The Income-tax Act, 2025: What Actually Changed for an Indian Business from 1 April 2026

Quick answer

The Income-tax Act, 2025 came into force on 1 April 2026 under section 1(3). It governs tax year 2026-27 and every current-period obligation from that date — TDS, TCS, advance tax, books, audit. It does not govern your assessment year 2026-27 return: income of FY 2025-26 is still assessed under the Income-tax Act, 1961. Both obligations run at once through 2026-27.

Read this paragraph twice

Almost everything written about the new Act gets one thing wrong, and it is the thing that costs money.

Assessment year 2026-27 is the year in which the income of FY 2025-26 is assessed. That return, its belated filing, its revision, and any notice, assessment or appeal connected with it are governed by the Income-tax Act, 1961. The repeal did not touch it.

Tax year 2026-27 is the year that began on 1 April 2026. Income earned in it, and every deduction, collection and advance-tax instalment arising in it, are governed by the Income-tax Act, 2025. That return is not due until July 2027.

Both labels contain "2026-27". They mean completely different periods and answer to different statutes. Anyone who writes that "the Income-tax Act, 2025 now applies to AY 2026-27" has merged two years and two Acts into one sentence, and a reader who acts on it will file the wrong return under the wrong provisions.

You do not have to take this on trust. The Finance Act, 2026 contains two separate charging sections, and reading them side by side settles the question:

Section 2(1) — "…for the assessment year commencing on the 1st day of April, 2026, income-tax shall be charged under the provisions of the Income-tax Act, 1961 … at the rates specified in Part I-A of the First Schedule…"

Section 3(1) — "…for the tax year commencing on the 1st day of April, 2026, income-tax shall be charged under the provisions of the Income-tax Act, 2025 … at the rates specified in Part I-B of the First Schedule…"

Their marginal notes read "Income-tax under Act 43 of 1961" and "Income-tax under Act 30 of 2025". One Finance Act, two charging provisions, two rate schedules, two Acts, running at the same time. The Income Tax Department describes them in its own e-filing guidance as "two entirely separate compliance obligations", and says both must be met within their respective due dates.

Who this is for

An owner or finance lead of an Indian business — proprietorship, partnership, LLP or company — who needs to know what to actually do differently, and who has neither the time nor the inclination to read a 572-page Act. It assumes you already run payroll, pay vendors and file returns; it does not assume you know a single section number.

What the Act is, and when it commenced

The Income-tax Act, 2025 is Act No. 30 of 2025. It received Presidential assent on 21 August 2025 and was published in the Gazette of India Extraordinary the same day. Its long title is modest: "An Act to consolidate and amend the law relating to income-tax."

Commencement is in section 1(3):

Save as otherwise provided in this Act, it shall come into force on the 1st April, 2026.

Two details in that sentence are worth holding on to. It is section 1(3), not 1(2) — 1(2) is the extent clause, and a surprising number of published summaries cite the wrong one. And the opening words "Save as otherwise provided" mean commencement is a default, not an absolute: individual provisions carry their own dates. Section 397(1)(c) is substituted with effect from 1 October 2026, and a new electronic-declaration route in section 393(6)(b) starts on 1 April 2027.

Section 536(1) repeals the Income-tax Act, 1961. But repeal in Indian tax legislation is never clean, and section 536(2)(c) is the clause that matters to you:

the provisions of the repealed Income-tax Act shall continue to apply to any proceeding pending on the date of commencement of this Act and to any proceedings initiated on after the 1st April, 2026 (including notices, assessment, re-assessment, recomputation, rectification, penalty, reference, revision and appeals) in respect of any tax year beginning before the 1st April, 2026

Read that carefully. Not just proceedings already running on 1 April 2026 — proceedings started afterwards, if they relate to an earlier year. A notice you receive in 2028 about FY 2023-24 is a 1961 Act notice, answered under 1961 Act procedure. (The phrase "initiated on after" is a drafting slip for "on or after"; that is how the gazette prints it.)

Section 536 carries other savings you may quietly rely on: elections and options already exercised carry over to the corresponding new provision, and circulars, notifications and approvals issued under the old Act survive so far as they are not inconsistent with the new one. One works the other way: an appeal period that had already expired is not revived just because the new Act allows longer.

