Income Tax Act 2025 Explained: What Changes From 1 April 2026

The Income-tax Act, 2025 (Act 30 of 2025) comes into force on 1 April 2026 and repeals the Income-tax Act, 1961. It extends to the whole of India, and it uses one term for the period you are taxed on: the "tax year", which is normally the 12-month financial year starting 1 April (shorter for a newly set-up business or source). The first tax year under it is 2026-27. Cases and rights from the old law do not vanish; section 536 says which of them continue.

This guide is based on the Act as amended by the Finance Act, 2026, and cites each section so you can check it. It covers the commencement date, the tax year, the charge of tax, and the repeal and savings rules. Last reviewed against that text on 10 November 2026.

When does the Income-tax Act, 2025 come into force?

Section 1(3) says that, unless the Act provides otherwise, it comes into force on 1 April 2026. Section 1(1) gives the short title, "Income-tax Act, 2025", and section 1(2) says it extends to the whole of India. The President gave assent on 21 August 2025.

Section 536(1) then states, in one line, that the Income-tax Act, 1961 "is hereby repealed".

What is a "tax year" under the Income-tax Act, 2025?

Section 3(1) defines "tax year" as the twelve-month period of the financial year commencing on 1 April. For the first year, that is 1 April 2026 to 31 March 2027, called tax year 2026-27 in this article.

Section 3(2) covers a business or profession newly set up, or a source of income newly coming into existence, during a financial year. The tax year for it begins on the date of setting up (or the date the source comes into existence) and ends with that financial year. So it can be shorter than twelve months.

For earlier years, section 536(3) says that any reference in the Act to a tax year commencing on 1 April 2025 or earlier is read as a reference to the corresponding "previous year" under the repealed Act.

Worked example 1: the first tax year of a new business

Assumption: Ravi starts a consulting business on 1 August 2026. Under section 3(2)(a), his tax year for this business begins on 1 August 2026 and ends on 31 March 2027.

Month	Days counted
August 2026	31
September	30
October	31
November	30
December	31
January 2027	31
February	28
March	31
Total	243 days, not 365

His next tax year is the full 2027-28 (1 April 2027 to 31 March 2028).

What does the Act charge tax on?

Section 4 is the charging section. In short:

• Section 4(1): where a Central Act (for example, a Finance Act) sets rates of income-tax for a tax year, tax is charged at those rates, subject to this Act.
• Section 4(2): the charge is on the total income of the tax year of every person.
• Section 4(3): income-tax includes any additional income-tax, by whatever name called, levied under the Act.
• Section 4(4): if the Act says income of a period other than the tax year is to be charged, it is charged accordingly.
• Section 4(5): on income chargeable under this section, tax is deducted or collected at source, or paid in advance, as the Act provides.

Section 4 itself does not list rates; for individuals, HUFs and similar persons, the default slab table sits in section 202 (see the next section). Other rates come from the annual Finance Act or the provision that charges that income.

What are the income tax slabs and key due dates under the Act?

For an individual, HUF, association of persons (other than a co-operative society), body of individuals or artificial juridical person, section 202(1) computes tax on total income for a tax year at the rates below, unless the person exercises the option in section 202(4) to be taxed otherwise. The option is made on or before the section 263(1) due date if you have business or profession income, and along with the return if you do not. For a business-income person it applies to later years too and can be withdrawn only once.

Total income (Rs)	Rate (section 202(1))
Up to 4,00,000	Nil
4,00,001 to 8,00,000	5%
8,00,001 to 12,00,000	10%
12,00,001 to 16,00,000	15%
16,00,001 to 20,00,000	20%
20,00,001 to 24,00,000	25%
Above 24,00,000	30%

Under section 156(2), a resident individual taxed under section 202(1) whose total income does not exceed Rs 12 lakh gets a deduction from tax of 100% of the tax or Rs 60,000, whichever is less. Above Rs 12 lakh, section 156(2)(b) limits the tax to the amount by which income exceeds Rs 12 lakh, where that is lower. Section 202(2) bars many deductions and exemptions in this computation, so check the list before assuming a deduction survives.

