New Income Tax Act 2025: What Indian Businesses Must Do Before 31 March 2026

Indian businesses will face a dual‑law environment after April 2026: income earned up to 31 March 2026 will continue to be assessed under the old Income‑tax Act, 1961, while income from 1 April 2026 onwards will be governed by the new Income‑tax Act, 2025 and its “tax year” system.

India’s New Income Tax Act 2025: Complete Transition Playbook for Entrepreneurs

From 1 April 2026, India moves to a new Income‑tax Act, 2025, but your income for FY 2025–26 (1 April 2025 to 31 March 2026) will still be taxed and assessed under the old 1961 law.

For founders and business owners, this is not just a legal update; it is a multi‑year transition that affects planning, assessments, litigation and internal finance systems.

1. Timeline: Old Rules vs New Law

When does the new Act actually “bite”?

New law in force: The Income‑tax Act, 2025 comes into effect from tax year starting 1 April 2026.

Old law continues for FY 2025–26: Income earned between 1 April 2025 and 31 March 2026 (FY 2025–26) is still governed and assessed under the Income‑tax Act, 1961.

First return under new Act: The first income tax returns under the new law will be filed in 2027 for Tax Year 2026–27 (income from 1 April 2026 to 31 March 2027).

This means FY 2025–26 is your last full year under the old regime and your preparation year for the new regime.

2. Conceptual Shift: From “Assessment Year” to “Tax Year”

The new Act replaces the dual concept of “previous year” and “assessment year” with a single tax year concept.

Under the old law:

You earned income in a financial/previous year (say FY 2025–26) and it was assessed in a separate assessment year (AY 2026–27).

Under the new law:

The same 12‑month period is simply your tax year, and the law is drafted around this single term, reducing confusion for taxpayers and systems.

For businesses, this affects how you:

Design reporting dashboards and management MIS.
Speak with auditors, investors and lenders about “which year” a tax matter belongs to.
Configure your ERP and accounting software to map tax data and due dates.

3. What Stays Under the Old Act – And For How Long?

Even after 1 April 2026, the old Act does not disappear overnight.

Income and returns

All income up to 31 March 2026 continues to be computed, taxed and assessed under the Income‑tax Act, 1961.
Your return for FY 2025–26 (AY 2026–27) will use old‑law provisions, existing case law and older style forms (updated only as needed).

Assessments, reassessments and litigation

Scrutiny assessments, faceless assessments, appeals and revision proceedings for years up to AY 2026–27 remain governed by the 1961 Act and associated Finance Acts.
Any search, survey, reassessment or appeal already initiated under the old Act will continue to finality under that Act, even if orders are passed well after April 2026.

In other words, you will live with the 1961 Act for several years after 2026 because of pending and future proceedings for past years.

4. Assessments After April 2026: Transitional Rules in Practice

This is the core of your question: what exactly happens to assessments after 1 April 2026?

4.1 Dual‑regime assessments

From 1 April 2026 onwards, assessing officers operate under two parallel regimes.

1. For income up to FY 2025–26 (including AY 2026–27):

Assessments, reassessments, penalties and appeals remain under the 1961 Act.
All rights and liabilities already accrued under the old Act are “saved” through detailed saving clauses in the new Act.

2. For income from Tax Year 2026–27 onwards (starting 1 April 2026):

Returns, assessments, faceless procedures and appeals will be under the Income‑tax Act, 2025 and its restructured procedural chapters.

Your finance team must therefore read every notice and order with two questions:

1. Which period does this relate to?

2. Which Act applies to that period?

This avoids applying wrong provisions or missing reliefs available only under one regime.

4.2 Time limits and pending matters

Transitional provisions and CBDT FAQs clarify that:

Limitation periods (time limits) for assessment, reassessment and revision for earlier years continue as per the old law, though they are redrafted for clarity in the new statute.
Cases already selected for scrutiny or flagged by risk engines under the 1961 Act are not disturbed by the change of law and will follow through to completion under old provisions.
The updated return facility (now allowing up to 48 months from the end of the relevant year) is treated as part of the transition and harmonised with the tax‑year structure.

4.3 Reassessments and anti‑avoidance

The new law reorganises reassessment and anti‑avoidance rules but does not throw out historic rights of the department or taxpayers.

Reassessments for earlier years (up to AY 2026–27) will still refer to the older triggers, thresholds and procedures – as preserved by the saving clauses.
For tax years under the new Act, the reassessment chapter is streamlined and aligned with faceless/digital processes, with clearer internal timelines.

For businesses, this means aggressive structures from the past can still be reopened under the old framework, while new‑era transactions are examined under a tightened, but more predictable, reassessment regime.

5. Structural Changes That Impact Businesses

Although the government has emphasised that the new Act is largely a structural and language simplification, it still carries material business consequences.

