Income Tax Act 2025 Transition Guide: Old vs New Law, Tax Year, TDS & Pending Cases
Last reviewed: 28 August 2026.
Answer first: The Income-tax Act, 2025 came into force on 1 April 2026. It governs Tax Year 2026-27 onward, while the repealed Income-tax Act, 1961 continues to govern earlier income periods and saved proceedings. This means businesses and taxpayers are temporarily operating in a dual-law environment: current-year TDS, advance tax and many new statutory forms follow the 2025 Act, but the AY 2026-27 return for income earned in FY 2025-26 still follows the 1961 Act.
Applicability at a glance
| Question | Current position |
|---|---|
| When did the new Act start? | 1 April 2026 |
| What is the current income period called? | Tax Year 2026-27 |
| Which law governs FY 2025-26 / AY 2026-27 return? | Income-tax Act, 1961 |
| Which law governs income arising from 1 April 2026? | Income-tax Act, 2025 |
| Do old pending assessments/appeals disappear? | No; savings/transition provisions preserve them |
| Do old circulars automatically become invalid? | No; they continue where not inconsistent with the new Act |
1. Why two Income-tax Acts matter in 2026
The transition is based on the period and proceeding involved, not simply the date on which a taxpayer opens the e-Filing portal. The Income Tax Department explains that the 1961 Act remains applicable to tax years beginning before 1 April 2026. Section 536 of the 2025 Act contains savings provisions for earlier rights, liabilities, proceedings, notifications and related matters.
2. Previous Year / Assessment Year vs Tax Year
The 2025 Act simplifies period terminology by using Tax Year. A tax year is generally the twelve-month financial-year period from 1 April to 31 March. Therefore income arising from 1 April 2026 to 31 March 2027 belongs to Tax Year 2026-27.
| Earlier terminology | Current terminology | Example |
|---|---|---|
| Previous Year + Assessment Year | Tax Year | 1 Apr 2026–31 Mar 2027 = TY 2026-27 |
| FY 2025-26 / AY 2026-27 | Still an old-Act return cycle | Return filed in 2026 under 1961 Act |
This change does not require businesses to change their normal 1 April–31 March accounting year. It changes the statutory terminology and structure.
3. Which Act governs TDS during transition?
The Income Tax Department's current TDS transition FAQ gives a particularly useful rule: determine when the earlier of credit or payment occurs. If that earlier event occurred on or before 31 March 2026, the 1961 Act applies. If it occurs on or after 1 April 2026, the 2025 Act applies.
| Scenario | Starting law |
|---|---|
| Expense credited 30 March 2026, paid 10 April 2026 | 1961 Act, because credit occurred first before transition |
| Invoice credited 5 April 2026, paid 20 April 2026 | 2025 Act |
| Advance paid 28 March 2026, invoice booked 4 April 2026 | 1961 Act, subject to the applicable TDS rule and facts |
For current TDS work, familiar 194-series references are no longer always the operative section numbers. For example, salary withholding is under section 392 and many non-salary withholding categories are consolidated in section 393. Legacy references remain useful for historical records and mapping.
4. Old approvals, registrations and tax options
The transition does not require taxpayers to assume every old approval or election vanished on 1 April. The Department explains that old approvals, registrations and recognitions continue where they are not inconsistent with the new Act. Likewise, an option exercised under the old Act can be treated as exercised under the corresponding new provision where the savings rule applies.
This is particularly important for tax teams maintaining master data for registrations, recognised entities and tax-regime elections. Do not cancel or recreate an approval merely because the section number changed; verify the corresponding provision and transition rule.
5. What happens to old circulars and notifications?
Section 536's savings framework preserves circulars, notifications, instructions and similar instruments issued under the old Act to the extent they are not inconsistent with the 2025 Act. The Department specifically uses the old section 194C to current section 393 transition as an example of how earlier interpretative material may continue where the underlying intent remains unchanged.
Professional practice therefore requires two checks: first, whether the old guidance addressed the same substantive rule; second, whether the new Act, Rules or a later notification has changed or superseded it.
6. Pending assessments, reassessments, appeals and rectification
Repeal does not wipe out proceedings relating to earlier periods. The Department's transition guidance explains that proceedings for tax years beginning before 1 April 2026 continue under the repealed Act through the savings provisions. This can include assessment, reassessment, recomputation, rectification, penalty, reference, revision and appeals relating to earlier periods.
