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

This is the single most asked question about the Income Tax Act 2025: which year does it apply from? The confusion is understandable - the Act was passed in 2025, notified in 2025, but takes effect in 2026. Meanwhile, you are filing your 2025-26 return in 2026. Which Act governs what?

This guide provides the definitive answer - with a scenario-by-scenario breakdown for every taxpayer type and every compliance situation.

The One Rule That Answers Everything

The IT Act 2025 applies to income earned from 1 April 2026 onwards.

The IT Act 1961 applies to income earned before 1 April 2026.

That is the complete rule. Every scenario below flows from this single principle. The date that matters is when the income was earned - not when the return is filed, not when the assessment happens, and not when the Act was passed. For a comprehensive comparison of the two Acts, see our

IT Act 1961 vs 2025 comparison guide.

The Master Applicability Table

Scenario-by-Scenario: What Applies to YOU

Salaried Employees

Filing your FY 2025-26 return (due July 2026): IT Act 1961. Use ITR-1 or ITR-2 for AY 2026-27. Old section numbers (80C, 80D, 24(b)) apply. The e-filing portal will show AY 2026-27 - not Tax Year.

Salary received from April 2026: IT Act 2025. Your employer deducts TDS under Section 393 (not old Section 192). Your Form 16 for Tax Year 2026-27 will reference the new section numbers. Investment declarations submitted to your employer from April 2026 should reference new section numbers (Section 150 for investments, Section 151 for health insurance). For salaried ITR filing, income tax return filing services handle both Acts seamlessly.

Businesses and Professionals

Books of accounts for FY 2025-26: Maintained under IT Act 1961 provisions. Tax audit (if applicable) under old Section 44AB. Audit report references old Act.

Books of accounts from April 2026: Maintained under IT Act 2025. Tax audit under new Section 63. All statutory references in accounts, audit reports, and compliance documents must use new section numbers.

TDS deducted on payments from April 2026: Under Section 393 of IT Act 2025. ERP systems must reference the new consolidated TDS section. Challans for April 2026 TDS payment (due 7 May 2026) must cite IT Act 2025 sections. For accounting and bookkeeping services, we ensure the correct Act is applied to every transaction.

Pending Assessments, Appeals, and Litigation

The new Act does NOT apply retrospectively. All assessments, reassessments, appeals, penalties, and proceedings relating to income earned before 1 April 2026 continue under the IT Act 1961 - even if the proceeding is conducted or the order is passed after 1 April 2026.

Example: If you have an assessment pending for AY 2023-24 and the Assessing Officer passes the order in August 2026, the order is under IT Act 1961. The appeal against that order is filed under IT Act 1961 provisions. The section numbers in the order, the appeal form, and the ITAT hearing all reference the old Act.

Do not cite IT Act 2025 sections in briefs or appeals for pre-2026 years - it is incorrect and may cause confusion. For income tax notice response, we ensure the correct Act is cited for each assessment year.

NRIs

Indian-source income earned in FY 2025-26: IT Act 1961 applies. File return for AY 2026-27. Residential status determined under old Act provisions.

Indian-source income from April 2026: IT Act 2025 applies. Return for Tax Year 2026-27. NRI foreign asset reporting requirements are tightened under the new Act - failure to disclose foreign accounts, properties, or shares attracts heavy penalties.

Trusts, NGOs, and Charitable Institutions

FY 2025-26 compliance: Under IT Act 1961. Section 12A/12AB registration, Section 80G approval, ITR-7 filing - all under old Act. The transition to Registered Non-Profit Organisation (RNPO) framework under IT Act 2025 applies from Tax Year 2026-27. For trust and NGO registration services, the RNPO transition is managed as part of the compliance lifecycle.

The Transition Provisions: Section 536

Section 536 of IT Act 2025 is the bridge between the two Acts. Key provisions:

• Section 536(2): Despite the repeal of the 1961 Act, all rights, obligations, liabilities, exemptions, penalties, and proceedings under the old Act continue for pre-April 2026 periods.
• Section 536(2)(j): Circulars, notifications, instructions, and approvals issued under the old Act remain valid under the new Act - unless they conflict with the new provisions.
• Section 536(3): Any reference to a Tax Year under the new Act corresponds to the 'Previous Year' under the old Act. Tax Year 2024-25 = Previous Year 2024-25 = AY 2025-26.
• Dual portal support: The e-filing portal will support both Acts concurrently - old Act forms for FY 2025-26 and earlier, new Act forms for Tax Year 2026-27 onwards.

Common Mistakes to Avoid During Transition

1. 1. Do NOT use IT Act 2025 section numbers in FY 2025-26 filings. Your ITR for AY 2026-27, your tax audit report, and any correspondence for FY 2025-26 must reference the old Act. Using Section 150 (new) instead of Section 80C (old) for FY 2025-26 deductions is incorrect.
2. 2. Do NOT use IT Act 1961 section numbers for April 2026 TDS. From 1 April 2026, all TDS challans, certificates, and quarterly returns must reference Section 393 of IT Act 2025. Using old Section 194C on an April 2026 challan may cause rejection or misclassification.
3. 3. Do NOT assume pending assessments move to the new Act. An assessment for AY 2023-24, even if completed in 2027, remains under IT Act 1961. The new Act has no retrospective application.
4. 4. Do NOT confuse the filing year with the income year. Filing an ITR in July 2026 does NOT mean the new Act applies - if the income was earned in FY 2025-26, the old Act applies regardless of when you file.
5. 5. Do NOT forget to update software for April 2026. Payroll, accounting, and ERP systems must switch to new section references from 1 April 2026. The transition date is firm - there is no grace period. For GST and income tax compliance coordination, both systems need simultaneous updates.

Key Takeaways

The IT Act 2025 applies to income earned from 1 April 2026 (Tax Year 2026-27) onwards - your FY 2025-26 ITR (filed by July/October 2026) remains fully under the IT Act 1961, making this a clean, date-based transition with no overlap or ambiguity.

The governing principle is simple: the date the income was earned determines which Act applies - not when the return is filed, not when the assessment happens, and not when the Act was passed - meaning even orders passed in 2027 for AY 2023-24 income are under the old Act.

TDS is the first practical touchpoint of the new Act - from 1 April 2026, all TDS deductions, challans, and certificates must reference Section 393 of IT Act 2025, requiring immediate ERP and payroll updates with no grace period.

Section 536 provides comprehensive transitional protection - all rights, obligations, exemptions, pending proceedings, and existing circulars under the old Act continue for pre-April 2026 periods, with the e-filing portal supporting both Acts concurrently.

The five most common transition mistakes are: using new section numbers for old-year filings, using old section numbers for April 2026 TDS, assuming pending assessments migrate to the new Act, confusing filing year with income year, and not updating software by 1 April 2026.

Need Clarity on Which Act Applies to Your Situation? Ask Us

The transition between two Acts creates unique situations - especially for businesses with overlapping financial years, NRIs with cross-border income, and entities with pending assessments. One wrong section reference can trigger processing errors, defective return notices, or TDS mismatches.

Explore our income tax return filing services - FY 2025-26 filing under IT Act 1961, Tax Year 2026-27 preparation under IT Act 2025, dual-Act compliance management, and complete transition support.

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