Income Tax Act 2025 Applicability: Which Financial Year Does It Apply From?

The Income Tax Act, 2025 came into force on 1 April 2026. But if you are a salaried individual preparing to file your return in July 2026, or a business completing your tax audit, you might be wondering: does the new Act apply to me right now? The answer depends entirely on when your income was earned - not when you file your return.

This guide answers the most common applicability question - which financial year does the Income Tax Act, 2025 actually apply from? - with a clear year-wise breakdown, the Section 536 transition framework, practical filing scenarios, and what the dual-track system means for your compliance.

What Is the Applicability Date of the Income Tax Act 2025 and Why Does It Matter?

The Income Tax Act, 2025 applies from 1 April 2026 for income earned during Tax Year 2026-27 (1 April 2026 to 31 March 2027) and all subsequent Tax Years. It does not apply to any income earned before 1 April 2026.

This means that FY 2025-26 - the year ending 31 March 2026 - remains fully governed by the Income Tax Act, 1961. Even though the 1961 Act stands "repealed" from 1 April 2026, Section 536 of the new Act saves all proceedings, assessments, and obligations relating to periods before that date. The date of filing does not determine the governing law - the date of income determines it.

For taxpayers managing income tax return filing for multiple years, understanding this distinction is critical to selecting the correct forms, citing the right section numbers, and meeting the applicable deadlines.

Key Terms You Should Know

• Commencement Date (Section 1, ITA 2025): 1 April 2026 - the date from which the Income Tax Act, 2025 came into force, replacing the Income Tax Act, 1961.
• Section 536 (Repeal and Savings): The transition clause with 22 sub-clauses that ensures all proceedings, rights, obligations, and liabilities under the old Act continue for periods before 1 April 2026. This is the most important section for understanding applicability.
• Section 536(2)(c) - Pending Proceedings: Specifies that all proceedings (assessment, reassessment, penalty, appeal, revision) for tax years before 1 April 2026 continue under the old Act, even if initiated after 1 April 2026.
• Section 536(3) - Tax Year Mapping: Any reference to a Tax Year in the new Act is read as the corresponding Previous Year under the old Act. Example: Tax Year 2024-25 = PY 2024-25 = AY 2025-26.
• Section 536(4) - General Clauses Fallback: For unforeseen situations not covered by the 22 sub-clauses, Section 6 of the General Clauses Act, 1897 applies - ensuring no rights or obligations are lost in transition.
• Dual-Track System: The practical reality where both Acts coexist: the 1961 Act governs pre-April 2026 matters, while the 2025 Act governs post-April 2026 matters. The e-filing portal supports both simultaneously.

Who Needs to Understand the Applicability Timeline?

Every taxpayer in India is affected by the transition. The level of complexity depends on whether you have compliance obligations spanning both Acts.

• Salaried individuals filing ITR for FY 2025-26 in July 2026 - your return is under the 1961 Act, not the new Act. Use old section numbers (80C, 80D, etc.) and old form references (Form 16, Form 26AS)
• Businesses with tax audit for FY 2025-26 - audit report must use old Forms 3CA/3CB/3CD, not the new Form 26. The audit is under the 1961 Act
• Taxpayers with pending assessments or appeals for prior years - all proceedings continue under the 1961 Act regardless of when the order is passed
• Self-employed professionals earning income from both FY 2025-26 and Tax Year 2026-27 - must manage compliance under both Acts simultaneously
• NRIs with Indian income sources - must identify which Act governs each income stream based on the period it was earned
• Chartered Accountants and tax professionals - must cite the correct Act, section numbers, and forms depending on the period in question

Professional tax planning services can help you navigate the dual-track system and ensure each compliance obligation references the correct Act.

Legal Framework: Year-Wise Applicability of Both Acts

The table below provides a clear year-wise breakdown of which Act governs each income period and filing obligation.

Note: The governing law depends on when the income was earned, not when the return is filed. A return filed in August 2026 for FY 2025-26 income is still under the 1961 Act. The first return filed under the 2025 Act will be in July 2027 for Tax Year 2026-27 income.

