GENERAL PHILOSOPHY OF TRANSITION UNDER NEW INCOME TAX ACT ,2025 & INCOME TAX RULE ,2026
A. OBJECTIVE AND SCOPE OF THE NEW ACT
Q1.1 What is the primary objective of replacing the Income-tax Act 1961 with the Income-tax Act, 2025?
Ans: The Income-tax Act, 2025 has been enacted to provide a streamlined, simplified,and modern tax code with reduced compliance burden, consolidated provisions, and clear definitions. Over six decades, the Income-tax Act, 1961 had accumulated numerous amendments, provisos, and explanations making it complex and difficult to navigate. The new Act aims to present the same tax policy in a more logical, accessible,
and reader-friendly format. The Act further advances taxpayer -centric approach by making compliance simpler, promoting ease of doing business, and aligning the Indian tax system with contemporary global standards.
Q1.2 Does the Income Tax Act, 2025 completely replace the Income Tax Act, 1961?
Ans: Yes. The 1961 Act stands repealed on the 01.04.2026. However, certain transitional provisions specify continuation of proceedings under the old Act to avoid disruption in pending matters and ensure a smooth transition.
Q1.3 Is the Income Tax Act 2025 introducing new taxes or increasing tax burden?”
Ans: No. The income Tax Act, 2025 does not impose any new tax. The intent behind replacing the old Act with the new Act is to:
• Simplify statutory language
• Improve structural clarity
• Reduce interpretational disputes
• Align drafting style with modern legislative standards
• Enhance voluntary compliance
The reform is aimed at making the tax law more predictable, transparent, and easier to comply with, rather than increasing the financial or compliance burden on taxpayers.
Q1.4 As a small taxpayer, how does this change help me?
Ans: One of the key shifts is readability and ease of understanding. Under the 1961 Act, compliance often required expert interpretation because of its layered drafting. The 2025 Act aims to:
• Use simpler language
• Reduce excessive cross-referencing
• Consolidate scattered provisions
• Improve digital integration
The long-term goal is lowering compliance friction and dependency on complex interpretation.
Q1.5 How has the volume and complexity of the legislation changed in the new Act?
Ans. The Income-tax Act, 2025 contains 536 sections and 16 schedules compared to the 819 sections and 14 schedules of the 1961 Act. In the new Act, the overall complexity has been reduced because:
(i) Explanations and provisos have been incorporated into the main text of the sections;
(ii) Tables and formulas replace verbose narrative provisions;
(iii) Redundant and obsolete provisions have been removed; and
(iv) Cross-references are clearer and more direct. Similarly, the Income-tax Rules have been reduced from 511 rules with 399 forms to
333 rules with 190 forms.
Q1.6 Is the structure of chapters reorganised in the Income Tax Act, 2025?
Ans: Yes. The Income-tax Act, 2025 reorganises the chapter structure compared to the Income-tax Act, 1961 by regrouping provisions in a more logical sequence, simplifying language, and integrating provisos and explanations into the main text. The 1961 Act had a fragmented structure due to decades of amendments, while the 2025 Act presents a cleaner, more coherent layout.
Q1.7 Since the Income Tax Act,1961 is repealed and a new Income Tax Act comes into force on 01.04.2026, does everything done under the old Act become invalid?
Ans: No. The repeal of the 1961 Act does not disturb anything relating to tax years before April 1, 2026. For example, if taxpayer’s assessment for the assessment year 2023–24 was completed under the old Act, that assessment will continue to be valid even after the new Act comes into force. Similarly, any pending proceedings relating to earlier years will continue as per the relevant transitional provisions.
Q1.8 Is there any change regarding the ‘basis of charge of Income-tax’ in the Income Tax Act, 2025?
Ans. In the new Income Tax Act, 2025, the charging section has been simplified. In the Income-tax Act, 1961, the charge of income-tax is on ‘total income’ of the ‘previous year’ of a person. Further, income-tax is charged for any ‘assessment year’ at the rate or rates provided by any Central Act and in accordance with and subject to the provisions of the Income-tax Act, 1961.