The two-track year you are actually living in

Through 2026-27 you are running two systems at once. Nobody writes about this, and it is the whole practical experience of the transition.

Three separate tracks; two different statutes. The failure mode is not dramatic. It is a bookkeeper who updates the section codes for the new Act and then uses them on a correction statement for a 2025-26 quarter, or a founder who reads that the revised-return window is now twelve months and applies it to a year where it is not.

The dates for each track

For AY 2026-27, under the 1961 Act:

The 31 August date is a real change, made by the Finance Act, 2026 with effect from 1 March 2026 and applying to AY 2026-27. Business and profession filers who are not subject to audit, and partners of non-audited firms, gained a month. Salaried filers did not.

Revision remains available to the end of the assessment year — that is, to 31 March 2027 — or until the assessment is completed, whichever comes first. A revision filed after 31 December 2026 attracts an additional fee of ₹1,000 where total income does not exceed ₹5 lakh, and ₹5,000 otherwise. The practical upshot is genuinely useful: a belated return filed in December can now still be revised.

For tax year 2026-27, under the 2025 Act:

The shape is identical to the old regime. Only the way the deadline is expressed changed: from "the assessment year" to "months from the end of the tax year".

What genuinely changed, and what was only renumbered

Be honest about the proportions. The overwhelming majority of the 2025 Act is the same law with a new address. Provisos and explanations became table rows; cross-references were rewritten; the previous-year and assessment-year pair collapsed into "tax year". Your taxable profit for a given set of facts is, in almost every ordinary case, the same number it would have been.

Six things did genuinely change for a business.

1. TCS rates moved. TDS rates did not.

This is the one that costs money silently, because the section number gives no hint that a rate moved. The Finance Act, 2026 amended six of the nine rows of the section 394 TCS table with effect from 1 April 2026.

Timber, motor vehicles, parking and toll, and LRS remittances for other purposes are unchanged. If you sell scrap — and most manufacturers do — you have been collecting at the wrong rate since April unless somebody caught this.

Worked example. Assumptions: a manufacturing company sells scrap to resident buyers; the buyers have furnished PAN and no buyer has given a manufacturing-use declaration under section 394(2); sales are ₹12,00,000 a month; the billing system was never updated after 1 April 2026.

• Collected, at the old 1% — ₹12,000 a month, ₹60,000 over April to August.
• Required, at 2% under section 394(1), serial number 4 — ₹24,000 a month, ₹1,20,000 over the same five months.
• Shortfall: ₹60,000, plus interest at 1% a month or part month from the date each amount was collectible to the date it is actually collected, and 1.5% a month from collection to payment, under section 398(3)(a).

Nothing about this is visible in the ledger. The section number did not change, the customer did not complain, and the amount is small enough per invoice to pass every review. It compounds quietly until a statement is processed.

TDS is the opposite story. The Income Tax Department states plainly that rates and monetary thresholds for all categories of payments have been retained, and that the consolidation under section 393 is a presentational change rather than a policy one. Reading the tables confirms it.

2. Search and survey powers now reach your cloud

Section 247 (the successor to section 132) authorises an officer to "override the access code to any computer system". Section 261(e) defines "computer system" to include "the remote server or cloud server or virtual digital space", and section 261(j) defines virtual digital space to include email servers, social media accounts, online investment, trading and banking accounts, websites recording ownership of assets, cloud servers and digital application platforms.

Section 261(i) goes further, defining the material that may be seized to include backup "from any specialised programs like tally software, excel sheets, word files", and deeming that material to be the person's books of account.

For an ordinary compliant business this is not a reason for alarm, but it is a reason to be deliberate. Where your accounting data physically lives, who holds the credentials, and whether personal and business accounts are entangled are now questions with statutory consequences.

3. Exemptions were moved out of the rate table

Under the old Act, most TDS exemptions sat as provisos attached to the section they qualified. The 2025 Act pulled them into a separate table — section 393(4) — so a payment can show a nil threshold in the rate table and still carry a real carve-out somewhere else. Dividend, e-commerce payments and virtual digital asset payments all work this way.

Anyone building a payables rule from the rate table alone will over-deduct. Our TDS section crosswalk sets out which exemptions moved where.

