The Income Tax Act, 2025 replaced the Income Tax Act, 1961 on 1 April 2026 — ending 65 years and roughly 4,000 amendments of the old law. The foundational change begins at Section 2: all key definitions have been reorganised, renumbered, and in some cases substantively revised. The tax rates and deduction limits remain the same — but if you're a CA, payroll professional, CFO, or even an informed salaried taxpayer, you need to map the old definitions to new ones to stay compliant. This guide gives you a comprehensive, practical mapping of the most important definitional changes.
Use the Income Tax CalculatorModel the tax impact alongside this guide.
The Income Tax Act, 1961 had grown to over 700 sections and become notoriously difficult to navigate. The Income Tax Act, 2025, enacted after decades of tax reform advocacy, consolidates everything into 536 sections across 23 chapters and 16 schedules. The key facts every professional needs to know:
Effective date: 1 April 2026 — all Tax Year 2026-27 (FY 2026-27) compliance uses new section numbers
FY 2025-26 returns (filed July 2026): Old Act 1961 still applies — use old section numbers in your ITR
Tax rates unchanged: No rate hikes or reductions on account of the new Act alone
Deduction limits unchanged: ₹1.5 lakh under new Section 123 (old 80C), ₹25,000/₹50,000 under new Section 126 (old 80D), etc.
Section 2 of old Act → Chapter III "Definitions" in new Act: Definitions are now spread across the definitional section (Section 2) and a dedicated definitions chapter
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Payroll and ERP Teams — Immediate Action Required: From 1 April 2026, all TDS challans, TDS certificates, and payroll software must reference new section numbers. If your system still generates salary TDS under "Section 192," you need to update to "Section 392(1)" of the new Act. CBDT has issued updated payment codes — ensure your bank and software vendor has applied them.
The Most Important New Concept: "Tax Year" Replaces Previous Year + Assessment Year
The single biggest definitional change that affects every taxpayer, every return, and every compliance calendar is the abolition of the Previous Year / Assessment Year duality.
Old Concept (Act 1961)
New Concept (Act 2025)
Practical Impact
Previous Year (Section 3 of 1961 Act)
Tax Year (Section 3 of 2025 Act)
The income-earning year IS the Tax Year. No more parallel tracking.
Assessment Year (Section 2(9) of 1961 Act)
Abolished as a separate concept
Tax is now assessed "for" the Tax Year, not "in" the next year. Cleaner language.
AY 2026-27 = PY 2025-26
Tax Year 2026-27 = April 2026 to March 2027
From July 2027 returns, you cite Tax Year 2026-27 directly.
Return filing due: "31 July of the AY"
Return filing due: "31 August of the Tax Year" (for non-audit cases)
Self-employed professionals get an extra month under new rules.
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Calendar Impact: Under the old Act, "Assessment Year 2026-27" was a confusing concept — it was the year AFTER you earned the income. Under the new Act, Tax Year 2026-27 IS the year you earn income. This aligns India with global practice (US, UK, Singapore all use the income year as the base). The change also extends the non-audit ITR due date from 31 July to 31 August for Tax Year 2026-27 onwards.
Key Section 2 Definitions — Old Act vs New Act Mapping
Old Section 2 of the Income Tax Act, 1961 contained 48 sub-clauses defining everything from "agricultural income" to "total income." In the 2025 Act, these are reorganised under Section 2 but also distributed across the relevant chapters for context. Here is the essential mapping:
Core Definitional Mapping Table
Definition
Old Act 1961 Reference
New Act 2025 Reference
Change?