7. Return filing during the dual-law period
A common 2026 mistake is to assume that because the new Act is already effective, every return filed after 1 April must use new-law references. That is incorrect. The Department expressly explains that returns for AY 2026-27 relating to FY 2025-26 continue under the old Act. At the same time, obligations for TY 2026-27—such as current advance tax and current-period TDS—follow the new Act.
8. ERP and accounting transition checklist
- Tag transactions with the correct tax period.
- For TDS, capture the earlier-of-credit-or-payment date.
- Maintain an old-section to new-section mapping in the tax master.
- Do not overwrite historical section codes in closed-year ledgers.
- Update TDS return/form masters for TY 2026-27.
- Preserve old circulars and opinions with an amendment-status note.
- Train AP, payroll and tax teams on Tax Year terminology.
- Separate AY 2026-27 return work from TY 2026-27 current compliance.
- Document the legal basis for unusual transition transactions.
9. Practical risk matrix
| Risk | Impact | Control |
|---|---|---|
| Using new section for pre-April transaction | Wrong TDS classification/reporting | Earlier-of-credit/payment control |
| Using old form for TY 2026-27 | Portal/reconciliation failure | Current form master |
| Assuming old circular is invalid | Loss of useful binding/interpretative guidance | Check section 536 and inconsistency |
| Assuming pending old case is cancelled | Missed compliance/appeal deadline | Track proceeding by governed period |
| Mixing AY 2026-27 with TY 2026-27 | Wrong law and section references | Dual-law review field in workings |
10. Related Tax Queries guides
- Finance Act 2026 and Income-tax Act 2025 transition
- TDS Return Filing TY 2026-27
- Form 121 replacing Forms 15G/15H
- Form 144 replacing old Form 27Q
Frequently asked questions
When did the Income-tax Act, 2025 become effective?
It came into force on 1 April 2026.
Is the Income-tax Act, 1961 completely irrelevant now?
No. It continues to govern earlier periods and saved proceedings under the transition provisions.
Which law applies to AY 2026-27 ITR filing?
The return for FY 2025-26 / AY 2026-27 remains governed by the Income-tax Act, 1961.
What is Tax Year 2026-27?
It is generally the period from 1 April 2026 to 31 March 2027 under the new Act.
Did the new Act create a new tax merely by replacing the old Act?
No. The Department describes the new Act as a simplification and structural reorganisation rather than the creation of a new tax merely because the statute changed.
Which Act applies to a TDS transaction around 1 April 2026?
Use the Department's earlier-of-credit-or-payment transition rule to determine whether the triggering event falls before or after 1 April 2026.
Does a payment in April always fall under the new Act?
No. If the relevant sum was already credited before 1 April 2026 and credit was the earlier triggering event, the old law may govern the TDS obligation.
Are old CBDT circulars automatically cancelled?
No. Old circulars and instructions can continue where they are not inconsistent with the new Act.
Do pending old assessments stop?
No. Earlier-period proceedings are preserved by the savings provisions.
Can an old-year rectification happen after April 2026?
Yes, where the saved old-law provisions apply to that earlier period.
Do businesses need a new accounting year?
No. The Department states that Tax Year remains aligned with the normal financial year.
Should historical ERP entries be changed to new section numbers?
No. Preserve historical classifications and separately map current-law sections for current transactions.
Does the new tax regime continue under the new Act?
Yes. The Department identifies section 202 as the current provision corresponding to the old section 115BAC framework.
Must a taxpayer re-elect an old tax option solely because the Act changed?
Not automatically. Transition provisions can carry forward an option to the corresponding new provision.
Are old approvals automatically invalid?
No. They can continue where they are not inconsistent with the new Act.
What is the biggest operational risk in 2026?
Mixing old-period return/proceeding work with current Tax Year compliance and therefore using the wrong law, form or section reference.
Should tax teams delete old section mappings?
No. Retain them for historical transactions, proceedings and searchability, while adding current-law mappings.
Where should the transition position be verified?
Use the Income Tax Department's current Income-tax Act 2025 Help Centre, TDS Compliance FAQs, statutory text, Rules and applicable notifications.
Official references
- Income Tax Department — Objective and scope of the new Act
- Income Tax Department — TDS Compliance transition FAQs
- Income Tax Department — Income Tax Returns under the new Act
This guide explains the transition framework. For a live transaction, verify the current statutory provision, Rules, notification and portal form applicable to the exact facts.
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