On 1 April 2026, the Income-tax Act, 1961 was repealed. After sixty-five years, the statute that every Indian business, accountant and tax officer had learned to navigate was replaced by the Income-tax Act, 2025. Alongside it, the Income-tax Rules, 1962 were replaced by the Income-tax Rules, 2026, notified by CBDT on 20 March 2026.
Most business owners noticed nothing. That is by design, and it is also the reason this is worth reading. The change is real, it just does not show up where people are looking for it.
The building is the same. Every room number changed.
Here is the most useful way to think about it.
Imagine a hospital that renumbers every room, renames every corridor and reprints every directory, but does not move a single department. Cardiology is still cardiology. It does the same procedures with the same staff at the same price. But every referral letter, every sign, every appointment slip and every piece of software that pointed to Room 412 now points to nothing.
That is the Income-tax Act, 2025.
The old Act had grown past 800 sections across decades of amendment. The new one has 536 sections across 23 chapters, with roughly half the word count. The Rules went from over 500 to 333. The drafting is plainer, the sequencing is more logical, and provisions that had been amended into incoherence were rewritten.
What did not change: your tax rates, your deductions and your exemptions. This is a consolidation and simplification exercise, not a policy shift. If you were paying a particular effective rate in March, you are paying broadly the same effective rate now.
“Assessment Year” is gone
The single change you will notice most often is terminology.
The new Act does away with “Previous Year” and “Assessment Year” entirely and replaces both with one term: Tax Year. A Tax Year runs 1 April to 31 March, same as before. Income earned between 1 April 2026 and 31 March 2027 is simply Tax Year 2026-27.
This sounds cosmetic. In practice, the old two-name system was responsible for a genuinely large share of filing errors, because people selected the wrong year on the portal. One name removes that.
You are running two systems this year
This is the part that trips up finance teams, so read it twice.
The repeal does not reach backwards. Income earned up to 31 March 2026, which is FY 2025-26 or AY 2026-27 in the old language, is still governed by the Income-tax Act, 1961. You file that return under the old Act, on the old forms, using the old section numbers. Assessments, appeals, revisions, search proceedings and Advance Pricing Agreements already running under the 1961 Act continue under it until they conclude.
Income earned from 1 April 2026 onwards falls under the new Act. Your first return under the new law is not due until the 2027 filing cycle.
So for roughly the next year, two statutes run in parallel. The e-filing portal supports both. Your compliance calendar needs to know which filings sit on which side of the line, and your team needs to stop assuming that a section number quoted in an old note still means what it used to.
The specific changes worth acting on
Beyond the restructuring, Budget 2026 and the new framework brought several substantive changes. These are the ones with a real number attached.
Minimum Alternate Tax cut to 14%. Down from 15%. More importantly, companies cannot accumulate new MAT credit after 31 March 2026, and MAT becomes a final tax. Credit built up until that date remains available for set-off, subject to limits. If your company has been sitting on MAT credit as a deferred tax asset, that position needs reviewing now, not at year-end.
TCS rates unified at 2%. Multiple rates across different categories were collapsed into a single 2% rate. This reduces the refund-blocking effect that varied TCS rates had been creating. Payroll and vendor payment systems need reconfiguring, particularly for LRS remittances and scrap or mineral transactions.
Buyback taxation shifted. Buybacks move from deemed-dividend treatment to capital gains treatment. This changes both how much tax is paid and, critically, who pays it. Any buyback planned for this year should be re-modelled before it is executed.
HRA 50% exemption extended. The 50% metro rate now covers Bengaluru, Pune, Hyderabad and Ahmedabad in addition to Delhi, Mumbai, Kolkata and Chennai, taking the list to eight cities. If you have employees in those four cities, their payroll structuring should be revisited.
On the GST side, the CMP-02 window for moving to the composition scheme for FY 2026-27 closed on 31 March 2026. Exporters and SEZ suppliers need a fresh Letter of Undertaking for FY 2026-27 to keep making zero-rated supplies without paying tax upfront. If nobody filed the new LUT, that is a live exposure right now.
Five things to put on someone’s desk this month
- Re-map the compliance calendar to Tax Year language, with a clear internal note of which filings for FY 2025-26 still sit under the old Act and the old forms.
- Update section references everywhere they are hardcoded: accounting software, payroll configuration, engagement letters, internal SOPs, board notes and standard client advisories.
- Review deferred tax positions, especially anything resting on MAT credit.
- Reconfigure TDS and TCS rates in payroll and vendor payment systems.
- Confirm the LUT for FY 2026-27 is filed if you export or supply to SEZ.
What you can safely ignore
If you are a salaried individual with no business income, almost none of this affects what you pay. Your rates, your deductions and your exemptions are the same. You will notice new terminology on the portal from next year and nothing else.
The burden here falls on businesses, finance teams and professionals, and it is an administrative burden rather than a tax burden. The risk is not that you suddenly owe more. It is that a system, a template or a habit still points to a section that no longer exists, and nobody notices until a notice arrives.
A note on timing
This reflects the position as at the time of writing. Transitional guidance, clarifications and FAQs continue to be issued as the ecosystem settles into the new Act, and some of the detail above may be refined. Confirm the current position before relying on it.
If you want a review of what the transition means specifically for your entity, its deferred tax position and its compliance calendar, get in touch.