Income Tax Act 2025: What Changes for Indian Businesses

The Income Tax Act 1961 governed Indian taxation for 65 years. It has been replaced by the Income Tax Act 2025, effective April 1, 2026. This is not a revision or amendment. It is a completely new statute.

For business owners who are used to referencing "Section 80C" or "Section 44AD" or "Section 194C," those section numbers no longer exist in the new law for income earned from April 1, 2026. They still apply to FY 2025-26 (AY 2026-27), whose returns are filed in 2026 under the 1961 Act. Here is what this means in plain language.

For a shorter, owner-focused summary of the income tax changes affecting SMEs from April 2026, including new ITR forms and TDS changes, see our companion guide.

What Changed in Simple Terms

1. The Law Is Shorter

The old Act had 819 sections accumulated over 65 years of amendments. Many provisions were outdated, conflicting, or redundant.

The new Act has 536 sections. Redundant provisions have been removed, overlapping sections merged, and the language simplified. This does not reduce your tax obligations, but it makes the law easier to navigate.

2. One "Tax Year" Instead of Two References

Under the old system:

• Financial Year (FY): When you earned the income
• Assessment Year (AY): When you filed the return and paid the tax

This caused confusion. "FY 2025-26" and "AY 2026-27" referred to the same income but different time frames.

Under the new Act:

• Tax Year 2026-27: Covers both earning and assessment

One term, one reference. Simpler for everyone.

3. Every Section Number Changed

This is the most operationally significant change. The entire Act has been renumbered:

• Investment deductions (old 80C, 80D, 80E) have new section numbers
• TDS provisions (old 194C, 194J, 194I) have new section numbers
• Presumptive taxation (old 44AD, 44ADA) has new section numbers
• Business income computation (old 28-44) has new section numbers

Your accounting software, TDS return templates, tax planning documents, and even your CA's advice letters will reference new numbers. If any of these still show old references, they need to be updated.

4. New Tax Regime Stays the Default

The new tax regime (lower rates, fewer deductions) has been the default for individuals, HUFs and AOPs since FY 2023-24, and Section 202 of the 2025 Act carries it forward. If you do nothing, the new regime applies.

For business owners, this is significant because:

• If the old regime is better for you (due to deductions), you must opt out by the return due date
• Once exercised, the option continues for later years
• It can be withdrawn only once; after that you cannot opt out again while you have business income (Section 202(4)(a))

Calculate your liability under both regimes before making a choice. Do not let the default apply without analysis.

5. New Return Forms From Tax Year 2026-27

Returns for FY 2025-26 (AY 2026-27), filed in 2026, use the ITR 1 to ITR 7 forms notified under the 1961 Act. Returns for Tax Year 2026-27, filed in 2027, will use forms prescribed under the 2025 Act and the Income-tax Rules, 2026, with section references to the new Act. Check the notified forms before that filing season.

What Has Not Changed

Not everything is different. These fundamentals remain:

• Your PAN and TAN are still valid
• GST is unaffected (it operates under a separate Act)
• Advance tax payment schedule remains the same (June 15, September 15, December 15, March 15)
• The concept of business income, salary income, and capital gains remain
• Tax audit thresholds have not changed
• Most TDS rates remain the same (only section numbers changed)

Action Items for Business Owners

Immediate (Do This Week)

1. Confirm your CA is updated. Ask specifically whether they have the new section mapping and whether your TDS return templates are updated.

2. Check your accounting software. Contact your software provider to confirm that new section numbers are reflected in TDS entries, challan generation, and report templates.

3. Decide on tax regime. Run calculations under both old and new regimes for your FY 2025-26 income, and exercise any old-regime option by the due date for that return.

Before Filing Season (By June 2026)

4. Download AIS from the e-filing portal. The Annual Information Statement now captures more data sources. Review it for accuracy.

5. Collect Form 16. For FY 2025-26 salary, the employer still issues Form 16. Form 130 replaces it for salary paid from April 1, 2026 (Tax Year 2026-27).

6. Verify advance tax credits. Check Form 26AS to confirm all advance tax payments from FY 2025-26 are reflected.

Ongoing

7. Update internal policies. If you have documented policies referencing old section numbers (vendor TDS policy, investment declaration forms), update the references.

8. Communicate with vendors. If you deduct TDS, your vendors need to know their TDS credit will appear under new section numbers in Form 26AS.

How ClearTax and Others Are Covering This

ClearTax has published comprehensive guides covering the top 15 changes under the new Act. TaxBuddy has comparison content between the old and new Acts. IndiaFilings is marketing AI-powered compliance tools alongside the new Act transition.

As a business owner, the most important thing is not which content you read. It is whether your compliance systems, your CA, and your software are actually updated. Reading about the changes is Step 1. Implementing the updates is where most businesses fall behind.

The Risk of Doing Nothing

If you do not update your compliance systems:

• TDS returns for deductions made from April 1, 2026 that use old section numbers can fail validation or mismatch credits
• Vendors will not see TDS credits in their Form 26AS, leading to disputes
• ITR filed under the wrong regime could result in higher tax liability
• Deductions claimed under old section references may not be processed correctly
• Assessment proceedings may reference sections you do not recognize

Let Tax Garden Handle the Transition

Updating every aspect of your tax compliance for a new statute is exactly the kind of work that benefits from professional support. Tax Garden's tax compliance team updates your compliance setup, files returns with correct section references, and ensures your transition to the new Act is smooth.

Frequently Asked Questions

Does the Income Tax Act 2025 apply to the ITR I file in 2026?

No. The return filed in 2026 for FY 2025-26 (AY 2026-27) is governed by the Income-tax Act, 1961, with its old section numbers such as 80C and 44AD. The 2025 Act applies to income earned from 1 April 2026, which is Tax Year 2026-27, and its first returns will be filed in 2027.

Which section numbers should my TDS returns use after April 2026?

TDS statements for deductions made in FY 2025-26, including the January to March 2026 quarter filed after April, relate to the 1961 Act and its existing sections such as 194C and 194J. Deductions made from 1 April 2026 fall under the Income-tax Act, 2025, where TDS provisions are consolidated in Section 393, so software must handle both.

Did tax slabs or TDS rates change because of the new Act?

The new Act is mainly a rewrite and renumbering of the law, not a change in rates. The new regime slabs introduced by Finance Act 2025, with income up to Rs 12 lakh effectively tax-free for residents, continue. Most TDS rates and thresholds carried over, but check each payment type against the new section table.

Is GST affected by the Income Tax Act 2025?

No. GST is levied under the CGST Act, 2017 and the state GST laws, which are separate from income tax. The replacement of the Income-tax Act, 1961 does not change GST rates, returns or registration. Businesses still file GSTR-1 and GSTR-3B exactly as before.

Can a business owner still choose the old tax regime under the new Act?

Yes. The new regime remains the default, but an individual or HUF with business income can opt for the old regime by filing the prescribed form before the return due date. Once they opt out, they can return to the new regime only once, so compare the tax under both before deciding.