Agricultural income
Section 2(1A)
Section 2(1)(a)
Substance unchanged; numbering updated
Assessee
Section 2(7)
Section 2(1)(c)
Unchanged
Assessment
Section 2(8)
Section 2(1)(d)
Unchanged
Assessment Year
Section 2(9)
ABOLISHED — replaced by Tax Year
Major structural change
Business
Section 2(13)
Section 2(1)(j)
Unchanged
Capital asset
Section 2(14)
Section 2(1)(k) / Chapter VII
Substantive provisions moved to capital gains chapter
Company
Section 2(17)
Section 2(1)(m)
Updated to reflect Companies Act 2013 alignment
Income
Section 2(24)
Section 2(1)(r)
Scope unchanged; updated language
Person
Section 2(31)
Section 2(1)(x)
Same seven categories retained
Previous Year
Section 3
ABOLISHED — Tax Year substituted
Major conceptual change
Tax Year
Did not exist
Section 3 (new concept)
New — replaces PY+AY duality
Salary / perquisite
Section 17
Section 15 and Schedule III
Definitions moved to salary chapter + schedule
Dividend
Section 2(22)
Section 2(1)(p)
Deemed dividend provisions restructured in Chapter V
Fair market value
Section 2(22B)
Schedule I definitions
Moved to master Schedule I for cross-chapter use
Recognised provident fund
Section 2(38)
Section 2(1)(ae)
Unchanged
Definitions That Changed Substantively
While most definitions are re-numbered rather than re-written, a few have substantive changes that practitioners must note:
"Accountant" definition expanded: Now includes Cost Accountants (CMAs) in addition to Chartered Accountants for certain reporting purposes — broadening the pool of eligible signatories
"Business connection" for non-residents: Updated to align with OECD BEPS Action Plan language on Significant Economic Presence (SEP), codifying India's existing SEP rules more clearly
Revised definition of "charitable purpose": Now explicitly includes "yoga" as a separate category (previously subsumed under "education") — important for trust registration
"Specified fund" definitions: Expanded to include IFSC entities in GIFT City, reflecting the growing regulatory framework around Gujarat International Finance Tec-City
The TDS Section Mapping — The Most Practical Change
Under the old Act, every type of TDS payment had its own section (194A for interest, 194C for contractors, 194J for professionals). The 2025 Act consolidates all TDS provisions into a single Section 393, with payment-type codes replacing section sub-clauses. This is the most disruptive day-to-day operational change.
Payment Type
Old TDS Section
New TDS Reference (Act 2025)
Rate Change?
Salary
Section 192
Section 392(1)
No — slab rates unchanged
Interest (bank/bonds)
Section 194A
Section 393 — Interest code
TDS threshold raised to ₹1 lakh for senior citizens (Form 121 replaces 15G/15H)
Contractor payments
Section 194C
Section 393 — Contractor code
1%/2% rate unchanged
Rent
Section 194I
Section 393 — Rent code
10% rate unchanged
Professional fees
Section 194J
Section 393 — Professional code
10% rate unchanged
Dividend
Section 194
Section 393 — Dividend code
10% rate unchanged (above ₹5,000)
Purchase of property
Section 194IA
Section 393 — Property purchase code
1% rate unchanged (above ₹50 lakh)
TCS on LRS remittances
Section 206C
Section 394
5%/20% rates unchanged
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Compliance Risk from 1 April 2026: If your accounts payable team or ERP system still generates TDS challans with old section numbers (e.g., "194J" on a challan for professional fees paid after 1 April 2026), this creates a mismatch with CBDT's TDS return system. CBDT has issued new payment codes for the consolidated Section 393. Your bank's NEFT/RTGS system and TDS software must be updated. Late-payment and wrong-code issues can trigger notices and interest under new Section 402/403 (equivalent to old 234A/B/C).
Case Study: Swati at TechNova Solutions — Payroll Update Post 1 April 2026
TechNova Solutions processes payroll for 450 employees. Until March 2026, their HR software deducted salary TDS under "Section 192" and professional fee TDS under "Section 194J." From 1 April 2026, the new Act required references to Section 392(1) and the consolidated Section 393 respectively.
Issue discovered: Their HR software vendor hadn't updated the section codes. April 2026 TDS challans were still being generated with old section numbers.
Risk: CBDT's TRACES system would flag the mismatch when the Q1 TDS return was filed, potentially triggering demand notices for incorrect filing.
