Income-tax Act 2025 Cuts Sections From 819 to 536, Repeals 1961 Act Effective 1 April 2026

The Income-tax Act 2025 replaces the Income-tax Act 1961 with effect from 1 April 2026, closing a 64-year chapter in Indian direct-tax law. The new statute does not change what you pay; it changes how the law is written, numbered and worded. For anyone who files a return, the single most important shift is the retirement of two phrases every taxpayer has lived with for decades: "previous year" and "assessment year" give way to one unified "tax year". This Morning Tax Tip explains exactly what the new Act does, works through how your tax year 2026-27 computation reads, and flags the transition traps that ITR scrutiny teams will be watching for.

What the New Act Says

The Income-tax Act 2025 compresses the 1961 Act's 819 sections into 536 sections, while expanding the schedules from 14 to 16. The subordinate framework shrinks too: the number of Rules falls from 511 to 333, and the number of prescribed Forms drops from 399 to 190. The Income Tax Department describes the objective as consolidation and simplification, not a change in tax policy, in its explainer on the objective and scope of the new Act. No new tax has been introduced and no existing rate has been altered purely by the rewrite.

The headline conceptual change is the "tax year". Under the 1961 Act, income earned in the "previous year" (the 12 months from 1 April to 31 March) was taxed in the following "assessment year", so income of FY 2025-26 was assessed in AY 2026-27. The 2025 Act collapses that two-label system into a single "tax year" that runs from 1 April to 31 March and is the same year in which the income is earned. From 1 April 2026, you will simply refer to "tax year 2026-27" rather than juggling the old assessment year and financial year pair.

Crucially, the repeal is prospective. The 1961 Act stands repealed from 1 April 2026, but proceedings relating to any tax year beginning before that date continue under the old Act to ensure a smooth transition. In practice this means your return for FY 2025-26 (assessment year 2026-27), which you file by the statutory due dates in 2026, is still governed by the 1961 Act. The 2025 Act governs income earned on or after 1 April 2026, which is tax year 2026-27.

The rewrite also consolidates scattered provisions. For example, the deduction-at-source provisions that were spread across more than 30 sections of the 1961 Act are now gathered into a single Section 393, as Oquilia covered in its explainer on TDS consolidation under the new Act. The full text of both statutes is available on the Government of India repository at indiacode.nic.in, which remains the authoritative source for the exact wording of every one of the 536 sections.

Worked Example

Consider Anjali, a salaried employee, earning a gross salary of Rs 15,00,000 for the 12 months from 1 April 2026 to 31 March 2027. Under the new Act this is simply "tax year 2026-27"; there is no separate assessment year to track. Assume she opts for the default new tax regime, whose slabs for FY 2025-26 (carried into tax year 2026-27 pending any Finance Act change) are reproduced below. Her computation uses the standard deduction of Rs 75,000 available to salaried taxpayers in the new regime.

After the Rs 75,000 standard deduction, Anjali's taxable income is Rs 14,25,000. Because her taxable income exceeds the Rs 12,00,000 threshold, she does not qualify for the Section 87A tax rebate, which in the new regime is a maximum of Rs 60,000. The slab-wise tax works out as follows, before the 4 per cent health and education cess.

Adding the 4 per cent cess of Rs 3,750 to the base tax of Rs 93,750 gives Anjali a total liability of Rs 97,500 for tax year 2026-27. The arithmetic is identical to what the 1961 Act would have produced for the same income; only the label on the return changes from "assessment year 2027-28" to "tax year 2026-27". You can reproduce this figure on the Oquilia income tax calculator, compare regimes on the old vs new regime tool, or model the slabs in isolation on the new regime calculator.

Had Anjali instead earned a taxable income of exactly Rs 12,00,000 in the new regime, her pre-rebate tax of Rs 60,000 would have been fully wiped out by the Section 87A rebate of Rs 60,000, leaving nil tax. That rebate threshold of Rs 12,00,000 and the rebate ceiling of Rs 60,000 are the figures that apply from FY 2025-26 onwards, and they carry into tax year 2026-27 unless amended by a future Finance Act.

Common Mistakes

The first and most common error during the 2026 transition is assuming the new Act changes your FY 2025-26 liability. It does not. Returns for income earned up to 31 March 2026 are filed and assessed under the 1961 Act, because the repeal only takes effect for tax years beginning on or after 1 April 2026. Taxpayers who try to apply 2025 Act section numbers to a FY 2025-26 return risk quoting the wrong provision in correspondence with the department.

A second pitfall is citing old section numbers once the new Act is live. Because 819 sections have been renumbered into 536, a provision you memorised under the 1961 Act may sit at a different number in the 2025 Act. The TDS rules now unified under Section 393 are the clearest example. Always confirm the current section number against the text on indiacode.nic.in before quoting it in an ITR annexure, a rectification request, or a response to a Section 143(1) intimation.

A third mistake, specific to the new regime, is expecting deductions that the regime simply does not allow. The Section 80CCD(1B) additional deduction of up to Rs 50,000 for NPS contributions is available only under the old regime; it cannot be claimed in the new regime at all. Taxpayers who switch to the default new regime for its lower slab rates and then try to add 80CCD(1B) will see the claim disallowed, exactly as under the 1961 Act, because the rewrite preserves this restriction unchanged.

Finally, do not confuse the "tax year" with any change to the 1 April to 31 March cycle. The tax year is still the same 12-month April-March period; only the two-label "previous year plus assessment year" system has been retired in favour of one name. Reporting income against a calendar year, or against the wrong 12-month window, remains the sort of error that triggers mismatch notices under the department's automated processing.

FAQ

When does the Income-tax Act 2025 take effect?

The Income-tax Act 2025 takes effect from 1 April 2026, and the Income-tax Act 1961 stands repealed from the same date. Income earned on or after 1 April 2026 falls in tax year 2026-27 and is governed by the new Act.

Does the new Act change how much tax I pay?

No. The 2025 Act is a structural rewrite that compresses 819 sections into 536 and renumbers provisions; it does not by itself alter any tax rate. The new regime slabs, the Rs 75,000 standard deduction, the Rs 60,000 Section 87A rebate and the 4 per cent cess all continue as under FY 2025-26.

What happens to my FY 2025-26 return?

Your return for income earned up to 31 March 2026 (assessment year 2026-27) continues under the Income-tax Act 1961, because the repeal is prospective. Proceedings for any tax year beginning before 1 April 2026 are preserved under the old Act for a smooth transition.

What exactly is a "tax year"?

A tax year is the single 12-month period from 1 April to 31 March in which income is earned and taxed under the 2025 Act. It replaces the earlier pairing of "previous year" (when income was earned) and "assessment year" (when it was assessed), so from tax year 2026-27 there is only one year to cite.

Will my old deductions and section numbers still apply?

The deductions continue, but many section numbers change because 819 sections have been renumbered into 536. For instance, TDS provisions are now consolidated into Section 393. Confirm any section number against indiacode.nic.in before using it in official correspondence.

Can I claim the 80CCD(1B) NPS deduction under the new regime?

No. The additional Section 80CCD(1B) deduction of up to Rs 50,000 is available only under the old regime, both before and after the rewrite. Choosing the new regime for its lower slab rates means forgoing this deduction entirely.

Where can I read the authoritative text of the new Act?

The full text of the Income-tax Act 2025 and the repealed Income-tax Act 1961 is published on the Government of India's indiacode.nic.in repository, and the Income Tax Department's e-filing portal at incometax.gov.in carries explainers on the objective and scope of the new Act.