Two other provisions are worth knowing. All tax deduction at source on payments to residents is in one table in section 393. And return due dates are in the section 263(1)(c) table:

Who	Due date (after the tax year ends)
Any other assessee, such as a salaried individual	31 July
Business or profession, accounts not required to be audited (where section 172 does not apply)	31 August
Company, or assessee whose accounts must be audited (where section 172 does not apply)	31 October
Where section 172 applies	30 November

The rules are separate: the Income-tax Rules, 2026 (G.S.R. 198(E), dated 20 March 2026, made under section 533) also came into force on 1 April 2026. Section 535 lets the Central Government remove difficulties in applying the Act by order, including adaptations for how the 1961 Act applies to tax year 2025-26 or earlier. No such order can be made after three years from 1 April 2026.

What happens to old-law cases after the 1961 Act is repealed?

Section 536(2) is a savings clause. It lists what continues despite the repeal. The main points:

Situation	What section 536 says	Clause
Past actions, rights, liabilities	Nothing in the repeal affects the previous operation of the 1961 Act, or any right, privilege, obligation or liability already acquired, accrued or incurred	536(2)(a), (b)
Proceedings pending on 1 April 2026, or started on or after it, for tax years that began before 1 April 2026	The 1961 Act continues to apply, with its procedure (notices, assessment, reassessment, recomputation, rectification, penalty, reference, revision, appeals)	536(2)(c)
Penalty for those earlier tax years	May be initiated and imposed under the 1961 Act as if the new Act had not been enacted	536(2)(d)
Pending appeals, applications, references before authorities, the Appellate Tribunal or courts	Continued and disposed of as if the new Act had not been enacted	536(2)(e)
Elections, declarations, options made under the 1961 Act and in force just before commencement	Deemed made under the corresponding provision of the new Act	536(2)(f)
Interest on refunds or on default, for earlier-year proceedings	1961 Act provisions apply for the period on or after 1 April 2026, but the interest rate is the one in the corresponding provision of the new Act, from the date that rate was modified under it	536(2)(g)
Deductions or exemptions given for an earlier tax year on conditions that are later breached	The sum is deemed income of the later tax year and taxed under the same head as under the 1961 Act	536(2)(h)
Searches under the 1961 Act before commencement	1961 Act continues for connected proceedings	536(2)(v)
Notifications, circulars, approvals, rules and schemes under the 1961 Act	Deemed issued under the corresponding provision, so far as not inconsistent with the new Act	536(2)(j)

Section 536(4) adds that section 6 of the General Clauses Act, 1897 applies to the effect of repeal, without prejudice to section 536(2).

Real-life example 1: a pending notice

Meena received a notice in February 2026 for her 2023-24 return and has not responded. The proceeding is pending on 1 April 2026 and relates to a tax year that began before that date. Under section 536(2)(c) it continues under the 1961 Act, with that Act's procedure. The repeal does not close it, and a penalty for that year can still be imposed under the old Act (section 536(2)(d)).

Real-life example 2: an option already exercised

A firm made an election under the 1961 Act that is still in force on 31 March 2026. Section 536(2)(f) treats it as made under the corresponding provision of the new Act. Whether a particular election has a corresponding provision is a question to check provision by provision.

Can I still carry forward losses from before 1 April 2026?

Yes. Section 536(2)(m) and (n) preserve brought-forward losses. Losses under the heads below are set off and carried forward against income computed under the new Act, in the manner provided in the old section named in the Table:

Loss under	Section of the repealed Act
Income from house property	71B
Profits and gains of business or profession	72
Speculation business	73
Specified business	73A
Owning and maintaining race horses	74A
Capital gains (long-term or short-term)	74 (clause (n))

Capital losses can be set off against capital gains computed under the new Act for tax years beginning on or after 1 April 2026, up to eight financial years immediately succeeding the financial year in which the loss was first computed under the old Act.

Worked example 2: a brought-forward business loss

Assumptions: Ravi had a business loss of Rs 5,00,000 computed for 2024-25 and not yet set off. In tax year 2026-27 his business profit is Rs 8,00,000. The loss comes under row 2 of the Table (section 72 of the repealed Act). This example shows only this one set-off and ignores other income and deductions.