5.1 Simplified drafting, fewer scattered sections

Definitions are consolidated in one place; duplicate and obsolete provisions are removed.
Return filing obligations, limitation periods and faceless procedures are consolidated into fewer, clearer sections.

This makes it easier to read the law, but also makes it harder to rely on old “technical loopholes” spread across different sections.

5.2 Procedural and digital focus

Faceless assessment is no longer treated as an “add‑on chapter”; instead, core procedural sections are drafted to be digital‑first by default.
The law supports end‑to‑end digital communication, clearer statutory timelines and fewer physical hearings.

Entrepreneurs should assume that every year going forward will be document‑heavy and interface‑driven, and prepare their documentation and systems accordingly.

6. The Business Playbook: What Founders Should Do Now

6.1 Use FY 2025–26 as a “clean‑up and optimise” year

Because FY 2025–26 is your last year fully under the old Act:

Clean up old reconciliations (TDS, GST vs income, inter‑company balances).
Close legacy disputes where a reasonable settlement is possible.
Optimise promoter compensation and group restructuring decisions using familiar rules and judicial precedents.

This reduces the risk of carrying messy issues into the transition where both laws run in parallel.

6.2 Simulate your first “tax year” under the new Act

Even before the first tax‑year return is due, you can:

Model your expected income and tax under a simplified slabs + fewer deductions scenario, based on public explanations and FAQs.
Re‑evaluate salary vs dividend vs capital gains vs ESOP encashment for promoters in the new system.
Study whether any sector‑specific benefits you use (for example, certain investment or region‑based incentives) are only structurally re‑numbered or actually narrowed.

6.3 Upgrade processes and ownership

Build a dual calendar: one track for matters under the 1961 Act (old years) and one for tax‑year compliance under the 2025 Act.
Tag each tax file, notice and case with “Old Act” or “New Act” and the relevant year; this simple step saves enormous confusion in later litigation.
Train finance and legal teams on the new language (tax year, new section numbers, consolidated procedure) so that they are not learning under pressure when the first new‑law notice arrives.

7. Old vs New vs Action Points

Parameter	Till FY 2025–26 / AY 2026–27	From Tax Year 2026–27 (1 Apr 2026)	Transitional assessment impact	Founder / CFO action
Governing statute	Income‑tax Act, 1961 and related Finance Acts apply to income earned up to 31 March 2026.	Income‑tax Act, 2025 applies to income from 1 April 2026 onwards (Tax Year 2026–27).	Assessments after 1 April 2026 will run concurrently under both Acts for different years.	Maintain clear year‑wise cut‑off in your ledgers and tax files.
Year concept	Previous year / assessment year framework with separate labels.	Single “tax year” terminology used across the Act.	Notices and orders will shift language; internal confusion likely if teams are not trained.	Update internal formats, ERP labels and training material from AY to Tax Year.
Assessments after April 2026	Scrutiny, reassessment and appeals for old years continue strictly under 1961 Act.	New‑law assessments for Tax Year 2026–27 onwards follow streamlined, digital‑first procedure.	Officers will handle both regimes; mistakes are possible if taxpayers also mix provisions.	For every notice, first identify the year and then the correct Act before responding.
Limitation / time limits	Existing limitation rules govern all years up to AY 2026–27, even if actions occur later.	Recast limitation provisions apply prospectively for tax years under the new Act.	Old‑year reassessment risk continues within old time limits; new‑year risk is under revised, clearer timelines.	Map exposure year‑wise: which years can still be reopened and under which rules.
Faceless / digital procedures	Existing faceless assessment framework operates as an overlay on main provisions.	Digital and faceless concepts embedded into core procedural sections with simplified drafting.	More consistent online processes, fewer discretionary physical interactions.	Strengthen record‑keeping, e‑notice monitoring and response SOPs.
Updated returns	Extended 48‑month window for updated returns applies as a transitional tool for older years.	Aligned with tax‑year concept; integrated into consolidated return‑filing chapter.	Scope to correct past errors reduces future reassessment risk under both Acts.	Identify high‑risk past years and consider updated returns before limitation expires.
Litigation & appeals	Existing appeal structure and precedents continue to govern disputes for old years.	Procedural streamlining and digital filing expected, but substantive rights carry forward.	Two sets of precedents and procedures will be relevant in parallel for some time.	Tag each case as “Old Act” or “New Act” and track strategy separately.

8. Key Takeaways for Businesses

The change from AY to Tax Year simplifies language, but does not make tax planning optional; it changes its grammar.
For several years after April 2026, you will manage compliance and litigation under two laws at once, making internal clarity and documentation non‑negotiable.
Treat FY 2025–26 as your last opportunity to clean up historic issues under familiar rules, and Tax Year 2026–27 as your first test of how ready your systems and people are for the new regime.

If you learn the broad structure early and build simple internal discipline now, you will enter the new law cycle with clarity instead of confusion.