The Income-tax Act, 2025 takes effect: a practitioner's read on the first day of the new regime

The Income-tax Act, 1961 — for over six decades the central direct-tax statute of India — was repealed on 1 April 2026. In its place, the Income-tax Act, 2025 (Act 30 of 2025), as amended by the Finance Act, 2026, came into force from the same date. The Income-tax Rules, 2026, replaced the 1962 Rules with effect from the same day.

The architecture of the new Act is materially the same as the 1961 Act. The charge of income tax, the heads of income, the residence framework, the depreciation and capital gains regime, the assessment-and-appeal architecture — all of these remain, in their substantive content, on the same conceptual lines. What has changed is the framing, the numbering, the consolidation, and — in a few significant places — the integration of provisos and explanations into the main text.

This piece is not an exhaustive concordance. The Income Tax Department has published its own concordance utility, and several open-access databases are now available. What follows is a practitioner's orientation: the structural changes, the conceptual shifts, the transitional rules, and the things that will matter for the first cycle of work in the new Act.

The structural changes

The Income-tax Act, 1961 had 819 sections across 23 chapters and a substantial schedule of explanations and provisos. The Income-tax Act, 2025 has 536 sections across 23 chapters and 16 schedules.

The reduction in section count — about 35 per cent — is not the result of a substantive curtailment of the law. It reflects three editorial choices:

• Consolidation of cognate provisions. Where the 1961 Act had multiple sections addressing related topics (penalty provisions, TDS provisions, assessment provisions), the 2025 Act has, where possible, consolidated them into single principal sections with internal subsection structure.

• Integration of provisos and explanations into the main text. The 1961 Act had an extensive body of provisos and explanations that had accumulated over six decades of amendment. The 2025 Act integrates a substantial portion of this material into the main text of the relevant sections — a cleaner reading, but practitioners need to be alert to where particular qualifications now live.

• Removal of redundancies. A number of provisions in the 1961 Act had become redundant or had been superseded by later provisions without formal removal. The 2025 Act omits these.

The chapters have been reorganised in a more logical sequence — for example, with assessment and procedure grouped more coherently — but the conceptual architecture (charge, heads of income, computation, deductions, assessment, appeals, penalties) is preserved.

The tax year: the most visible conceptual change

The most visible change is the disappearance of two terms that have been central to Indian direct-tax practice since 1961: "previous year" and "assessment year." In their place, the Income-tax Act, 2025 uses a single term: "tax year."

The "tax year" is broadly the same period as the previous year under the 1961 Act — the financial year (1 April to 31 March) in which income is earned. The conceptual simplification is that the income earned in a given tax year is now assessed in respect of that same tax year, rather than being assessed in the immediately following assessment year. The two-year nomenclature, which had been a recurring source of confusion for taxpayers and a recurring source of pleading complexity for practitioners, has been collapsed into one.

For the practitioner, the operational consequence:

• References to "previous year" and "assessment year" in pre-1 April 2026 instruments and documents must be translated to "tax year" for purposes of the new Act. The transition will produce considerable interpretive work in the next few years, particularly in documents with long-running references.

• The first tax year under the new Act is the tax year 2026-27, beginning 1 April 2026. Returns for this tax year, due in the ordinary course, will be the first returns filed under the new framework.

• The Income-tax Rules, 2026 carry the same conceptual architecture. Form numbers have, in many cases, been retained for continuity, but the rules' textual references have been updated to "tax year."

The TDS framework: three sections instead of many

The TDS regime under the 1961 Act was spread across a substantial number of sections — Section 192 for salaries, Section 193 for interest on securities, Section 194 (and its many sub-letters) for various payments to residents, and Section 195 for payments to non-residents. The 2025 Act consolidates the framework into three principal sections:

• Section 392 — TDS on salaries (the successor to Section 192 of the 1961 Act).
• Section 393 — TDS on all other payments (consolidating the various Section 194 limbs and Section 195) to both residents and non-residents.
• Section 394 — TCS provisions (consolidating the previous TCS framework).

The substantive thresholds, rates, and exemptions are preserved. The consolidation produces a cleaner reading, but practitioners will need to ensure that internal compliance systems and TDS pleadings reference the new section numbers in the new Act.

The unexplained-income family: re-housed at Sections 102–106

For the criminal-tax bar and for white-collar tax controversy practice, the most-cited family of provisions under the 1961 Act was Sections 68 to 69D — cash credits, unexplained money, unexplained investments, unexplained expenditure, and hundi transactions. These have been retained in the 2025 Act with their substantive scheme intact, but renumbered as Sections 102 to 106.

The conceptual architecture is preserved. The burden-shifting rules, the standards of proof, and the operative consequences are materially the same. What has changed is the section numbers — and that has implications for the pleading drafts that the bar has been using.

