The New Income-tax Act, 2025, Explained: 'Tax Year' Replaces Assessment Year, and What Changes for You

• The new Act took effect on April 1, 2026, and the 1961 Act was repealed from that date.
• "Tax year" replaces both "previous year" and "assessment year".
• The law shrinks from 819 sections to 536, and the tax rules from 511 to 333.
• No new tax is imposed, and your PAN stays valid.
• Income earned up to March 31, 2026 is still taxed and filed under the old Act.

The biggest change: one "tax year"

Under the old law, every taxpayer had to juggle two years. Income earned in the financial year 2025-26 (the "previous year") was assessed in the assessment year 2026-27. Many people found this confusing.

The new Act uses a single idea: the tax year, which runs from April 1 to March 31. Income you earn between April 1, 2026 and March 31, 2027 belongs to Tax Year 2026-27, and that is also the label used when you file. For a new business, the first tax year runs from the date it starts to the following March 31.

When will you first file under the new law?

Not yet. Here is the timeline:

1. Income earned up to March 31, 2026 (financial year 2025-26) is filed in 2026 under the old Act, for assessment year 2026-27, the last assessment year the system will use.
2. Income earned from April 1, 2026 (Tax Year 2026-27) is filed in 2027, under the new Act.

Any tax case or proceeding already under way, or relating to years before April 2026, continues under the old law.

What is simpler about the new Act

According to the Income Tax Department, the new law:

• folds long "explanations" and "provisos" into the main text, so you don't have to read a rule and then its exceptions separately;
• uses tables and formulas instead of long paragraphs;
• removes provisions that no longer apply;
• brings related rules together, for example putting presumptive taxation for small businesses in one section;
• cuts the number of official forms from 399 to 190.

What stays the same

• Tax policy: the government says the new Act is about simplifying the law, not raising taxes.
• Your PAN and TAN continue to work.
• Both tax regimes remain. The new regime is the default, and you can still choose the old regime if it suits you.
• Deductions such as those for life insurance, PPF and health insurance continue in the old regime, though under new section numbers.
• Digital, faceless processes for assessments continue.

Tax rates and slabs are still set each year through the Budget and Finance Act, so check the current year's slab table on the Income Tax Department's website.

The section numbers will look different

This is the change you will notice most. Familiar names like "Section 80C" or "Section 80D" come from the old Act. The new law renumbers everything, so forms, software and professional advice will gradually move to new section numbers. The benefits themselves continue in the old regime.

A practical tip: when you see an unfamiliar section number in a form or a tax notice, check the Income Tax Department's transition FAQs or ask your tax preparer which old provision it replaces.

What salaried people and pensioners should do

• Nothing urgent. Your employer or pension office will deduct tax under the new law automatically from April 2026.
• Check your Form 16 next year: it will refer to Tax Year 2026-27 and new section numbers.
• Keep investment proofs as usual if you use the old regime.
• File your 2025-26 return under the old Act if you have not done so, including any belated or revised return, within the deadlines.

What small businesses and freelancers should note

• Presumptive taxation rules are now gathered in one place, making them easier to follow.
• Accounting software and invoice formats may need updates for new section references.
• If you start a new business, remember that your first tax year ends on the next March 31.

Why this matters

Laws that are hard to read create disputes, and disputes cost time and money for both taxpayers and the government. The 1961 Act had been amended so many times that even experts found it complex. A cleaner law will not reduce anyone's tax bill on its own, but it should make the system easier to understand, especially for first-time taxpayers.

For other money decisions this season, read our guides on small savings rates and fixed deposits after the RBI's hike.

This article is general information, not tax advice.

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