Income Tax Act 1961 vs 2025: Key Changes That Affect Your ITR Filing

After 65 years, India has a new Income Tax Act. The Income Tax Act, 2025 replaces the Income Tax Act, 1961 from 1 April 2026. For taxpayers, the immediate question is: what actually changes? The answer is nuanced - the tax rates, deduction limits, and fundamental principles remain largely the same. But the structure, terminology, section numbers, filing deadlines, and procedural framework change significantly.

This guide explains the key differences between the two Acts, what changes for your ITR filing, which Act applies when, and the practical steps you need to take during the transition.

Which Act Applies When? The Critical Timeline

Practical implication: When you file your ITR in July 2026 for FY 2025-26, you are still using IT Act 1961. The new Act's section numbers, forms, and terminology apply only from Tax Year 2026-27 (income earned from 1 April 2026). For comprehensive ITR filing support during the transition, income tax return filing services ensure the correct Act is applied to your return.

The Big Changes: What Is Actually Different

Change 1: Tax Year Replaces Previous Year and Assessment Year

Under IT Act 1961: Income earned in FY 2025-26 (Previous Year) is assessed and reported in AY 2026-27 (Assessment Year). Two different year references for the same income.

Under IT Act 2025: Income earned in 2026-27 is reported as Tax Year 2026-27. One year reference. The Tax Year is the financial year itself (1 April to 31 March). 'Assessment Year' is discontinued. 'Previous Year' is discontinued.

What it means for you: ITR forms, notices, assessment orders, and all tax communications from FY 2026-27 onwards will use 'Tax Year' instead of 'Assessment Year.' Your ITR-1 for income earned in 2026-27 will say 'Tax Year 2026-27' - not 'AY 2027-28.' This is a terminology simplification, not a change in how tax is computed or paid.

Change 2: Section Renumbering - Every Section Has a New Number

Virtually every section of the Income Tax Act has been renumbered. This is the change that will cause the most practical confusion:

Important: The Income Tax Department has published a section mapping utility on incometaxindia.gov.in that lets you look up any old section number and find the corresponding new section. Bookmark this utility - you will need it frequently during the transition. For businesses needing to update compliance references, accounting services include section mapping support.

Change 3: All TDS Provisions Consolidated Under Section 393

Under IT Act 1961: TDS was scattered across 30+ sections (Section 192, 194A, 194B, 194C, 194H, 194I, 194J, 194N, 194Q, etc.) - each with different rates, thresholds, and conditions.

Under IT Act 2025: ALL TDS provisions are consolidated into a single Section 393 with a table listing each payment type, threshold, and rate. Similarly, TCS is consolidated under Section 394. The rates and thresholds remain the same - only the presentation has changed from scattered sections to one consolidated table.

What it means for you: From 1 April 2026, all TDS challans, certificates (Form 16/16A), and quarterly returns must reference Section 393 (not the old individual sections). Payroll systems, ERP software, and accounting entries must be updated. If your accounting software still references 'Section 194C' after April 2026, the challan may be rejected or miscategorised.

Change 4: Filing Deadlines Extended for Non-Audit Business Taxpayers

Change 5: New Tax Regime Remains Default Under Section 202

The new regime (lower rates, fewer deductions) continues as the default under Section 202 of IT Act 2025 - the same position as Section 115BAC under IT Act 1961. If you want to use the old regime (higher rates with deductions like 80C, 80D, HRA), you must explicitly opt in. The opt-in mechanism and conditions remain substantially the same.

Change 6: Reassessment Regime Consolidated

The post-Ashish Agarwal (SC 2022) reassessment framework is now codified in the IT Act 2025: reassessment only on the basis of 'information' (not the older 'reason to believe'), 4-year standard limit (10 years for cases involving assets above Rs 50 lakh), mandatory show cause notice before reopening, and specified authority approval for all reassessments. This consolidation makes the law clearer but does not introduce new powers - it formalises what was already established through amendments and court rulings.

Change 7: Buyback Proceeds as Capital Gains (Not Dividend)

Under IT Act 1961 (post Finance Act 2024): Share buyback proceeds were taxed as dividend income in the hands of shareholders. Under IT Act 2025: buyback proceeds are proposed to be taxed as capital gains - with a 30% rate for promoters and 22% for promoter companies. This affects investors in companies conducting buybacks.