Step	Amount (Rs)
Business profit, tax year 2026-27	8,00,000
Less: brought-forward business loss set off	(5,00,000)
Business income after set-off	3,00,000
Loss left to carry forward	Nil

Worked example 3: capital loss carried forward and the eight-year window

Assumptions: Meena computed a short-term capital loss of Rs 3,00,000 in financial year 2022-23. In tax year 2026-27 she has capital gains of Rs 1,80,000 under the new Act. The set-off follows the manner provided in the repealed Act (clause (n)), which this example assumes allows it in full.

Step	Amount (Rs)
Capital loss brought forward	3,00,000
Capital gains, tax year 2026-27	1,80,000
Loss set off (the lower of the two)	(1,80,000)
Capital gains after set-off	Nil
Loss still to carry forward	1,20,000

The eight financial years succeeding 2022-23 are 2023-24 through 2030-31. Meena can use the remaining Rs 1,20,000 up to 2030-31, in the manner the repealed Act provides.

What else carries over from the old law?

• Tax credit carry-forward: credit under sections 115JAA or 115JD of the old Act is deemed eligible for credit under the corresponding provisions or section 206(3) or (4) of the new Act (section 536(2)(l)).
• Capital allowances and deferred expenditure: amounts carried forward under old sections 32(2) or 35(4) are added to capital allowances for 2026-27 (clause (r)). Deductions under old sections 35ABA, 35ABB, 35D, 35DD, 35DDA, 35E and the first proviso to section 36(1)(ix) continue when their conditions are met (clause (s)).
• Bad debt provision: the credit balance under old section 36(1)(viia) on the last day of the tax year beginning 1 April 2025 is added to the corresponding amount for 2026-27 (clause (t)).
• Amalgamation and co-operative bank set-offs: if the conditions in old sections 72A or 72AB are breached later, the earlier set-off becomes income under the new Act (clauses (o) and (p)).
• Recovery: any sum payable under the old Act may be recovered under the new Act, without prejudice to recovery action already taken (clause (i)).
• Expired time limits: if the period for an application, appeal, reference or revision under the old Act had already expired on or before commencement, a longer period in the new Act does not revive it (clause (k)).

Quick reference

Point	Rule	Where
Commencement	1 April 2026	Section 1(3)
Tax year	12 months of the financial year from 1 April; shorter for a new business or source	Section 3(1), (2)
Charge	Total income of the tax year of every person	Section 4(2)
Old-law proceedings	Continue under the 1961 Act for tax years that began before 1 April 2026	Section 536(2)(c)
Capital loss window	Eight financial years after the year it was first computed	Section 536(2)(n)
References to 2025-26 and earlier	Read as the corresponding previous year of the 1961 Act	Section 536(3)

Common mistakes

• Assuming old notices lapse on 1 April 2026. Pending and new proceedings for earlier tax years continue under the 1961 Act (section 536(2)(c), (e)).
• Writing "tax year 2026-27" for a new business and counting 12 months. A business set up mid-year has a shorter first tax year under section 3(2).
• Writing off brought-forward losses. Losses in the section 536(2)(m) Table, and capital losses under clause (n), carry forward to the new Act. Keep the year each loss arose, because the capital loss window is counted from it.
• Forgetting the breach rule. A deduction allowed earlier on conditions can become income of a later tax year if the conditions are broken (clause (h)).
• Using the old interest rate for pending cases. For refunds and defaults on or after 1 April 2026 in earlier-year proceedings, the old Act's provisions apply but with the new Act's rate (clause (g)).

What should a CA or taxpayer do now?

Keep two lists: matters still running under the 1961 Act, and work that falls under the new Act. For example, for TDS you can read how rent is handled in our guide to TDS on rent under the Income-tax Act, 2025.

A CA firm carries both lists across many clients at once. Finexo's practice management software lets you track pending notices, assessments and due dates per client under one calendar, so old-law and new-law work stay separate. It does not file returns or give legal opinions.

Where this is in the Act

• Section 1: short title, extent and commencement
• Section 3: definition of "tax year"
• Section 4: charge of income-tax
• Sections 156, 202: rebate and default slab table; section 263: return and due dates; section 393: TDS; sections 533 and 535: rules and removal of difficulties
• Section 536: repeal and savings (sub-section (2) clauses (a) to (v), sub-section (3) for references to earlier tax years, sub-section (4) for the General Clauses Act)

This article explains the Income-tax Act, 2025 (as amended by the Finance Act, 2026). It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.