India's landmark tax overhaul is here: the historic Income-tax Act, 1961 was repealed on 1 April 2026, and the newly enacted Income-tax Act, 2025 now governs direct taxation across the nation. Because tax proceedings, audits, and litigations span across multiple financial years, CBDT has released a comprehensive 98-page transition FAQ compendium clarifying how the 1961 Act and 2025 Act operate side by side.
Here is an executive breakdown by Chaitanya & Associates on what these changes mean for salaried employees, business owners, NRIs, and accounting professionals.
1. The Fundamental Rule: The Year Governs the Law
The cardinal principle laid down by the CBDT transition guidelines is straightforward: the applicable Act is determined exclusively by the financial year in which the income was earned.
| Income Earned Period | Governing Statutory Act | Statutory Terminology |
|---|---|---|
| 1 Apr 2025 to 31 Mar 2026 | Income-tax Act, 1961 | Assessment Year (AY) 2026-27 |
| From 1 Apr 2026 onwards | Income-tax Act, 2025 | Tax Year 2026-27 |
Any proceeding relating to an income year that commenced prior to 1 April 2026—including scrutiny assessments, reassessments, penalties, revisions, and appeals—remains governed by the substantive provisions of the 1961 Act, even if the notice is issued or the proceedings take place after 1 April 2026.
2. Is This a New Tax or Higher Burden? (No)
CBDT has made it emphatically clear: the Income-tax Act, 2025 imposes no new tax and does not increase tax burdens. The reform is focused on structural simplification and modern drafting:
- Fewer Sections: Condensed from 819 sections and 14 schedules down to 536 sections and 16 schedules.
- Slender Rulebook: Compressed from 511 rules and 399 forms down to 333 rules and 190 forms.
- Unified Terminology: The confusing dual concepts of "Previous Year" (PY) and "Assessment Year" (AY) have been retired. They are replaced by a single, intuitive concept: Tax Year, matching the Indian financial year (April 1 to March 31). Existing business accounting years remain untouched.
3. Will Taxpayers File Two Returns? (No)
CBDT's FAQs dispel rumors of dual return filings. You never file two tax returns for the same financial period:
- Income for FY 2025-26: Reported during AY 2026-27 under the Income-tax Act, 1961 using the conventional ITR forms.
- Income for FY 2026-27: Reported under the Income-tax Act, 2025, with returns falling due in 2027 under the streamlined return framework.
Action Point: Keep challans, books of accounts, and TDS ledgers for FY 2025-26 and FY 2026-27 clearly demarcated. Ensure you choose the appropriate label (AY vs Tax Year) when making advance tax or self-assessment tax deposits.
4. Critical Return Timelines for AY 2026-27
Taxpayers filing for AY 2026-27 under the 1961 Act must note the applicable deadlines:
- Belated Return: Due by 31 December 2026 (Late fee of ₹1,000 for income up to ₹5 Lakhs; ₹5,000 otherwise).
- Revised Return: Can be filed until 31 March 2027 (as proposed under the Finance Bill).
- Updated Return (ITR-U): Continues to be available under the 1961 Act framework within its prescribed statutory limits.
- Loss Carry-Forward: Losses incurred in AY 2026-27 and prior years carry forward seamlessly into the new Act without resetting the limitation clock, provided the loss return was filed within the original due date.
5. TDS, TCS, and Advance Tax Transitions
While TDS rates and monetary thresholds remain unchanged, the statutory section numbers and operational compliance have evolved:
Consolidated TDS/TCS Sections
The old scattered provisions (Sections 192 through 194T) are now unified into:
- Section 392: TDS on Salary payments.
- Section 393: TDS on Non-Salary payments (contractors, professionals, rent, interest, etc.).
- Section 394: Tax Collection at Source (TCS).
Key Rules for Deductors & Employers
- Date of Credit/Payment: If credit or payment occurred on or before 31 March 2026, the 1961 Act applies. For transactions occurring from 1 April 2026 onwards, the 2025 Act applies.