On the other hand, in the Income tax Act, 2025, in place of the term ‘previous year’, the term ‘tax year’ has been used. Further, the use of term ‘assessment year’ has been discontinued. Now, the charge of income-tax is on ‘total income’ of the ‘tax year’ of a person at the rate or rates provided for such tax year by any Central Act and in accordance with and subject to the provisions of the Income-tax Act, 2025.
B. CONCEPT OF ‘TAX YEAR’ Vs. ‘ASSESSMENT YEAR’
Q1.9 What is the concept of “Tax Year” and how will the income be assessed in view of removal of “Assessment Year” (‘AY’) concept?
Ans: A ‘tax year’ is a period of twelve months contained in a financial year. It replaces the term ‘previous year’ used in the Income-tax Act, 1961. The concept of “Tax Year” is applicable from 01 April 2026, i.e., for income earned during FY 2026-27 onwards and this will be referred to as Tax Year 2026-27 under the Income Tax Act 2025. Simply put, Tax Year concept under the new Act corresponds to Previous Year concept under the Income-tax Act, 1961. Accordingly, the income of a Tax Year continues to be assessed after the end of that Tax Year, similar to the existing system under the ITA 1961 where income of a Previous Year is assessed after the end of that Previous Year. Use of the terms ‘previous year’ and ‘assessment year’ was causing confusion among taxpayers as they referred to two different financial years. This alignment of Tax Year with Previous Year/ Financial Year eliminates the confusion caused by dual-year references under the Income-tax Act, 1961.
Q1.10 Can a ‘tax year’ be a period which is less than a ‘financial year’?
Ans: Yes. This will happen when a business is newly set up during any financial year, or a source of income comes into existence during a financial year. In such cases, the tax year will begin from the date of setting up of the business or the source of income coming into existence, and end on the last day of that financial year. For example, if a business is set up on 1 December 2026, the Tax Year for that business will commence from 1 December 2026 to 31 March 2027
Q1.11 When the Income-tax Act, 2025 refers to a “tax year” starting on 1st April 2025 or earlier, how should that be understood?
Ans. Section 536(3) of the Income-tax Act, 2025 provides that any reference of a tax year shall be read as a reference to the corresponding ‘previous year’ under the old Act. This provision is transitional and does not change the tax treatment applicable to those years.
Example: If the new Act refers to ‘tax year 2024-25,’ it corresponds to the ‘previous year 2024-25’ under the old Act, which in turn corresponds to Assessment Year 2025- 26.
Q1.12 Is there any “missing year” or overlap due to the shift from Assessment Year to Tax Year?
Ans: No, there is no missing year or overlap. Income earned during the FY 2025-26 will be governed by the Income-tax Act, 1961 and assessed in AY 2026-27. Income earned from 01 April 2026 onwards will be governed by the Income Tax Act, 2025 and assessed for Tax Year 2026-27 and onwards. The same is tabulated as under for quick reference:
Q1.13 Is there a need to change the accounting periods of businesses due to the introduction of ‘Tax Year’ concept?
Ans: No, since the Tax Year is aligned with the Financial Year, no change in accounting year or financial statements is required for businesses or other taxpayers.
C. CONTINUITY AND TRANSITION FRAMEWORK
Q1.14 Will the existing administrative frameworks such as Permanent Account Number (PAN), Tax Deduction Account Number (TAN), faceless proceedings, etc. continue under the Income Tax Act 2025?
Ans: Yes, existing Permanent Account Number, Tax Deduction Account Number (TAN), faceless assessment, faceless appellate framework, etc., shall continue under the Income Tax Act 2025.
Q1.15 How does the Income Tax Act, 2025 ensure continuity and smooth transition from the Income-tax Act, 1961?
Ans: Tax law does not operate strictly within annual boundaries. While some compliances such as TDS, TCS, Advance tax payments, etc., occur within the financial year, others—such as return filing, assessments, reassessments, appeals, penalties, and refunds—often extend well beyond the year, sometimes for many years in select cases. Therefore, when a new tax law comes into force, the old and new laws must
coexist for a transitional period. The Income Tax Act, 2025 acknowledges this practical reality and handles the transition through Section 536, the repeal and savings clause. Section 536 of the Income Tax Act, 2025:
• Contains 22 sub clauses addressing various transitional situations.
