar tax audit (old Section 44AB) is now governed by Section 63. The meaningful relief carried over from the old regime continues: businesses with turnover up to ₹10 crore remain outside tax-audit requirements where cash receipts and payments each stay at 5% or below. The biggest practical change here is on the compliance side — your CA will now file the new Form 26 in place of the traditional Form 3CD.
What deliberately did NOT change
- Tax slabs and rates — set each year by the Finance Act, as always. The new regime remains the default (now s.202), the old regime remains optional, and the enhanced rebate making income up to ₹12 lakh effectively tax-free under the new regime continues (now s.157).
- Deductions and exemptions — retained, renumbered.
- Compliance architecture — PAN, TDS/TCS, advance tax, faceless assessment, appeals hierarchy all continue.
- Past years — fully protected under the old Act; no retrospective application.
- Circulars and notifications issued under the 1961 Act continue in force to the extent consistent with the new Act.
What you should actually do
- Filing this July (FY 2025-26): proceed entirely under the 1961 Act — old section numbers, familiar process. Nothing about your current filing changes because of the new Act.
- From April 2026 onwards (already underway): your TDS certificates, investment-proof declarations and any notices will progressively carry new section numbers and "Tax Year" language. Don't panic when 80C appears as 123 — it's the same deduction.
- If you have pending notices or appeals for old years: they continue under the 1961 Act. Replies should cite old sections.
- If you run a business: check whether Section 63's ₹10-crore/5%-cash audit relief changes your books-and-audit position for Tax Year 2026-27 — for many contractors and traders it will.