4. A new, time-graded fee for a late tax audit report

Section 428(c), as substituted by the Finance Act, 2026, imposes a fee where a person fails to get accounts audited for a tax year and furnish the section 63 report:

• ₹75,000 for a delay of up to one month; and
• ₹1,50,000 thereafter.

Section 428(d) does the same for a transfer-pricing accountant's report under section 172, at ₹50,000 and ₹1,00,000. And section 427(3) adds a ₹200-a-day fee, capped at ₹1,00,000, for failing to furnish a statement of financial transaction.

The audit report is due one month before the return due date under section 63(5)(a). For an audited company in tax year 2026-27 that means 30 September 2027 against a 31 October 2027 return. A month's slippage on the report is now a defined, four-figure cost. If audit applicability is borderline for you, our note on when a tax audit applies is the place to check, and tax audit support is the service.

5. TAN relief, but not until 1 October 2026

Section 397(1)(c), as substituted by the Finance Act, 2026, takes effect on 1 October 2026. From that date a resident individual or HUF deducting tax on the purchase of immovable property from a non-resident no longer needs a TAN, and nor does a person deducting on a virtual digital asset transfer. Before that date, the existing requirement stands — so if you are buying property from an NRI, the completion date decides whether you need to register. See TAN registration if you do.

6. The revised-return window opened up

Both Acts now allow revision to twelve months from the end of the year rather than nine, which means a belated return can be revised — something the old coincidence of deadlines made impossible. Covered above under each track's dates.

What changes by business function

Payroll

Least affected. Section 392 replaces section 192, and the mechanism is unchanged: estimate the employee's salary income for the tax year and deduct the average rate across the year. Multi-employer particulars, the permitted set-off of a house-property loss, and the requirement to obtain evidence of claimed deductions all carry across into sections 392(4) and 392(5).

Two operational notes. The accumulated EPF balance provision is now section 392(7) — 10% where the payment is ₹50,000 or more and the balance is taxable. And your payslips, Form 16 templates and employee communications almost certainly say "section 192"; that reference is now historical for current-year deductions. Our payroll compliance guide covers the wider monthly cycle.

Accounts payable

Most affected, and the change is entirely in the citation rather than the arithmetic. Every deduction on a payment credited or paid on or after 1 April 2026 is governed by section 393, quoted as a table item — for example, contractor payments are section 393(1), Table serial number 6(i), not section 194C.

The Department's warning is worth quoting because it explains why this is not cosmetic: citing the old section number "may lead to processing errors at the time of filing the TDS return". Your rate is right, your challan is right, your bank balance is right, and the statement still fails. That is the worst kind of error because nothing surfaces until the quarter closes.

Receivables and TCS

Check your collection rates against the table above before anything else. Then check one absence: the old collection on sale of goods above ₹50 lakh has no successor in section 394. If your billing system still carries it, it is collecting tax that no provision requires.

Treasury

Advance tax is unchanged in every respect that matters — same four dates, same 15, 45, 75 and 100 per cent cumulative slabs, under section 408. A presumptive assessee still pays the whole amount by 15 March. See advance tax payment for the working.

The cash-transaction restrictions also carry across intact, at new addresses: section 185 for accepting loans and deposits, section 186 for the ₹2,00,000 receipt limit, section 187 for the obligation to offer electronic payment modes where turnover exceeds ₹50 crore, and section 188 for repayments.

Accounts, books and audit

Section 62 carries the books-of-account obligation. The tests now in force: income above ₹1,20,000 or turnover above ₹10 lakh in any one of the three preceding years, relaxed to ₹2,50,000 and ₹25 lakh for an individual or HUF. Section 63 carries tax audit: ₹1 crore of turnover, raised to ₹10 crore where cash receipts and cash payments are each 5% or less, and ₹50 lakh for a profession. If those figures look familiar, that is the point — the Act's own long title describes it as an Act to consolidate and amend, and consolidation is most of what it does.

The one thing to diarise is the fee in section 428(c) described above. If your books are not closing fast enough to give the auditor a month's clear run, that is now a costed problem rather than an inconvenience.