How to Determine Which Act Applies: Step-by-Step

1. Identify When the Income Was Earned. If income was earned between 1 April 2025 and 31 March 2026, the Income Tax Act, 1961 applies - regardless of when you file. If income was earned from 1 April 2026 onwards, the Income Tax Act, 2025 applies.
2. Check the Filing Period - Not the Filing Date. The date you physically submit your ITR does not determine the governing law. Filing in July 2026 for FY 2025-26 = old Act. Filing in July 2027 for Tax Year 2026-27 = new Act.
3. Use the Correct Section Numbers and Forms. For FY 2025-26 filing: Sections 80C, 80D, 139, Form 16, Form 26AS. For Tax Year 2026-27 filing: Sections 122-154, 263, Form 130, Form 168. Mixing references triggers defect notices.
4. Verify Pending Proceedings. Any scrutiny, reassessment, penalty, or appeal for FY 2025-26 or earlier continues under the 1961 Act. Businesses handling tax audit services must use old audit forms for FY 2025-26 and switch to Form 26 only for Tax Year 2026-27.
5. Check Loss Carry-Forward Across Both Acts. Losses determined for AY 2026-27 under the old Act can be carried forward to Tax Year 2026-27 under the new Act. Section 536(2)(b) protects this right, subject to filing the loss return within the due date.
6. Manage TDS Obligations for the Transition Month. TDS deducted in March 2026 must be deposited by 30 April 2026 under the 1961 Act. TDS from April 2026 onwards falls under the 2025 Act. Ensure systems switch references at the right date.
7. Use the E-Filing Portal for Both Acts. The incometax.gov.in portal supports filing under both Acts simultaneously. Select the correct year when initiating your return.

Documents Needed for Dual-Track Compliance

• Form 16 (FY 2025-26) / Form 130 (Tax Year 2026-27) - salary TDS certificate under the applicable Act
• Form 26AS (FY 2025-26) / Form 168 (Tax Year 2026-27) - annual tax credit statement
• ITR forms for AY 2026-27 (old numbering) - use old forms on e-filing portal
• ITR forms for Tax Year 2026-27 (new numbering) - will be available from April 2027
• Form 3CA/3CB/3CD (FY 2025-26 audit) / Form 26 (Tax Year 2026-27 audit)
• Form 15G/15H (FY 2025-26) / Form 121 (Tax Year 2026-27) - TDS self-declaration
• Advance tax challans - March 2026 challan under old Act; June 2026 challan under new Act
• Loss return (if applicable) - must be filed within due date to preserve carry-forward rights across Acts

Income Tax Act 2025 Applicability: Key Dates and Filing Deadlines

Note: Both filing obligations are independent. A taxpayer earning income in both FY 2025-26 and Tax Year 2026-27 must file two separate returns - one under each Act - within their respective due dates. Non-filing of either attracts consequences under the respective Act.

Common Mistakes to Avoid With the Applicability Timeline

Mistake 1: Assuming the new Act applies to your FY 2025-26 return. This is the single most common error. Your ITR filed in July/August 2026 for income earned up to 31 March 2026 is under the Income Tax Act, 1961. Use old section numbers, old form references, and old regime calculations. If you receive an income tax notice for FY 2025-26, it will reference the 1961 Act.

Mistake 2: Believing the new Act is retrospective. The Income Tax Act, 2025 is entirely prospective. It does not reopen, modify, or invalidate any assessment, refund, or proceeding from prior years. Section 536 explicitly preserves all rights, benefits, and obligations under the old Act for pre-April 2026 periods.

Mistake 3: Citing 2025 Act sections in old-year correspondence. If you are responding to a notice for AY 2024-25 or earlier, all section references must be from the 1961 Act. Citing "Section 122" (new Act deductions) instead of "Section 80C" (old Act) in a response for AY 2024-25 will cause confusion and potential rejection.