What Does NOT Change

• Tax slab rates - both old and new regime rates are identical to current rates
• Deduction limits - Rs 1.5 lakh under (new) Section 150 = same as Rs 1.5 lakh under (old) Section 80C
• Health insurance deduction limits - Rs 25,000/50,000/1,00,000 unchanged
• Housing loan interest deduction - Rs 2 lakh limit unchanged
• Advance tax due dates - quarterly schedule unchanged
• TDS rates and thresholds - same rates, only section reference changes
• Capital gains taxation - STCG/LTCG rates and holding periods unchanged
• Existing case law - SC/HC rulings under the 1961 Act continue to apply where provisions are substantially similar

Bottom line: The IT Act 2025 is primarily a reorganisation and simplification - not a new tax policy. Your tax liability for the same income will be the same under both Acts. The changes are in how the law is structured, referenced, and administered.

Practical Action Items for Taxpayers

1. 1. File FY 2025-26 ITR under the old Act (by July/October 2026). No change for this year's filing. Use the existing ITR forms, existing section references, and existing portal workflow. For income tax return filing assistance for FY 2025-26, the old Act applies fully.
2. 2. Update your accounting software and ERP for Section 393 TDS from 1 April 2026. All TDS entries from April 2026 must reference Section 393 (not old individual sections). Check with your software vendor for the update. Payroll processing for April 2026 salaries must use the new section mapping.
3. 3. Familiarise yourself with the section mapping utility. The Income Tax Department's mapping tool at incometaxindia.gov.in helps you find old-to-new section correspondences. Use it whenever you read a new notice, assessment order, or communication from the department post-April 2026.
4. 4. Understand 'Tax Year' terminology. From FY 2026-27, all references will use 'Tax Year 2026-27' instead of 'AY 2027-28.' When you receive a notice or form using Tax Year, know that it refers to the same 12-month period (April to March) - just with a new label. For businesses managing GST and income tax simultaneously, coordinate both compliance calendars.
5. 5. Review your investment/deduction strategy. If you are using the old tax regime (with 80C, 80D deductions), the deductions continue under new section numbers. Verify that your investment declarations and proofs reference the correct new sections from April 2026 - especially employer declarations for TDS on salary.
6. 6. Carry forward losses and credits carefully. Brought forward losses, MAT/AMT credits, and TDS credits from pre-2026 years must be correctly mapped from IT Act 1961 to IT Act 2025 references. The transitional provisions (Section 536) ensure continuity, but your CA must verify the mapping. For tax audit services, ensure the auditor maps provisions correctly.

Key Takeaways

The Income Tax Act, 2025 replaces the IT Act, 1961 from 1 April 2026 - but FY 2025-26 ITR filing (by July/October 2026) is still fully governed by the 1961 Act, with the new Act applying only to income from Tax Year 2026-27 (FY 2026-27) onwards, and both Acts running concurrently on the e-filing portal.

The single biggest terminological change is 'Tax Year' replacing both 'Previous Year' and 'Assessment Year' - income earned in 2026-27 is reported as Tax Year 2026-27, eliminating the confusing dual-year reference system that existed for 65 years.

Every section has been renumbered (80C→150, 194C→393, 115BAC→202, 139→263) but the substantive provisions - tax rates, deduction limits, TDS rates, capital gains rules - remain substantially identical, making the transition primarily a structural reorganisation rather than a policy change.

The most impactful practical changes are: TDS consolidated under Section 393 (requiring immediate ERP/software updates from 1 April 2026), filing deadline extended from 31 July to 31 August for non-audit business taxpayers, revised return window extended from 9 to 12 months, and reassessment regime formalised with the post-Ashish Agarwal framework.

Immediate action required: file FY 2025-26 ITR under the old Act, update accounting software TDS references to Section 393 for April 2026 payments, familiarise with the section mapping utility on incometaxindia.gov.in, and ensure brought forward losses and credits are correctly mapped across Acts.

Need Help Navigating the Transition? We Handle Both Acts

Filing FY 2025-26 under the old Act while preparing for FY 2026-27 under the new Act requires dual-framework expertise. Software updates, section mapping, and transitional provisions add complexity that most taxpayers should not handle alone.

Explore our income tax return filing services - FY 2025-26 ITR under IT Act 1961, TDS compliance updates for Section 393, section mapping support, and transition planning for IT Act 2025.

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