• Ensures the old tax framework continues to apply to earlier years
• Aligns terminology between the two Acts,
• Allows the law to be modernised without unsettling established positions.
Q1.16 There may be some circumstances or situations which may not be directly covered under the specific savings clauses enumerated in Section 536? How does the Act ensure that there are no unintended gaps in handling such cases?
Ans: Sub-section (2) of section 536 is broadly structured to leave as little uncertainty as possible. However, in order to cover any unforeseen situation which is not directly covered by the situations specified under sub-section (2) of section 536 of the Income
Tax Act, 2025, the subsection (4) provides that Section 6 of the General Clauses Act, 1897 shall apply with regard to the effect of the repeal of 1961 Act. This provision upholds rights and obligations even beyond what is explicitly stated. By applying broad principles that safeguard established rights and obligations, it guarantees that unforeseen circumstances are also covered.
Q1.17. If someone had a right or benefit under the old Act, does that right disappear when the new Act comes into force on 01.04.2026?
Ans: No. Rights, benefits, obligations or liabilities that arose under the old Act continue to exist. For instance, if a taxpayer was entitled to claim a refund under the old Act for any tax year prior to the commencement of the new Act, he still remains entitled to that refund even after the new Act comes into force.
Q1.18 How will pending proceedings and notices issued under the Income-tax Act, 1961 be treated after the new Act comes into force?
Ans. 536(2)(c) of the new Act provides that the provisions of the repealed Income-tax Act shall continue to apply to any proceeding pending on the date of commencement of this Act and to any proceedings initiated on or after the 1st April, 2026 (including notices,
assessment, re-assessment, recomputation, rectification, penalty, reference, revision and appeals) in respect of any tax year beginning before the 1st April, 2026 and such proceedings shall be carried out as per the procedure specified in the repealed Incometax Act. For instance, if the assessing officer initiated assessment of a taxpayer’s income for assessment year 2024–25 before the new Act comes into force, that entire assessment and other proceedings will be completed under the provisions of old Act.
Q1.19 Are old approvals, registrations, and recognitions still valid under the new Income Tax Act?
Ans: Yes, if such approvals are not inconsistent with the provisions of the new Act, they are treated as if granted under the new Act.
For example, a charitable trust recognized under the old Act will be treated as recognized under the corresponding provision of the new Act, unless there is a conflict with the provisions in the new Act.
Q1.20 Do old circulars, instructions and notifications issued by the tax department continue even after the new Act comes into force?
Ans: Yes. As per the provisions of section 536(2)(j) of the Income Tax Act, 2025, circulars, notifications, instructions, approvals, etc, issued under the old Act will remain valid as long as they do not conflict with the new Act.
Example: TDS provisions (Section 194C of old Act → Section 393 of new Act) A circular clarifying the term “work” under section 194C of the old Act will continue to apply to section 393 of the ITA 2025, where the intent remains unchanged.
Q1.21 Are schemes designed to reduce direct contact between taxpayers and tax officers (such as faceless assessment/faceless appeals schemes) under the old Act still valid under the new Act?
Ans: Yes. Such schemes are treated as made under the corresponding provisions of the new Act, or in case, there is no corresponding section in the new Act, such schemes are treated to have been made under section 532 of the new Act which authorizes the Central government to make schemes. In other words, the existing faceless assessment scheme will continue without interruption under the new Act.
Q1.22 For how long will the old and new Acts run in parallel? What does this mean for taxpayers practically?
Ans. Effective 1 April 2026, the 1961 Act will be repealed. However, its provisions will continue to govern all tax years beginning before 1st April, 2026. Accordingly:
(i) The Income-tax Department’s e-filing portal will facilitate compliance under both the old and the new Acts concurrently.
(ii) Taxpayers filing returns for AY 2026–27 (pertaining to the period governed by the old Act) in July 2026 will do so using the forms prescribed under the old Act. At the same time, advance tax payments for Tax Year 2026–27, commencing from June 2026, will be made in accordance with the new Act.
(iii) All assessments, appeals, and other proceedings relating to earlier years will continue to be conducted under the old Act until their final resolution. The Government is implementing necessary measures to ensure that both legislative frameworks operate seamlessly and simultaneously on the income tax portal.
