Income-tax Act, 2025 vs the 1961 Act: What Actually Changed

The Income-tax Act, 2025 came into force on 1 April 2026, replacing the Income-tax Act, 1961. It is primarily a consolidation and renumbering exercise rather than a change in tax policy, but it carries real substantive changes — most notably the new regime becoming the default and the reorganisation of TDS and TCS provisions across Sections 392, 393 and 394.

What kind of change this is

The 2025 Act reorganises roughly 800 scattered provisions into a logical chapter structure and removes redundant material. It was not designed to change the overall tax burden. Charging provisions, heads of income and the basic architecture of Indian income tax survive intact, and judicial precedent continues to apply where provisions were carried forward in substance.

It is not merely cosmetic, though. The Income-tax Rules, 2026 replaced the 1962 Rules on the same date, forms were renumbered, and the default regime changed.

The practical cost is administrative. Every precedent note, engagement letter, client advisory and filing checklist referencing a 1961 Act section is now citing a repealed statute.

The changes that matter most

TDS and TCS reorganised into three sections. The provisions previously spread across Sections 192 to 196D and Section 206C now sit in three places. Section 392 covers TDS on salary, with provident fund withdrawals under old Section 192A moving to Section 392(7). Section 393 covers TDS on every non-salary payment, arranged across six tables, so old Section 195 on payments to non-residents becomes Section 393(2), Table 2, Sl. No. 17. Section 394 covers TCS, so the LRS collection under old Section 206C(1G) becomes Section 394(1), Sl. No. 7. This is the single biggest renumbering for day-to-day practice, and the CBDT concordance table on incometax.gov.in is the reference to work from rather than secondary commentary.

The new regime is now the default. Formerly Section 115BAC, now Section 202. The old regime requires an explicit opt-in, which reverses the default assumption in payroll TDS computation.

“Tax year” replaces “assessment year” and “previous year”. The 2025 Act collapses the two-label system into one. This is the change practitioners notice first in conversation and the one most likely to cause confusion during the transition, so it is worth being precise about — see below.

What is a tax year under the Income-tax Act, 2025?

The 1961 Act ran on two labels: the previous year in which income was earned, and the assessment year in which it was assessed. The 2025 Act uses a single tax year, being the financial year in which the income is earned.

The first tax year is tax year 2026-27, covering income earned from 1 April 2026. Working backwards from that:

Two things follow. There is no such thing as “tax year 2025-26” — that period is AY 2026-27 under the old Act. And returns being filed during 2026 for FY 2025-26 income are 1961 Act returns, so they take 1961 Act section references, not 2025 Act ones. Getting this wrong in a client deliverable is a small error that signals a large one.

Capital gains. Listed equity carries STCG at 20% for holdings up to 12 months, and LTCG at 12.5% with a ₹1.25 lakh annual exemption beyond that. Unlisted shares use a 24-month holding period, with STCG at slab rates and LTCG at 12.5%.

Faceless assessment and reassessment. The National Faceless Assessment Centre now has express statutory footing rather than resting on a notified scheme, and the threshold for reopening a completed assessment was tightened to require a defined information basis.

Which Act applies to which year

Applicability runs on assessment year. Earlier assessment years continue under the 1961 Act, which means practitioners will work across both statutes simultaneously for several years as older assessments, appeals and reassessments run their course.

Record the governing Act on every file. During the transition, the clearest citation format is “Section [new] of the Income-tax Act, 2025 (corresponding to Section [old] of the 1961 Act).”

What to do now

Rebuild citation references against CBDT’s official concordance table on incometax.gov.in rather than against secondary commentary, which has produced conflicting mappings. Audit your templates for repealed citations. And review live reassessment disputes, where the tightened reopening threshold may support procedural grounds that were not previously available.

Related reading

• tax year vs assessment year — Tax Year vs Assessment Year: What Changed from April 2026
• full old-to-new section mapping — Income-tax Act 2025 Section Mapping: Old vs New Reference
• the tightened reopening threshold — Reassessment Under the Income-tax Act 2025
• current capital gains rates — Capital Gains Under the Income-tax Act 2025
• FY 2026-27 compliance calendar — Compliance Calendar FY 2026-27: Income Tax, GST, FEMA and ROC

Sources

• Income-tax Act, 2025 and the CBDT old-to-new section concordance — incometax.gov.in