Income-tax Act, 2025: What Changes From 1 April 2026 (Complete Overview)

Why a New Income Tax Act?

The Income-tax Act, 1961 had grown to over 1,200 provisos, 900 explanations, and hundreds of amendments accumulated across 60+ Finance Acts. The Income-tax (No.2) Bill, 2025 was introduced in the Lok Sabha in February 2025, passed by Parliament in August 2025, and the resulting Act takes effect from 1 April 2026 — applicable from Tax Year 2026-27 onward. The government's stated objective was simplification: reducing the law's volume by roughly 40%, cutting redundant provisos, and using plain language to reduce litigation.

Importantly, the core tax principles are largely preserved. Income tax slabs, the new vs old regime choice, capital gains tax rates, and most deductions continue substantively unchanged for FY 2026-27 — Budget 2026-27 did not alter personal income tax rates. What changed is structure, section numbering, terminology, and a handful of genuinely new provisions around digital data access and faceless procedures.

The Single Biggest Change: 'Tax Year' Replaces 'Previous Year' and 'Assessment Year'

Under the 1961 Act, income earned in a 'Previous Year' (e.g., FY 2025-26, 1 April 2025 to 31 March 2026) was assessed in the following 'Assessment Year' (AY 2026-27). This dual-year system confused millions of first-time filers every year.

The 2025 Act, under Section 3, defines a single 'Tax Year' — the 12-month period from 1 April to 31 March — which serves as the sole reference period for both earning and assessing income. There is no separate assessment year terminology going forward. Returns for income earned in Tax Year 2026-27 (1 April 2026 – 31 March 2027) will simply be called the 'Tax Year 2026-27 return', filed by the usual due dates in 2027.

TDS Sections Consolidated Into Just Two Sections

Perhaps the most dramatic structural change: all 40+ separate TDS sections from the 1961 Act (Sections 192 through 194T, covering salary, contractor payments, rent, professional fees, dividends, and more) are consolidated into just two sections in the 2025 Act — Section 392 (TDS on salary and PF-related payments) and Section 393 (TDS on all other payments to residents and non-residents). Each specific transaction type is now identified by a numeric payment code (1001–1092) within tabular schedules under these sections, rather than a dedicated section number. We cover this in detail in our TDS section mapping guide.

Chapter VIA Deductions Renumbered (Not Removed)

Popular deductions haven't disappeared — they've moved. Section 80C (PPF, ELSS, life insurance, etc.) becomes Section 123 (read with Schedule XV). Section 80D (health insurance) becomes Section 126. Section 80CCD (NPS) provisions are consolidated into Section 124. Section 80E (education loan interest) becomes Section 129, and Section 80G (donations) becomes Section 133. The deduction amounts and eligibility conditions remain the same — only the citation changes. Full mapping in our Chapter VIA renumbering guide.

MAT (Minimum Alternate Tax) Becomes a Final Tax

For Tax Year 2026–27, Finance Act 2026 section 59 reduces covered-company MAT from 15% to 14% of adjusted book profit, plus applicable surcharge and cess, and discontinues fresh company MAT credit. Eligible credit standing at 31 March 2026 is not a blanket forfeiture: a domestic company may use section 206(3) after a qualifying section 200(5) or 201(2) option, capped at 25% of annual tax payable and the original 15-year vintage expiry. Foreign companies have the separate section 206(4) route. FY 2025–26/AY 2026–27 remains under the earlier 1961-Act framework.

Charitable Trusts Become 'Registered Non-Profit Organisations' (RNPOs)

Sections 12A, 12AA, 12AB, and the Section 10(23C) exemption regime for charitable trusts, NGOs, and educational/medical institutions are consolidated into a single set of provisions in Chapter XVII (Sections 332–355) under a unified 'Registered Non-Profit Organisation' (RNPO) framework. Crucially, every entity with a valid, uncancelled registration as of 1 April 2026 automatically becomes an RNPO — no fresh application is required. The core 85% income-application rule for charitable purposes remains unchanged.

Search & Seizure: New Digital Data Access Powers

The most debated change is in search and seizure provisions. Section 247 of the new Act allows tax authorities, during a formally authorised search operation, to access 'virtual digital spaces' — defined under Section 261 to include email accounts, cloud storage, social media, online investment accounts, and digital devices — and to override passwords where access is otherwise unavailable. The government has clarified that Section 247 essentially mirrors the search powers under the old Section 132, extended explicitly to digital assets that didn't exist (or weren't explicitly covered) when the 1961 Act was drafted. This has triggered privacy debates, which we cover separately.

Faceless Assessment Gets Statutory Backing — Plus a Right to Personal Hearing

The faceless assessment scheme, which previously existed under delegated authority (Section 143(3A) of the old Act), now has direct statutory backing under Section 532 of the new Act. A meaningful taxpayer-friendly addition: the right to a personal hearing via video conferencing is now a codified statutory right whenever an adverse assessment is proposed — taxpayers can formally request this from the National Faceless Assessment Centre (NFAC) officer.

On the flip side, a new penalty of ₹10,000 to ₹1,00,000 applies for non-compliance with faceless assessment notices — failing to respond, upload documents, or attend a requested hearing.

What Stays Exactly the Same

• Income tax slabs and rates under both old and new regimes — unchanged for FY 2026-27
• Capital gains tax rates and holding period rules — reorganised into new clauses but substantively the same
• ITR filing due dates — 31 July for salaried and other non-business individuals, 31 August for non-audit business and professional income, 31 October for audit cases
• Basic exemption limits, rebate under Section 87A (now renumbered) — amounts unchanged
• PAN, Aadhaar linking, and e-filing portal — continue as before

What Taxpayers Should Do Now

For Tax Year 2025-26 (FY 2025-26, filed by July 2026), nothing changes — you file under the familiar 1961 Act framework as ITR forms for AY 2026-27 confirm. The real transition begins with income earned from 1 April 2026 onward. Practically:

• If you're a business owner issuing TDS, start familiarising your accounting team with the new Section 393 payment codes well before April 2026 deductions begin
• If you run or donate to a charitable trust, confirm your RNPO status reflects automatically (it should, if your 12A/12AB registration was valid)
• Don't panic about 'losing' familiar deductions — Section 80C, 80D, HRA, and standard deduction all continue, just under new section numbers
• Keep using our calculators — the underlying tax computation logic is unchanged for FY 2026-27