New Income Tax Act, 2025 in Effect but ITR Filing Still Under 1961 Law, Says CBDT

Taxpayers filing returns in July 2026 must use the Income Tax Act, 1961 for income earned during FY 2025-26, even though the new statute took effect on April 1, 2026. The return covers income earned from April 1, 2025, through March 31, 2026.

The new Income Tax Act, 2025 applies prospectively. Income earned on or after April 1, 2026 falls under the replacement framework, while the current filing season remains tied to the law that governed the period when the money was earned.

The Central Board of Direct Taxes (CBDT) has clarified that taxpayers do not need to submit two returns during the changeover. FY 2025-26 income is reported for AY 2026-27 using the existing rules and forms.

The filing deadline is July 31, 2026. The date of filing does not determine which statute applies.

The return due in 2026 belongs to the old assessment cycle

FY 2025-26 ended on March 31, 2026, one day before the new law began. That timing keeps the year’s deductions, exemptions, penalties, assessments and return forms under the earlier legislation.

Taxpayers should therefore select the AY 2026-27 ITR forms for the return being filed now. The “Previous Year” and “Assessment Year” terminology still governs this cycle.

A return filed in 2026 can report only the income earned in the preceding financial year. Income received or generated after April 1, 2026 belongs to a later filing period, even if a taxpayer submits the return before the current deadline.

The new framework starts with income earned after April 1

The replacement law introduces a single “Tax Year” structure instead of separating the period of earning from the later assessment period. Tax Year 2026-27 will cover income earned and taxed from April 1, 2026, to March 31, 2027.

That return will be filed in 2027. It will be the first filing cycle based on the new framework rather than AY 2026-27 under the former structure.

The transition changes the governing law by income period, not by the calendar date printed on an ITR submission. That is why taxpayers can see the new statute in force while still completing returns under the earlier one.

Parliament approved a shorter code, but implementation continues

Parliament passed the new law on August 11, 2025, and the president gave assent on August 21, 2025. It came into force on April 1, 2026.

The statute reduces the code from 819 sections to 536. The rules fall from 511 under the 1962 Rules to 333 under the 2026 Rules. Forms are reduced from 399 to 190, while the text falls from approximately 5.12 lakh words to 2.6 lakh words.

The changes are designed to replace lengthy narrative provisions with simpler language, tables and formulas. They do not move FY 2025-26 income into the new legal regime.

Ravi Agrawal, chairman of the tax board, told officials on January 1, 2026:

“With the Income Tax Act 2025 notified and scheduled to take effect on 1 April, 2026. new rules, procedures and forms are under formulation and training and capacity building are already underway.”

He later said the policy side had been left untouched while officials focused on simplification and removing redundancies. “Clarity and simple language reduce chances of litigations,” Agrawal said on February 8, 2026.

New allowances apply to the new rules, not this year’s return

The Income-tax Rules, 2026 were established through CBDT Notification No. 22/2026, dated March 20, 2026. Their provisions include several changes that taxpayers will encounter under the new framework.

The 50% “Metro” HRA benefit expands from four cities to eight. Ahmedabad, Bengaluru, Hyderabad and Pune join the cities eligible for that treatment.

The updated allowances also raise children’s education allowance to ₹3,000 per month per child and hostel expenditure allowance to ₹9,000 per month per child. Employer-provided medical loans of up to ₹2,00,000 become tax-free, compared with the earlier limit of ₹20,000.

The new framework also strengthens presumptive taxation for small businesses and professionals, with the stated aim of reducing the audit burden. These provisions concern income covered by the new rules, rather than the FY 2025-26 return now being prepared.

Tax professionals say one return is required for this transition

CA Abhishek Soni, CEO and co-founder of Tax2win, said taxpayers have no requirement to file two separate returns. The 1961 Act remains the valid framework for current filings, he said.

Industry groups have welcomed the broader change. Sanjiv Puri, president of CII, described the transition as a “strong template for boosting growth.” Cyril Shroff, managing partner at Cyril Amarchand Mangaldas, said the budget signaled an intent to “embrace regulatory reform.”

Their comments concern the direction of the reform, not the legal treatment of income from the year that ended March 31, 2026.

A separate technology effort is also aimed at the changeover. Deloitte India partner Sumit Singhania highlighted “Tax Pragya,” an artificial-intelligence tool launched on December 9, 2025, to help professionals work between the two statutes. The tool uses more than 1.2 million tax cases.

The administrative transition will continue under Agrawal, whose six-month contract extension, through December 31, 2026, received approval from the Appointments Committee of the Cabinet on June 30, 2026.

The filing sequence now runs across two legal regimes

The immediate filing sequence is straightforward:

1. Report income earned during FY 2025-26, from April 1, 2025, to March 31, 2026.
2. Use the AY 2026-27 ITR forms and rules.
3. Apply the earlier law’s deductions, exemptions, penalties and assessment provisions.
4. Apply the new Tax Year framework to income earned from April 1, 2026, onward.

The new structure will first affect income earned during Tax Year 2026-27. Until then, the return due by July 31, 2026, remains part of the previous assessment-year system.

This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA about your specific situation.