- Quote New Sections: In quarterly returns for Tax Year 2026-27, quote the new section numbers and schedule table items to prevent portal validation rejections.
- Interest Rates: Maintained at 1% per month for failure to deduct and 1.5% per month for failure to deposit.
- Advance Tax: The ₹10,000 threshold and quarterly instalments (15% June 15, 45% Sep 15, 75% Dec 15, 100% Mar 15) remain identical.
- Payroll Systems: Employers must update HR and payroll software to reference Section 392 for salary TDS, with deductions under former Section 80C now mapped to Schedule XV read with Section 123.
6. New Statutory Forms Checklist
The reduction from 399 forms to 190 forms brings consolidated numbers. Key forms to memorize include:
| Purpose / Statutory Subject | Old Form (1961 Act) | New Form (2025 Act) |
|---|---|---|
| PAN Application | Form 49A / 49AA | Forms 93, 94, 95, 96 |
| TAN Application | Form 49B | Forms 134, 135 |
| Lower / Nil TDS Certificate | Form 13 | Form 128 |
| No-TDS Declaration (Interest) | Form 15G / 15H | Form 121 (Merged) |
| Salary Arrears Relief | Form 10E | Form 39 |
| Foreign Remittance Certificate | Form 15CA / 15CB | Forms 145 / 146 |
| Tax Audit Report | Form 3CA / 3CB / 3CD | Form 26 |
| Quarterly TDS Returns | 24Q / 26Q / 27Q / 27EQ | Forms 138 / 140 / 144 / 143 |
| TDS Certificates | Form 16 / 16A | Forms 130 / 131 |
7. What Carries Over Unchanged
Taxpayers need not panic about ongoing certifications or identities:
- PAN & TAN: Existing PAN and TAN numbers remain completely valid and active.
- Lower TDS Certificates: Certificates issued under former Section 197 for receipts falling in Tax Year 2026-27 continue to be valid.
- Trust & Entity Registrations: 12AB and 80G recognitions for charitable trusts and institutions stay uninterrupted.
- Tax Arrears & Pending Refunds: All existing refund entitlements and pending demands survive under saving clauses.
- MAT / AMT Credits: Carried forward for set-off in future eligible years.
- Faceless Framework: Faceless assessment, penalty, and appeals continue under the upgraded framework.
8. Reassessment, Appeals & Limitation Changes
- Reassessment (Sections 279–286): Applies exclusively to Tax Year 2026-27 onwards. The department must mandatory issue a show-cause notice with prior senior administrative approval. The limitation is 4 years 3 months (or 6 years 3 months where escaped income equals or exceeds ₹50 Lakhs). Earlier years can still be reopened under former Sections 147–153.
- Appellate Hierarchy: Remains identical: Assessing Officer → CIT(Appeals) → ITAT → High Court → Supreme Court. Pending appeals continue under the 1961 Act with zero refiling required.
Key Compliance Dates to Watch
- 31 October 2026: Corporate & Tax Audit ITR due date (AY 2026-27) and Q2 TDS return filing on new forms.
- 30 November 2026: ITR filing for shipping cases covered under Section 172.
- 31 December 2026: Last date for filing Belated/Revised Returns for AY 2026-27.
- 31 March 2027: Final timeline for revised returns as proposed under Finance Bill 2026.
Summary & Expert Transition Support
For your tax returns due right now, it is business as usual under the familiar 1961 Act. The new Income-tax Act, 2025 governs transactions from April 2026 onward. The priority now is upgrading corporate accounting, payroll tax codes, learning the consolidated TDS sections, and ensuring error-free filings. For corporate tax migration or Lower TDS certificates under the new Act, book a consultation with Chaitanya & Associates.
Disclaimer: This guide summarises CBDT's official transition FAQs regarding the interplay between the Income-tax Act, 1961 and the Income-tax Act, 2025. It is published for informational purposes and does not constitute formal legal or tax advice. Readers should verify official notifications at incometax.gov.in and consult a qualified Chartered Accountant for specific tax assessments.