GAAR: the pre-2017 carve-out

A practitioner-critical CBDT clarification was issued on 31 March 2026, on the eve of the new Act's commencement. The clarification confirmed that the General Anti-Avoidance Rule, which was introduced in 2017 and re-housed in the 2025 Act, does not apply retrospectively to investments made before 1 April 2017. Income arising from the transfer of investments made before that date remains outside the GAAR ambit — a carve-out that practitioners had inferred from the 2017 transitional provisions but which the 2025 Act framework had created uncertainty about.

The 31 March 2026 clarification is, for the bar, the reference point for the position. The carve-out applies to the timing of the investment, not to the timing of the transfer; transfers post-1 April 2017 of investments made pre-1 April 2017 remain outside the GAAR framework.

The transitional provision: Section 536(2)(c)

The single most important transitional provision in the 2025 Act, for practitioners, is Section 536(2)(c). It provides that all proceedings — assessment, reassessment, penalty, appeal, revision — for tax years before 1 April 2026 continue under the 1961 Act, even if initiated after 1 April 2026.

The practical consequence is substantial. For at least the next several years, practitioners will be running parallel tracks:

• Returns for the tax year 2026-27 and onwards are filed under the 2025 Act; assessments, appeals and other proceedings are carried out under the new framework.
• Returns for the assessment year 2026-27 (corresponding to the previous year 2025-26 under old terminology) and earlier periods continue to be governed by the 1961 Act for all purposes — including assessments that are initiated after 1 April 2026.

The transitional provision is structured to avoid an interruption in tax administration. The bar will need to be alert, on every assessment, appeal, and penalty matter, to which framework applies — and that turns on the tax year (or previous year) to which the proceedings relate.

Proceedings for tax years before 1 April 2026 continue under the Income-tax Act, 1961.

What practitioners should do now

Three operational steps.

Maintain a concordance. The bar should have a working concordance between the 1961 Act and the 2025 Act for the provisions most regularly used. The Income Tax Department's utility provides a starting point, but the practitioner's own concordance — annotated with notes on which provisions have material textual changes vs. mere renumbering — is the more useful working document. Open-access references at www.itact2025.org provide structured cross-references.

Update pleading templates. Standard pleading drafts that refer to specific section numbers of the 1961 Act need to be updated for matters that fall under the 2025 Act. For matters that continue under the 1961 Act by virtue of Section 536(2)(c), the old drafts remain operative.

Audit existing instruments. Trust deeds, shareholder agreements, employment contracts, deeds of gift, settlement deeds — any long-running instrument with an internal reference to "previous year," "assessment year" or specific sections of the 1961 Act — should be audited. Many will need only translation; some will need re-drafting where the substantive reference no longer maps cleanly.

What has not changed (and a brief inventory of what has)

The 2025 Act has not changed:

• The basic charge of income tax under Section 4 (renumbered).
• The five heads of income (salary, house property, business or profession, capital gains, other sources).
• The residence framework (though the residence rules have been somewhat simplified).
• The depreciation and capital gains framework in its conceptual architecture.
• The penalty and prosecution framework in its conceptual architecture.

The 2025 Act has changed:

• The numbering, throughout.
• The terminology — "tax year" replacing "previous year" and "assessment year."
• The TDS architecture, consolidated into Sections 392 to 394.
• The treatment of provisos and explanations, integrated into main sections.
• Several substantive provisions where the Finance Act, 2026 made amendments — these need to be tracked separately.

A note on the litigation backlog

For the appellate-tax bar, the next several years will involve a substantial volume of litigation that has been carried over from the 1961 Act regime. Income Tax Appellate Tribunal matters, High Court references, and Supreme Court appeals on pre-1 April 2026 tax years will continue to be governed by the 1961 Act. The bar's existing case-management systems will need to maintain the two-track architecture — old-Act matters under one framework, new-Act matters under another — for the foreseeable future.

The bottom line

The Income-tax Act, 2025 is consolidation, not revolution. The substantive tax law is materially the same; the numbering, terminology and consolidation are new. The practitioner's working life in the next twelve months will be more about translation and concordance than about doctrinal upheaval. Section 536(2)(c) preserves continuity for pre-1 April 2026 proceedings; the new Act applies from tax year 2026-27 onwards. For the bar, the priority is to have a working concordance ready, to update pleading templates, and to audit long-running instruments. The substantive challenges will come in the second wave — when the bar discovers, provision by provision, where the integrated text has produced subtle changes that the consolidation was not meant to make.

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Verify against the Income-tax Act, 2025 as amended by the Finance Act, 2026, and against the CBDT clarifications. The first reported cases under the new Act will begin to accumulate from the second half of 2026; follow-on commentary will refine the operational picture.