The Income-tax Act, 2025 replaced the Income-tax Act, 1961 with effect from tax year 2026-27. Six months in, most businesses have handled the headline changes — but a few transition details are still catching finance teams out. Here is what has actually changed and what to check before the next filing cycle.
Why the Act was rewritten
The 1961 Act had been amended so many times over six decades that it had become difficult to navigate — cross-references, provisos on provisos, and redundant provisions carried forward from a pre-liberalisation economy. The 2025 Act is a language and structure simplification exercise rather than a policy overhaul: the government's stated intent was to halve the word count and remove ambiguity, not to change the substantive tax base.
What actually changed
- "Tax year" replaces "previous year" and "assessment year" — a single, intuitive period aligned to the financial year, removing the dual-year terminology that regularly confused new taxpayers and, occasionally, drafting in contracts and board resolutions.
- Section renumbering — most provisions have been moved and renumbered as part of the restructuring. Internal policies, tax opinions, and standard contract clauses that cite specific sections of the 1961 Act (e.g. TDS, capital gains, or exemption sections) need to be checked against the new numbering.
- Consolidated TDS/TCS provisions — the numerous scattered TDS and TCS sections have been brought together in a more consistent structure, which simplifies compliance mapping but requires updating any internal TDS-rate ready-reckoners built against the old section numbers.
- Simplified drafting, same substantive rates and reliefs — exemptions, deductions, and tax rates carried forward largely unchanged in substance; the risk is procedural (wrong section cited, wrong form referenced) rather than a change in tax liability itself.
The tax base has not moved. The risk this year is entirely procedural — wrong section references, stale templates, and contracts still pointing at the 1961 Act.
What is still governed by the 1961 Act
The 2025 Act does not retrospectively reopen matters. Assessments, appeals, and proceedings pending as of the transition date continue under the 1961 Act's machinery provisions until concluded. Businesses with open litigation, pending refunds, or assessments in progress should keep their existing advisors and case files referenced to the old Act — do not re-paper pending matters under the new section numbers.
Practical transition checklist
- Audit all standard contracts, NDAs, and vendor agreements that reference "the Income-tax Act, 1961" by section number — update or add a savings clause pointing to the corresponding 2025 Act provision.
- Update internal TDS/TCS rate cards and payroll system configurations to the new section references before the next return cycle.
- Re-map any board-approved tax positions, transfer pricing documentation, and internal SOPs that cite old section numbers.
- Confirm with your compliance software vendor (payroll, GST-linked TDS, ERP tax modules) that section mapping has been updated — several mid-market ERP configurations lag official notifications by a quarter or more.
- Brief your finance and legal teams on the terminology change ("tax year") so filings, board minutes, and disclosures use consistent language going forward.
DeccanBridge guidance
Our tax advisory team is running section-mapping reviews for clients transitioning standard contracts and internal tax documentation to the 2025 Act, alongside our existing GST and statutory audit engagements from our two Telangana centres. For a quick check of which of your documents reference the old Act, get in touch.
Contact: connect@deccanbridge.com or +91 94922 01497.