Income-Tax Act, 2025, Income-Tax Rules, 2026 Keep 1961 Act Alive for Old Years

(INDIA) — India brought the Income-tax Act, 2025 and the Income-tax Rules, 2026 into effect from 1 April 2026, replacing the 1961 Act as the principal direct tax statute while preserving the old law for earlier years, pending proceedings and continuing liabilities.

The Central Board of Direct Taxes also released an official mapping utility between the Income-tax Act, 1961 and the new law, along with a detailed FAQ compendium on how the transition will work.

The shift marks a statutory overhaul, but not a full break with the past. The transition framework keeps the 1961 Act alive for many matters even after the new law starts.

A central clarification from the CBDT is that there is no “missing year” and no overlap. Income earned during FY 2025–26 remains governed by the 1961 Act and will be assessed as AY 2026–27.

From 1 April 2026 onward, income falls under the Income-tax Act, 2025 and will be assessed for Tax Year 2026–27 and later years. That creates a clean dividing line by date of income, even though both statutes will continue to matter during the transition.

For taxpayers, the practical rule is simple. Income up to 31 March 2026 stays under the old law, and income from 1 April 2026 moves to the new one.

Even so, the 1961 Act does not disappear from active use. The CBDT FAQs say revised returns, belated returns, updated returns, scrutiny proceedings and other matters relating to AY 2026–27 and earlier years will continue under the 1961 Act.

That continuity extends far beyond filing. Section 536, the saving clause in the new law, preserves the operation of the old statute for assessment, reassessment, rectification, appeal, penalty, revision and similar proceedings for years beginning before 1 April 2026.

That means a notice issued after the new law takes effect can still be governed by the 1961 Act if the dispute relates to an earlier year. Search and requisition cases receive the same treatment.

Where a search under section 132 or requisition under section 132A started before the commencement of the new law, the FAQ says the entire proceeding, including assessment, reassessment, penalty and appeal, continues under the 1961 Act as if the new Act had not been enacted.

The government has framed the new law as a simplification exercise rather than a tax increase. The CBDT FAQs say the Income-tax Act, 2025 “does not impose any new tax” and aims to simplify language, improve structural clarity, reduce interpretational disputes, align drafting with modern legislative standards, and improve voluntary compliance.

The scale of the rewrite is large. The Income-tax Act, 2025 contains 536 sections and 16 schedules, compared with 819 sections and 14 schedules in the 1961 Act.

The rules have also been compressed. The government says the Income-tax Rules, 2026 reduce the framework from 511 rules with 399 forms to 333 rules with 190 forms.

Officials have described that as the result of moving explanations and provisos into the main text, replacing long narrative passages with tables and formulas in many places, removing redundant provisions and reorganising chapters into a more logical order. In substance, the shift is designed to change legislative architecture more than tax policy.

One of the most visible changes is language. The new statute replaces “previous year” and “assessment year” with “tax year.”

Under the new framework, a tax year is generally a period of twelve months contained in a financial year. The law also allows a shorter period in some cases, such as when a business is newly set up in the middle of the year.

That change goes to the charging structure as well. Instead of the old drafting that worked through “previous year” and “assessment year,” the new law charges tax directly on the total income of the tax year, at the rates provided for that tax year by the relevant Central Act, subject to the Income-tax Act, 2025.

The transition language tries to avoid any legal gap. Section 536(3) provides that a reference in the new law to a tax year starting on 1 April 2025 or earlier should be read as a reference to the corresponding previous year under the old Act.

For tax professionals and tax officers, one consequence of the rewrite is that familiar section numbers may no longer guide navigation. The chapter structure has been reordered, so old and new section numbers do not necessarily match in sequence or placement.

That is where the CBDT’s mapping utility becomes important. It helps users identify corresponding provisions between the 1961 Act and the new statute, though the official material also makes clear that a mapped provision is a navigation aid and not proof that wording, scope or legal effect are identical.

The Income-tax Rules, 2026 are central to the transition, not a side document. The CBDT notified them on 20 March 2026 under section 533 of the Income-tax Act, 2025, and they took effect on 1 April 2026 with the Act itself.

The compliance impact lies in forms, definitions and reporting architecture. PAN application forms have been restructured into separate category-specific forms, TAN application has been split and several older forms have been replaced with new numbered forms under the Income-tax Rules, 2026.

