In short
Applies to: Companies, LLPs (limited liability partnerships), firms and proprietors with business or professional income
- The Income-tax Act, 2025 applies from 1 April 2026. The first tax year is 2026-27; returns for financial year (FY) 2025-26 are still filed under the 1961 Act.
- Most rules carry over, but section, rule and form numbers change: TDS (tax deducted at source) moves to Sections 392 and 393, TCS (tax collected at source) to Section 394, Form 26AS and the Annual Information Statement (AIS) become Form 168 and the tax audit report becomes Form 26.
- If not already done, update section codes in accounting and TDS software, contracts and vendor communication, and check that the TDS statements for tax year 2026-27 use the new sections.
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 on 1 April 2026. It received Presidential assent on 21 August 2025, and the Income-tax Rules, 2026 were notified on 20 March 2026 to operate alongside it.
For most businesses, the tax itself does not change overnight. What changes is the language of compliance: the year, the sections, the rules and the forms. This article sets out what a business owner or finance team needs to know, and what to update first.
One “tax year” instead of two years
The 1961 Act taxed the income of a “previous year” in the following “assessment year”. The 2025 Act uses a single “”, which is the financial year in which income is earned. The first tax year under the new Act is 2026-27, running from 1 April 2026 to 31 March 2027.
The Income Tax Department's transition FAQs confirm that there is no missing year or overlap. Income of FY 2025-26 is assessed in assessment year (AY) 2026-27 under the 1961 Act. Returns and tax audit reports for that year use the forms notified under the old rules (including Forms 3CA, 3CB and 3CD), even where they are filed after 1 April 2026.
Where the familiar provisions have moved
The new Act groups many provisions into tables. The table below lists the references businesses meet most often.
| Subject | 1961 Act and Rules, 1962 | 2025 Act and Rules, 2026 |
|---|---|---|
| Tax audit | Section 44AB; Forms 3CA, 3CB and 3CD | Section 63; Form 26 |
| TDS on salary | Section 192; Form 24Q; Form 16 | Section 392; Form 138; Form 130 |
| TDS on other payments to residents | Sections 193 to 194T; Form 26Q; Form 16A | Section 393 (tables); Form 140; Form 131 |
| TDS on payments to non-residents | Section 195; Form 27Q | Section 393 (tables); Form 144 |
| TCS | Section 206C; Form 27EQ; Form 27D | Section 394; Form 143; Form 133 |
| Lower or nil deduction certificate | Section 197; Form 13 | Section 395; Form 128 |
| Declaration for no deduction | Section 197A; Forms 15G and 15H | Section 393(6); Form 121 |
| Annual information statement | Form 26AS and AIS | Form 168 |
| Fee for late TDS or TCS statements | Section 234E | Section 427 |
| Fee for a late return | Section 234F | Section 428 |
| Return due dates | Section 139 | Section 263 |
| Payments to micro and small enterprises | Section 43B(h) | Section 37(2)(g) |
Thresholds and rates for most items have been carried into the new tables. The table below gives examples.
| Payment | TDS |
|---|---|
| Fees for professional services above ₹50,000 in a year | 10% |
| Fees for technical services above ₹50,000 in a year | 2% |
| Payments to resident contractors who are individuals or Hindu undivided families (HUFs), above ₹30,000 for a single payment or ₹1,00,000 in a year | 1% |
| Payments to other resident contractors, above ₹30,000 for a single payment or ₹1,00,000 in a year | 2% |
Which Act applies to a transaction near 1 April 2026
For TDS, the transition FAQs look at the event that triggers deduction: credit to the payee's account or payment, whichever is earlier. If that event happened before 1 April 2026, the 1961 Act applies. If it happened on or after 1 April 2026, the 2025 Act applies.
This matters for March 2026 invoices that were paid in April 2026, and for provisions made at the year-end. Keep the date of credit in your records, not only the date of payment. The same logic applies to remittances abroad. Form 15CA and Form 15CB are replaced by Form 145 and Form 146. A remittance made on or after 1 April 2026 uses the new forms, even where the income itself is taxed under the 1961 Act.
Changes made by the Finance Act, 2026
The Finance Act, 2026 made changes that affect day-to-day business compliance, some in the new Act before it came into force and some in the 1961 Act for the last year under it. They include:
- Supply of manpower is expressly treated as “work”, so contractor rates of TDS apply to it.
- The due date for returns of businesses and professionals not requiring audit has moved from 31 July to 31 August: for AY 2026-27 (due 31 August 2026) through Section 139(1) of the 1961 Act, and from tax year 2026-27 in Section 263(1)(c) of the 2025 Act.
- A resident individual or HUF buying immovable property from a non-resident can deduct and deposit TDS without obtaining a TAN (tax deduction and collection account number), from 1 October 2026, using and issuing .
- on scrap, alcoholic liquor, tendu leaves and minerals such as coal, lignite and iron ore is 2% from 1 April 2026.
What to update now
- If not already done, update section codes in your accounting software, TDS software and payment approval formats. Check that the second-quarter statements (due 31 October 2026) use Sections 392 to 394, and correct the first-quarter statements if they did not use the new sections.
- Review purchase orders, invoice templates and payment formats that quote sections of the 1961 Act. Existing contracts do not need to be amended only because the new Act has come into force.
- Tell vendors and employees about the new certificates: instead of Form 16A and instead of Form 16.
- Plan the tax audit for tax year 2026-27 on , and keep FY 2025-26 on the old forms.
- Reconcile your books with from tax year 2026-27, as you did with and .
The substance of a well-run compliance process does not change: accurate books, timely deductions and a reconciliation before every return. What needs attention is the set of references around it.
Before relying on this article: section, rule and form numbers are taken from the Income Tax Department's published material as of September 2026. Check the current text for your facts, and note that the Finance Act of each year may change rates and thresholds.
Sources
- CBDT press release: Income-tax Act, 2025 comes into force
- FAQs on interplay and transition, Income Tax Department
- Section 393: TDS tables, Income Tax Department
- Section 394: TCS, Income Tax Department
- Form 26 (tax audit report) FAQs, Income Tax Department
- Form 138 (TDS statement for salary) FAQs, Income Tax Department
- Forms 130 to 133 (TDS and TCS certificates), Income Tax Department
- Form 168 FAQs, Income Tax Department
- Guide to forms under the Income-tax Act, 2025, Income Tax Department
- Section 427 and Section 428
- Memorandum to the Finance Bill, 2026, Ministry of Finance
- CBDT Notification No. 121/2026 (Income-tax (Fifth Amendment) Rules, 2026), Income Tax Department
This article is for general information only and does not constitute professional advice. Please consult a qualified professional before acting on it.
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