Mistake 4: Thinking there is a "missing year" between FY and Tax Year. FY 2025-26 assessed in AY 2026-27 under the old Act. Tax Year 2026-27 assessed under the new Act. Both refer to the 12-month period starting 1 April - there is no gap. CBDT has explicitly confirmed this in their official transition FAQ.

Mistake 5: Not filing both returns if income spans both Acts. If you have income in FY 2025-26 (old Act) and Tax Year 2026-27 (new Act), you must file two separate returns within their respective due dates. Non-filing of either return attracts late fees and penalties under the respective Act.

Penalties for Filing Under the Wrong Act

Filing under the wrong Act or citing incorrect section numbers does not automatically trigger penalties, but it creates processing complications.

A return filed with incorrect year selection (e.g., selecting Tax Year 2026-27 instead of AY 2026-27 for FY 2025-26 income) will be treated as a defect notice under Section 139(9) of the old Act. You will get 15 days to rectify the defect. If not rectified, the return is treated as invalid - equivalent to non-filing.

Non-filing attracts a late fee of Rs 5,000 under Section 234F (Rs 1,000 if income is below Rs 5 lakh) plus interest at 1% per month under Section 234A on unpaid tax. These penalties apply independently under each Act for each income period.

Under the new Act, a specific penalty of Rs 10,000 to Rs 1,00,000 applies for failure to comply with faceless assessment notices. If your Tax Year 2026-27 return is selected for scrutiny and you fail to respond, this new penalty provision applies.

How the Applicability Timeline Connects With Other Provisions

The dual-track system creates specific interactions with other compliance areas. For businesses managing TDS return filing, TDS deducted up to 31 March 2026 must be reported using old section numbers (194C, 194J, etc.) and deposited under the 1961 Act. TDS from 1 April 2026 onwards uses new payment codes (1001-1067) under Section 393 of the 2025 Act. The TRACES portal and e-filing portal support both simultaneously.

Loss carry-forward provides a bridge between the two Acts. A business loss incurred in FY 2025-26 (determined under the 1961 Act) can be carried forward and set off against business income in Tax Year 2026-27 (under the 2025 Act). Section 536(2)(b) protects this right, provided the loss return was filed within the due date under Section 139(1) of the old Act.

Refunds also operate across both Acts. If a refund for FY 2025-26 is due after 1 April 2026, the interest payable by the Central Government on such refund is governed by the new Act for the period after commencement. Outstanding tax demands under the old Act can be adjusted against refunds under the new Act - creating a unified recovery mechanism across both frameworks.

What Does Section 536 Cover? Key Transition Scenarios

Key Takeaways

The Income Tax Act, 2025 applies from 1 April 2026 for Tax Year 2026-27 onwards. It does not apply to any income earned before that date - FY 2025-26 remains fully governed by the Income Tax Act, 1961.

The governing law depends on when income was earned, not when the return is filed. A return filed in July 2026 for FY 2025-26 income is under the old Act. The first return under the new Act will be filed in July 2027 for Tax Year 2026-27.

Section 536 of the 2025 Act contains 22 sub-clauses ensuring a seamless transition - all pending proceedings, rights, and obligations under the old Act continue for pre-April 2026 periods. There is no gap, no overlap, and no retrospective application.

Both Acts coexist in a dual-track system. The e-filing portal supports compliance under both Acts simultaneously. Taxpayers with income in both FY 2025-26 and Tax Year 2026-27 must file two separate returns under their respective Acts.

Losses carry forward across Acts - a loss determined under the 1961 Act for FY 2025-26 can be set off against income under the 2025 Act for Tax Year 2026-27, provided the loss return was filed within the due date.

Need Help with Income Tax Return Filing?

Navigating the dual-track compliance system requires understanding which Act applies to each income period, which forms to use, and which section numbers to cite. Professional guidance ensures you file under the correct Act, reference the right provisions, and avoid defect notices or processing delays.

Explore our income tax return filing services for end-to-end support during this transition.

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