Income-tax Act 2025 Explained in Plain English
On 1 April 2026, the Income-tax Act, 2025 replaced the Income-tax Act, 1961 — the law that governed Indian income tax for over six decades. If you pay tax in India, this is the statute your Tax Year 2026–27 onwards is assessed under. The reassuring headline: it is a rewrite, not a tax hike — rates, slabs, regimes, and deductions were carried over unchanged.
What actually changed
- Simpler structure: 819 sections cut to 536 sections across 23 chapters and 16 schedules; long, proviso-heavy provisions split into readable sub-sections.
- “Tax Year” replaces two terms: the old “Previous Year” + “Assessment Year” pair is gone. There is now a single Tax Year — the 12 months from 1 April to 31 March — which is both the year you earn and the year you are assessed for.
- Renumbered sections: familiar numbers changed — Section 80C → Section 123, 80D → Section 126, 87A (rebate) → Section 156, 115BAC (new regime) → Section 202, 139AA (PAN-Aadhaar) → Section 262, 207 (advance tax) → Section 209, 234B/234C (interest) → Sections 424/425, 24(b) (home-loan interest) → Section 22.
- Simpler TDS: 60+ scattered TDS sections consolidated into three — salary TDS, non-salary TDS tables, and TCS.
- Fewer forms and rules: forms cut from 399 to 190, rules from 511 to 333.
- Angel tax gone: the old Section 56(2)(viib) charge on share premium above fair value was not carried forward — relief for startups.
What stayed exactly the same
- Tax rates and slabs — both old and new regimes continue as before
- The new regime remains the default; the old regime stays optional
- Deduction amounts and limits — ₹1.5 lakh 80C ceiling (now Sec 123), 80D health-insurance limits (now Sec 126), ₹50,000 extra NPS deduction (now Sec 124(3))
- Rebate, surcharge, and 4% health & education cess mechanics
The transition: two Acts at once (read this carefully)
During 2026–27, both Acts operate in parallel, each governing different years:
| What you are doing | Which Act applies |
|---|---|
| Filing your return for income earned 1 Apr 2025 – 31 Mar 2026 (AY 2026–27) | Income-tax Act, 1961 (old sections, old forms) |
| Advance tax, TDS, and compliance from 1 Apr 2026 (Tax Year 2026–27) | Income-tax Act, 2025 (new sections, new forms) |
| Pending assessments, appeals, and litigation for pre-2026 years | Continue under the 1961 Act until disposed |
Practical tip: when you see a section number in 2026–27, check which year's matter it belongs to — the same deduction has two different numbers depending on the year.
What should ordinary taxpayers do?
- Nothing urgent: your tax outcome does not change because of the new Act alone.
- Learn the new section numbers gradually — especially 123 (80C), 126 (80D), 156 (87A rebate), and 202 (new regime).
- If you have a tax consultant, ask them to confirm which Act each of your filings falls under during the transition year.
- Use the Income Tax Department's official transition FAQs and the new e-filing portal (the department also launched a redesigned site with the “Kar Saathi” AI helper in 2026).
Frequently asked questions
1 April 2026. It replaced the Income-tax Act, 1961 from that date (Presidential assent was given on 21 August 2025).
No. The 2025 Act is policy-neutral: rates, slabs, regimes, rebates, and deduction limits were carried over unchanged. It simplified drafting, structure, and section numbering.
A single 12-month period from 1 April to 31 March that replaces the old “Previous Year” and “Assessment Year” terminology — one label for both the earning year and the assessment year.
80C → Section 123, 80D → Section 126, 87A rebate → Section 156, 115BAC (new regime) → Section 202, 139AA → Section 262 of the Income-tax Act, 2025.
Pending assessments, appeals, revisions, and prosecutions for pre-2026 years continue under the 1961 Act until final disposal.
For Tax Year 2026–27 onwards, filings use the new Act's forms and section references. Returns for earlier years (e.g. AY 2026–27, filed in 2026) still use the 1961 Act framework. The e-filing portal guides you to the right one.