Compliance calendar

Rebuild it once, cleanly, and label every entry with the Act it belongs to. An entry that says "TDS return, Q1" is no longer sufficient; it needs to say which framework it is filed under, because for a few quarters you will be filing both. The ROC calendar for the same year is a separate track again, and worth mapping alongside it.

What to change in your systems and ERP masters

This is the part every summary skips. Concretely, and in the order that matters:

1. Vendor and payment-type masters. The section code stored against each vendor or expense type is what the ERP writes into the TDS statement. Map every code to its section 393 table item. This is the single highest-value change on the list.
2. Withholding rate tables. Do not change the rates for TDS; they were retained. Do change the TCS rates for liquor, tendu leaves, scrap, coal, lignite, iron ore, LRS education and medical remittances, and overseas tour packages.
3. Threshold logic — including the exemptions outside the rate table. If your system reads only the rate table, dividend, e-commerce and virtual digital asset payments will over-deduct.
4. The no-PAN rule. It is not a flat 20%. Section 397(2) sets a 5% floor for purchases of goods and e-commerce payments. If your logic is a blanket 20%, it over-deducts on goods purchases by four times.
5. The 194Q equivalent's base. On purchases of goods, tax applies only to the amount exceeding ₹50 lakh, not to the whole invoice.
6. Rent thresholds. Monthly, not annual — ₹50,000 for a month or part of a month.
7. Document templates. Purchase orders, vendor-onboarding forms, retainer agreements and engagement letters that recite "TDS will be deducted under section 194J" now name a repealed provision for current payments. They are not void, but they will confuse a vendor and, eventually, an auditor. Update them at the next revision cycle rather than in a panic.
8. Chart-of-accounts descriptions and TDS ledger names. Cosmetic, but they are what your team reads every day, and stale names keep stale habits alive.
9. Do not hard-code form numbers or payment codes from an article. Forms and codes are set by the rules and by the filing utility, not by the Act. Take them from the portal at the time you file. Several widely circulated pages publish code tables that have not been confirmed by the Department, and at least one of them says so.

Transitional issues that will actually arise

• Straddling invoices. The test is the earlier of credit or payment. A March 2026 provision credited to a vendor's account is an old-Act deduction even if paid in May; an April 2026 advance under a 2024 contract is a new-Act deduction.
• Corrections to old TDS statements. Revised and correction statements for periods governed by the 1961 Act continue under the old framework. You are not expected to restate old quarters into new section numbers, and the correction window under section 397(3)(f) is two years from the end of the tax year in which the statement was due — expressly extending to statements filed under section 200 of the old Act.
• Brought-forward losses and unabsorbed depreciation. Section 536(2)(m) and (n) preserve them, set off in the manner provided by the old Act's corresponding sections. Section 536(2)(n) lets a capital loss brought forward from before 1 April 2026 be set off against capital gains computed under the new Act, for up to eight financial years immediately succeeding the financial year in which the loss was first computed under the old Act. Nothing is lost by the change of Act; check that your tax software has carried the buckets across correctly rather than assuming it.
• Deductions with conditions attached. Section 536(2)(s) preserves the run-off of amortisation-style deductions. Section 536(2)(h) is the one to watch in the other direction: if you breach a condition after 1 April 2026 on a deduction allowed for an earlier year, the clawback is taxed in the year of breach under the same head it would have fallen under before.
• Lower or nil deduction certificates. These are issued under section 395 of the new Act. A certificate obtained under section 197 of the old Act relates to the old regime, and while section 536(2)(j) preserves things done under the repealed Act so far as they are not inconsistent, that is not a settled answer for a certificate that spans the cut-off. Confirm with the assessing officer before relying on one for a post-April deduction.
• A cross-reference to a repealed Act. Section 393(3), serial number 6 — TDS on National Savings Scheme withdrawals — still points at section 80CCA(2)(a) of the Income-tax Act, 1961. That is the enacted text, not a typographical error on our part. Consolidations leave threads like this, and there will be more.