The tax audit framework also changes in format. The FAQ says old forms 3CA, 3CB and 3CD have been consolidated into a single smart unified Form 26 with structured and standardised reporting.

For many taxpayers, that means the legal burden may not change sharply, but the compliance interface will. Accountants, companies and individual filers will have to work through new forms and reorganised procedural steps even where the underlying liability remains similar.

Tax deducted at source illustrates that mix of continuity and redesign. The CBDT FAQs say TDS rates and monetary thresholds have largely been retained, while the new law reorganises TDS provisions through section 393 and related tables.

So the substance remains broadly familiar, but the layout and administration have changed. That matters because FY 2026–27 may require deductors to work under both the old and new systems in different quarters.

The FAQ says a deductor may have to file TDS returns under both Acts during FY 2026–27: old forms for the quarter relating to Jan–Mar 2026, and new forms under the 2025 Act and Income-tax Rules, 2026 for Apr–Jun 2026 onward.

The new filing structure includes Form 138 in place of old Form 24Q, Form 140 in place of old Form 26Q, Form 144 for non-resident TDS and Form 143 for TCS. That dual-track year is likely to be one of the most practical tests of the transition.

Some procedural changes look more like clarification than disruption. Revision jurisdiction remains tied to the condition that the order must be both erroneous and prejudicial to the interests of the revenue.

The new law keeps the outer limitation at two years from the end of the financial year in which the order sought to be revised was passed. At the same time, it more clearly lists excluded periods and introduces a 60-day minimum residual period rule where the remaining period would otherwise fall below 60 days.

The Act also consolidates presumptive taxation schemes for residents that were earlier spread across sections 44AD, 44ADA and 44AE. The new law places them in section 58 in a tabular, simplified format.

Administrative systems are set to continue with updated interfaces rather than start from scratch. The FAQ says existing PAN, TAN, faceless assessment and faceless appellate mechanisms continue under the new law.

That continuity matters for both taxpayers and administrators. It suggests the government intends statutory modernization without dismantling the tax administration system built under the 1961 Act.

The transition has particular importance for NRIs and cross-border taxpayers. The FAQ includes a separate topic covering residential status, continuation of exemptions and the special regime earlier contained in sections 115D to 115I.

For tax years beginning before 1 April 2026, residential status will still be determined under the 1961 Act even if reassessment or another proceeding happens later. For tax years beginning on or after 1 April 2026, residential status falls under the Income-tax Act, 2025.

The official material also says the core features of the special NRI taxation regime remain unchanged. It says the corresponding provisions in the new law substantially reproduce the old regime on investment income, concessional taxation, reinvestment exemption, lock-in conditions and claw-back mechanisms.

The FAQ also says the return-filing exemption corresponding to old section 115G and the continuation benefit corresponding to old section 115H are retained in substance. That means prior elections and benefits can continue to have legal effects after the new law begins.

The government gives one example of how the old and new laws can interact. If an NRI claimed exemption under old section 115F and later transferred the new asset after the Income-tax Act, 2025 came into force but within the lock-in period, the claw-back liability continues to arise under the 1961 Act because that was the law that granted the original exemption.

That principle runs across the transition. The applicable statute will often depend on the year involved, when the right or liability arose and what section 536 preserves.

For practitioners, the biggest challenge may be navigation rather than policy shock. The law has been renumbered, chapters have moved and forms have changed, but older years will continue to generate active litigation, compliance and assessment work under the 1961 Act.

The CBDT’s own guidance places the two laws side by side for several years. For income from 1 April 2026 onward, taxpayers will begin with the Income-tax Act, 2025 and the Income-tax Rules, 2026. For FY 2025–26, AY 2026–27 and earlier years, they will continue to use the 1961 Act.

Transition cases will demand both. That includes grandfathering, continuing options, prior exemptions, old searches, pending reassessments and appeals tied to earlier years.

The CBDT FAQ says it is meant for general guidance and does not constitute a binding interpretation of law. In case of conflict, the statutory provisions prevail.

That caveat leaves the courts and tax authorities to interpret edge cases over time. For now, the government’s message is that the Income-tax Act, 2025 is a restructuring of India’s direct tax code, while the 1961 Act remains the governing law for a wide range of older years and continuing consequences that do not end on 1 April 2026.