After more than six decades, the Income-tax Act, 1961 has been replaced. The Income-tax Act, 2025 took effect on 1 April 2026, and the headline most taxpayers worry about — “will I pay more?” — has a reassuring answer: no, the rates are unchanged. What changed is how the law is written and organised. This guide separates the real changes from the noise.
What is the Income-tax Act, 2025?
The Income-tax Act, 2025 is a modernised rewrite of India’s direct-tax law. It simplifies and streamlines the statute, cutting the number of provisions from 819 sections to 536, while keeping the same broad set of 23 chapters. The CBDT has also notified the Income-tax Rules, 2025 to provide the detailed procedure.
Crucially, while the drafting and structure have been rationalised, the core scheme and fundamental principles of the old Act largely remain intact. It is a clarity-and-simplification exercise, not a rate overhaul.
What actually changes — and what stays the same
| Changes | Stays the same |
|---|---|
| “Financial Year” and “Assessment Year” merge into a single “Tax Year” | Income tax slabs and rates |
| Section numbering is rationalised (e.g. 80C → 123, 80D → 124, 115BAC → 202) | The new vs old regime choice |
| Simpler, shorter drafting; redundant provisions removed | The basic scheme of heads of income, deductions and TDS |
| New return and statutory forms (e.g. Form 16 → Form 130) | Section 87A rebate (up to Rs. 60,000 in the new regime) |
Takeaway: your tax outgo does not change because of the Act itself. What changes is the vocabulary, the section numbers, and the form names.
The headline change: the “Tax Year”
The most visible shift is terminology. The old pairing of “Previous Year” (when you earn) and “Assessment Year” (when you’re assessed) is replaced by a single Tax Year — the 12-month period from 1 April to 31 March. It aligns India with global practice and removes the long-standing confusion between FY and AY. We cover this in detail in our dedicated guide at /blog/tax-year-concept-explained.
Section renumbering: same benefit, new number
Many familiar sections have been renumbered. The deduction or relief is unchanged — only the reference changes.
| Old Act (1961) | New Act (2025) |
|---|---|
| Section 80C (investments deduction) | Section 123 |
| Section 80D (health insurance) | Section 124 |
| Section 115BAC (new regime) | Section 202 |
| Section 44AB (tax audit) | Section 63 |
| Form 16 (salary TDS certificate) | Form 130 |
Practical tip: when you read older articles or notices that quote old section numbers, they still describe the same benefit — just map them to the new number.
How the transition works
The Act applies to income earned from 1 April 2026 — Tax Year 2026-27 onwards. Income earned in FY 2025-26 (up to 31 March 2026) continues to be assessed under the Income-tax Act, 1961, which is why your ITR for AY 2026-27 is still filed under the old law.
Existing cases, assessments and proceedings under the old Act continue to completion under that Act. The e-filing portal supports both frameworks together — you simply select the correct period when paying tax or filing.
What this means for you
- Salaried taxpayers: no change to your tax for FY 2025-26; from FY 2026-27, expect new form names (Form 130 instead of Form 16) and Tax-Year language.
- Businesses and professionals: update internal references and software to the new section numbers; the substantive rules are the same.
- Everyone: the Finance Act, 2026 layers separate substantive changes on top of the new Act (buyback taxation, STT, penalty rationalisation) — those are real, the Act’s restructuring is largely cosmetic.
How the Act fits the bigger picture
The Income-tax Act, 2025 is the framework; the Income-tax Rules, 2025 provide the procedure; and the Finance Act, 2026 carries the year’s substantive tax changes. Together they govern income from 1 April 2026, while the 1961 Act continues to govern earlier years and pending proceedings. Understanding which law applies to which year is the single most useful thing a taxpayer can take from this transition. For the new-regime slab and Rs. 12 lakh rebate detail, see /blog/new-tax-regime-fy-2026-27.
Key takeaways
- The Income-tax Act, 2025 replaces the 1961 Act from 1 April 2026 (Tax Year 2026-27 onwards).
- Sections cut from 819 to 536; rates and core principles unchanged.
- “Tax Year” replaces “Financial Year” and “Assessment Year”.
- Sections renumbered (80C → 123, 80D → 124, 115BAC → 202); same benefits.
- FY 2025-26 is still assessed under the old Act.
Frequently asked questions
When does the Income-tax Act, 2025 take effect? From 1 April 2026, applicable to income earned from Tax Year 2026-27 onwards.
Do tax rates change under the new Act? No. The slabs and core principles are unchanged. The Act is primarily a restructuring and simplification of the law.
Why was the Income-tax Act, 1961 replaced? To modernise and simplify the direct-tax law — reducing 819 sections to 536, removing redundant provisions, and improving clarity to reduce disputes.
Does the old Act still apply for FY 2025-26? Yes. Income earned up to 31 March 2026 is assessed under the Income-tax Act, 1961, so your ITR for AY 2026-27 is filed under the old law.
What happened to Section 80C and 80D? They have been renumbered — 80C is now Section 123 and 80D is Section 124 under the new Act. The deductions themselves are unchanged.
What is the Tax Year? A single 12-month period from 1 April to 31 March that replaces the earlier “Previous Year” and “Assessment Year” terminology.
Income Tax Act 2025 se mera tax badhega kya? Nahi. Naye Act se tax rates nahi badle — yeh mukhya roop se kanoon ko simple aur reorganise karne ka kaam hai; slabs wahi hain.
Do existing cases move to the new Act? No. Assessments and proceedings already underway under the 1961 Act continue to completion under that Act.
Need help navigating the new Act?
Most of the transition is mapping old references to new ones — but getting that right in your filings, software and contracts matters. Regikart’s CA & CS team advises businesses and individuals through the change. Reach us at +91 70444 94804 or [email protected], or see our income tax services at /income-tax-services.
About the author
CA & CS Team
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