Action taken: Swati escalated to the vendor, who issued an emergency patch by 15 April 2026. They filed revised challans for April using the correct new codes. No penalty resulted.
Lesson for HR teams: Contact your payroll software vendor immediately to confirm compliance with new Act section codes. Don't wait for the Q1 TDS return deadline.
Old Salary TDS Section
Section 192
New Salary TDS Section
Section 392(1)
Old Professional Fee TDS
Section 194J
New Professional Fee TDS
Section 393 — Prof. Code
Top 25 Section Mapping — Quick Reference for Practitioners
Old Act 1961 Section
Common Name / Purpose
New Act 2025 Section
Section 2(9)
Assessment Year
ABOLISHED (Tax Year replaces)
Section 3
Previous Year definition
Section 3 (Tax Year)
Section 10
Exempt incomes
Schedule II (moved to schedule)
Section 10(13A)
HRA exemption
Schedule II, Clause (13A)
Section 24(b)
Home loan interest deduction
Section 32
Section 40(a)(ia)
TDS disallowance in business
Section 43(1)(b)
Section 43B
Allowability of certain deductions
Section 44
Section 44AB
Tax audit threshold
Section 63
Section 44AD
Presumptive tax for business
Section 58
Section 44ADA
Presumptive tax for professionals
Section 59
Section 50C / 43CA
Stamp duty value — property
Section 75 / Section 72
Section 54
LTCG exemption — residential property
Section 83
Section 54EC
LTCG exemption — infrastructure bonds
Section 85
Section 54F
LTCG exemption — other assets
Section 86
Section 80C
Investments deduction
Section 123
Section 80D
Health insurance deduction
Section 126
Section 80E
Education loan interest deduction
Section 128
Section 80TTA
Savings interest deduction
Section 140
Section 80TTB
Senior citizen interest deduction
Section 141
Section 115BAC
New tax regime
Section 171
Section 139
Filing of income tax return
Section 263
Section 143(1)
Summary assessment
Section 275
Section 148
Notice for reassessment
Section 289
Section 192
TDS on salary
Section 392(1)
Section 194C / 194J / 194A etc.
TDS on non-salary payments
Section 393 (consolidated)
Senior Citizen Changes — Specific Definitional Updates
Several definitional changes in the 2025 Act specifically benefit senior citizens:
Form 15G and 15H merged into Form 121: The two separate self-declaration forms for non-deduction of TDS have been consolidated into a single Form 121 under the 2025 Act. The eligibility conditions remain the same (nil tax liability), but the paperwork is simpler.
TDS threshold on interest for senior citizens raised to ₹1 lakh: Under the old Act, the threshold was ₹50,000. Under the new Act (Section 393, senior citizen interest code), TDS on bank/post office interest applies only when annual interest exceeds ₹1 lakh per bank.
ITR due date extended to 31 August: Non-audit taxpayers (including most senior citizens with pension, FD income, and capital gains) now have until 31 August of the Tax Year to file their return, up from 31 July.
What Happens to Notices and Proceedings Under Old Act?
A key survival provision — Section 536 of the new Act — addresses what happens to ongoing assessments, appeals, and notices issued under the old 1961 Act:
Old Act proceedings continue under old Act: If an assessment, appeal, or scrutiny proceeding relates to AY 2025-26 or earlier, it stays governed by the 1961 Act sections. The 2025 Act does not apply retrospectively.
Old circulars and notifications survive: Section 536(2)(j) confirms that CBDT circulars, notifications, and instructions issued under the old Act remain valid and applicable to the equivalent provision of the new Act, as long as they don't conflict with the new Act's text.
Options exercised under old Act transfer: If you exercised an option (e.g., opting for the new tax regime, or choosing 44AD presumptive taxation) under the old Act, that election is treated as made under the equivalent provision of the new Act.
Case Study: Ramesh Gupta CA — Handling a Reassessment Notice Straddling Both Acts
Chartered Accountant, Delhi — Client Received Notice Under Section 148 in May 2026
CA Ramesh Gupta received a reassessment notice on behalf of a client in May 2026. The notice was for AY 2022-23 (income earned in FY 2021-22). The notice was issued under Section 148 of the Income Tax Act, 1961.