What to tell your CA

Take these questions to your first meeting rather than a general "what changed":

1. Have our vendor masters been remapped to section 393 table items, and who verified the mapping?
2. Which of our sales attract TCS, and have the rates been updated for the Finance Act, 2026 changes with effect from 1 April 2026?
3. Are we still collecting TCS on sales of goods above ₹50 lakh under a provision that no longer exists?
4. What is our audit-report date for tax year 2026-27, and does the closing calendar leave a clear month before the return due date?
5. Have brought-forward losses and unabsorbed depreciation carried across correctly into the new-Act computation?
6. Do we hold any lower-deduction certificate that spans 1 April 2026, and what is our position on it?
7. Do we have a property purchase from a non-resident in the pipeline, and does it complete before or after 1 October 2026?
8. Is anything in our AY 2026-27 filing being handled under the wrong Act by mistake?

If you do not currently have a standing adviser relationship, CA support is the usual starting point at this size.

What has NOT changed

Worth saying plainly, because most of the anxiety here is misplaced. Everything below is the rule now in force under the 2025 Act, read from the Act itself.

• TDS rates and thresholds were retained. This is the one continuity we can point at an official statement for: the Income Tax Department says the rates and monetary thresholds for all categories of payments have been retained as they were under the 1961 Act.
• Your rate of tax is set by the Finance Act, not by the new Act. For tax year 2026-27, Part I-B of the First Schedule to the Finance Act, 2026.
• The trigger for deduction is the earlier of credit or payment — section 393(1)(c), the same test the profession has always applied.
• Advance tax is four instalments on 15 June, 15 September, 15 December and 15 March, at 15%, 45%, 75% and 100% cumulative — section 408.
• Tax audit applies at ₹1 crore of turnover, ₹10 crore where cash receipts and cash payments are each 5% or less, and ₹50 lakh for a profession — section 63.
• Books of account are required above ₹1,20,000 of income or ₹10 lakh of turnover, and ₹2,50,000 or ₹25 lakh for an individual or HUF — section 62.
• Cash-transaction limits stand, including the ₹2,00,000 receipt limit — sections 185 to 188.
• Interest on TDS default is 1% and 1.5% a month or part month, and the late-statement fee is ₹200 a day capped at the tax deductible — sections 398(3)(a) and 427.
• The disallowance for a resident payment made without deduction is 30%, at section 35(b)(i), and it is allowed back in the year the tax is paid.
• Your AY 2026-27 revision rights are unchanged and still governed by the 1961 Act.
• Your PAN, your TAN, your portal login and your filing habits are all the same.

One honest scope note. Every figure above was verified against the Income-tax Act, 2025 and the Finance Act, 2026. We have not published a clause-by-clause comparison against the wording of the repealed Act, and where a difference could matter to you — an edge case in the audit threshold, a definition your business turns on — that is a question for your adviser rather than for an article.

A month-by-month plan for the rest of tax year 2026-27

What differs by entity type

Where to go next

Read the section-by-section mapping of every old TDS provision if you are the person who has to choose the code. Read our guide to income tax return filing for business owners if the AY 2026-27 return is the immediate job. And if a notice arrives about an earlier year, remember which Act it belongs to before you draft the reply — income tax notice reply starts from the same principle.

Sources and currency

Applies to: India. The Income-tax Act, 2025 governs tax year 2026-27 onward and current-period obligations from 1 April 2026. The Income-tax Act, 1961 continues to govern assessment year 2026-27 (income of FY 2025-26) and earlier years, including proceedings begun after 1 April 2026.

Every section number, date and figure on this page was read from the Gazette of India text of the Income-tax Act, 2025 and the Finance Act, 2026, and checked against the Income Tax Department's own e-filing guidance, on 19 August 2026. Where a rule depends on the Income-tax Rules rather than the Act, that is said plainly and no figure is given. Income-tax provisions change at each Finance Act; confirm the current position before relying on a figure for a filing.

• Income-tax Act, 2025 (No. 30 of 2025) — Gazette of India Extraordinary, 21 August 2025 (s.1(3) commencement, s.3 tax year, s.536 repeal and savings)
• Finance Act, 2026 (No. 4 of 2026) — Gazette of India Extraordinary, 30 March 2026 (s.2 and s.3 charging sections, s.5 and s.66 due dates, s.85 TCS rates, s.96 fees)
• Income Tax Department, e-filing portal — Income Tax Returns
• Income Tax Department, e-filing portal — TDS Compliance