Income Tax Act 2025 Takes Effect April 1: Top 10 Changes Every Taxpayer Must Know
The 1961 Act Is Gone. Here Is What Replaces It.
April 1, 2026 marks one of the most significant dates in Indian tax history. The Income Tax Act, 2025, which received Presidential assent on March 29, 2025, officially replaces the 64-year-old Income Tax Act, 1961. Alongside it, the Income Tax Rules, 2026, notified by CBDT vide Notification No. 22/2026 dated March 20, 2026, provide the procedural framework.
Whether you are a CA advising clients, a startup founder managing compliance, or a salaried professional filing returns, the changes are structural, not cosmetic. This article breaks down the 10 most important changes that take effect today.
1. “Tax Year” Replaces Assessment Year and Financial Year
The dual concept of Financial Year and Assessment Year is abolished. Under Section 2(94) of the new Act, a single “Tax Year” now governs both earning and assessment. Tax Year 2026-27 runs from April 1, 2026 to March 31, 2027. Income earned in a tax year is assessed within that same tax year.
For startups: If a business is newly set up on June 1, 2026, its first tax year runs from June 1, 2026 to March 31, 2027. No more confusion between AY and FY on ITR forms.
2. Simplified Structure: 536 Sections Replace 819
The old Act had 819 sections across 47 chapters, with over 1,200 provisos and 900 explanations. The new Act has 536 sections across 23 chapters and 16 schedules. Redundant provisions are removed. Cross-references are reduced. Language is simplified. The total legislative volume is reduced by approximately 40%.
The Income Tax Rules, 2026 similarly trim 500+ rules down to 333 rules.
3. TDS Consolidated Under Sections 392-393
This is the change CAs and payroll professionals will feel most. The 30+ TDS sections (Sections 192 through 194T of the old Act) are now consolidated:
- Section 392: TDS on salary (replaces Section 192)
- Section 393: TDS on all other payments, organized into three structured tables for residents, non-residents, and any person, with rates, thresholds, and conditions in a single readable format
Practical impact: Instead of looking up Section 194C for contractor payments, Section 194J for professional fees, and Section 194I for rent separately, all TDS provisions are now in one consolidated section with clear tables.
4. New TDS Certificate: Form 130 Replaces Form 16
The familiar Form 16 is replaced by Form 130. This is the new TDS certificate for salary, pension, and specified senior citizen interest income under Section 395. Employers must issue Form 130 going forward.
Payroll software providers should already have updated templates. Verify with your vendor before June 15, 2026 (the typical Form 16 issuance deadline under the old Act).
5. HRA Exemption Now Covers 8 Cities at 50%
Under the new Income Tax Rules, 2026, the 50% HRA exemption (previously available only in Delhi, Mumbai, Chennai, and Kolkata) now extends to Bengaluru, Pune, Hyderabad, and Ahmedabad. Eight cities now qualify for the higher exemption.
Impact for salaried employees: If you are employed in Bengaluru and paying rent, your HRA exemption calculation improves immediately. Employers should update salary structures and HRA computation logic in payroll software from April 2026 onwards.
6. Capital Gains Reorganised Under Dedicated Clauses
The capital gains regime is preserved but reorganised for clarity:
- Clause 67: Defines what constitutes capital gains
- Clauses 196-198: Split out tax treatment across short-term equity, long-term non-equity, and long-term equity assets respectively
Buyback taxation change: From April 1, 2026, amounts received on buyback of shares will be taxed as capital gains in the hands of the shareholder. This reverses the earlier position where buyback was taxed as deemed dividend under Section 115QA of the old Act.
7. TDS on Property Purchase from NRIs Simplified
Buyers purchasing immovable property from Non-Resident Indians (NRIs) can now deduct TDS using their own PAN. The requirement to obtain a separate TAN for this transaction has been eliminated. This simplifies cross-border property transactions and removes a compliance step that often delayed closings.
8. ITR Filing Deadline Extended for Non-Audit Taxpayers
The due date for filing ITR-3 (business/profession income) and ITR-4 (presumptive income) for non-audit taxpayers has been extended from July 31 to August 31 of the relevant tax year. This gives an additional month to compile records and file accurately.
Audit-case deadlines remain at October 31.
9. TDS Correction Window Permanently Shortened
Under the new Act, the time limit for filing TDS/TCS correction statements is reduced from six years to two years. If you are a deductor, this means significantly less time to fix errors. File accurately the first time or face permanent records that cannot be corrected.
Critical reminder: As of March 31, 2026, the correction window for TDS statements filed under the old Act (FY 2018-19 to FY 2023-24 Q3) has permanently closed. TRACES will no longer accept corrections for those periods.
10. Digital Compliance Built Into the Framework
The new Act integrates digital transactions, electronic records, and digital assets into the statutory framework from the ground up. This is not a bolt-on amendment (like the 2022 crypto tax provisions were under the old Act). Virtual digital assets, digital record-keeping requirements, and electronic communication channels are now part of the base legislation.
Section Number Quick Reference
| Concept | Old Act (1961) | New Act (2025) |
|---|---|---|
| Salary TDS | Section 192 | Section 392 |
| TDS on Other Payments | Sections 194C/194J/194I etc. | Section 393 (consolidated) |
| Capital Gains Definition | Section 45 | Clause 67 |
| HRA Exemption | Section 10(13A) | Schedule-specific provisions |
| Advance Tax | Section 208-211 | Section 398-401 |
| Return of Income | Section 139 | Section 263 |
| Assessment | Sections 143-147 | Sections 268-275 |
| Penalties | Sections 270A-275 | Sections 460-470 |
What You Should Do This Week
For CA Professionals:
- Download the new section-mapping utility from the Income Tax Department website to cross-reference old and new section numbers
- Update all standard advisory templates, engagement letters, and compliance checklists to reference the new Act
- Brief clients on the Tax Year concept and the new TDS certificate (Form 130)
- Review ongoing assessments and appeals that may need transitional treatment under Section 536
For Founders and Startups:
- Confirm your payroll provider has updated for Form 130 and the expanded HRA city list
- If you have ESOP exercises or share buybacks planned, consult your CA on the new capital gains treatment
- Note the shorter TDS correction window; file accurately from Q1 of Tax Year 2026-27
For MSME Owners:
- Update your TDS compliance process: the section numbers have changed, and your accounting software should reflect Section 393
- Take advantage of the extended ITR-4 deadline (August 31 instead of July 31) for better preparation
- Review vendor TDS deductions for Q1 filings under the new Act
Looking Ahead
The Income Tax Act, 2025 is the most significant reform of India’s direct tax framework in over six decades. While the tax rates remain unchanged, the structural overhaul, simplified language, and consolidated provisions will reshape daily compliance for every taxpayer. The first 90 days (April to June 2026) will be the adjustment period. Use it wisely.
Need help navigating the transition from the old Act to the new one? Our team specializes in tax compliance advisory for startups, MSMEs, and CA firms managing multiple clients.
Talk to an Expert at A S Banka Advisors Private Limited for a quick call on how these changes affect your specific situation.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. The provisions discussed are based on the Income Tax Act, 2025 and Income Tax Rules, 2026 as notified. Readers should consult a qualified professional for advice specific to their circumstances.