Question: Does the new Act apply to this notice issued in May 2026?
Answer: No. Per Section 536 of the Income Tax Act, 2025, proceedings relating to any period before 1 April 2026 remain governed by the 1961 Act. The old Act's Section 148 (now Section 289 in the new Act) applies.
Practical action: Ramesh filed the response under old Act provisions, citing Section 148 and relevant old-Act reassessment procedure (Sections 147–151). The new Act's simplified reassessment framework applies only from Tax Year 2026-27 onwards.
Key takeaway: Keep two reference frameworks handy in 2026–27 — old Act for everything up to AY 2025-26, new Act for Tax Year 2026-27 onwards.
Notice Period
AY 2022-23
Governing Law
Income Tax Act, 1961
Old Section Applied
Section 148
New Act Equivalent (for future)
Section 289
Section 2 Definitions Transition — Key Points to Remember
New Act applies from Tax Year 2026-27 (FY 2026-27); old Act governs FY 2025-26 and earlier
"Tax Year" replaces Previous Year + Assessment Year — a conceptual simplification, not a rate change
All TDS sections (192–194T in old Act) are consolidated into Section 393 in new Act; update ERP/payroll codes immediately
Section 80C is now Section 123 — deduction limit unchanged at ₹1.5 lakh
Section 10 exemptions are now in Schedule II — cite "Schedule II, Entry [X]" not "Section 10(X)"
Form 15G + Form 15H merged into new Form 121 — senior citizen TDS interest threshold raised to ₹1 lakh
ITR due date for non-audit cases extended to 31 August from Tax Year 2026-27
Old-Act notices and proceedings for AY 2025-26 and earlier continue under old Act — Section 536 protects this
Check incometax.gov.in/iec/foportal for the official FAQ and section navigator tool
✅ Transition Checklist: What Finance Teams Must Do Now
Update payroll software to reference Section 392(1) for salary TDS (not Section 192)
Update AP/vendor payment software to use Section 393 codes (not 194C/194J/194A etc.)
Replace references to "Assessment Year 2026-27" with "Tax Year 2026-27" in internal documents
Update employment letters and offer letters that reference specific Income Tax sections
Inform employees about the new Form 121 (replaces Forms 15G/15H) for TDS exemption declarations
Update MIS templates, audit reports, and tax working papers with new section references
Review pending appeals and proceedings to confirm which Act applies (pre/post April 2026)
Ensure statutory registers and board resolutions referencing Income Tax sections are updated
The Income Tax Act, 2025 came into force on 1 April 2026, replacing the Income Tax Act, 1961. It received Presidential assent on 21 August 2025 after passing both Lok Sabha (11 August 2025) and Rajya Sabha. For FY 2025-26 (AY 2026-27) — the return you file in July 2026 — the old Act still applies. The new Act applies from Tax Year 2026-27 onwards, meaning returns filed from July 2027 will use the new section numbers.
The Income Tax Act, 1961 used two confusing parallel concepts: 'Previous Year' (the year in which income was earned) and 'Assessment Year' (the year in which tax is assessed, one year later). The 2025 Act abolishes both and replaces them with a single concept: 'Tax Year', defined under Section 3 as the 12-month period from 1 April to 31 March — the financial year itself. So 'Tax Year 2026-27' means FY 2026-27 (April 2026 to March 2027). This aligns India with global practice and eliminates the Previous Year/Assessment Year confusion for practitioners and taxpayers.
Yes, the benefit of Section 80C continues — the deduction of up to ₹1,50,000 for specified investments (ELSS, PPF, LIC, EPF, home loan principal, etc.) is retained. However, the section number has changed to Section 123 in the Income Tax Act, 2025. The deduction limit of ₹1,50,000 is unchanged and remains available only under the old tax regime. Your employer's payroll system will reference Section 123 from Tax Year 2026-27 onwards.