Income Tax Act 2025: What Changes From 1 April 2026

"Tax year" replaces previous year and assessment year

• Under the 1961 Act, income earned in a "previous year" (say FY 2025-26) was assessed in the next "assessment year" (AY 2026-27). This two-label system confused taxpayers every filing season.
• The 2025 Act uses one term: the tax year, a twelve-month period matching the financial year (1 April to 31 March). Income earned in tax year 2026-27 is reported and assessed for tax year 2026-27.
• Forms, notices and challans issued under the new Act will refer only to the tax year, so date-related filing mistakes should reduce.

What actually changes for ordinary taxpayers

• HRA 50% limit extended to more cities: the 50% of salary ceiling for HRA exemption, earlier limited to Delhi, Mumbai, Chennai and Kolkata, now also covers Bengaluru, Pune, Hyderabad and Ahmedabad under the rules notified with the new Act. Residents of these cities can claim a larger exemption, and the relationship with the landlord must be disclosed.
• Buyback proceeds taxed as capital gains: from 1 April 2026, amounts received on buyback of shares are taxed as capital gains in the shareholder's hands under the new framework, instead of the earlier dividend treatment introduced in October 2024.
• TDS provisions consolidated and renumbered: the familiar 192/194 series is consolidated into section 393 of the new Act, with lower or nil deduction certificates moving from section 197 to section 395. Rates themselves are not changed, but Form 16-style certificates, declarations and returns get new numbers from FY 2026-27.
• Cleaner drafting: provisos and explanations are largely replaced with tables and formulas, making limits and conditions easier to read.

What does NOT change

• No new taxes and no change in income tax slab rates - the new-regime slabs announced in Budget 2025 continue.
• The new tax regime remains the default; deductions and exemptions carry forward with new section numbers.
• TDS and TCS rates stay the same; only section references and form names change.
• Completed assessments and pending proceedings for years before 1 April 2026 remain valid under the 1961 Act through transitional provisions.

Examples of the transition

Which ITR form should be used?

For FY 2025-26 the existing ITR-1 to ITR-7 forms notified under the 1961 Act apply: ITR-1/ITR-2 for most salaried taxpayers and ITR-3/ITR-4 where there is business or professional income. Forms under the 2025 Act will apply only from tax year 2026-27. See our guide on how to file your income tax return online and compare regimes at old vs new tax regime.

Documents to keep ready

• Form 16 from your employer for FY 2025-26 (still issued under the 1961 Act).
• AIS and Form 26AS downloaded from the e-filing portal.
• Rent receipts and landlord details if claiming HRA.
• Capital gains statements from brokers, including any buyback proceeds.
• Interest certificates and proof of deductions if choosing the old regime.

Get expert-assisted filing

All India ITR can file your FY 2025-26 return correctly under the 1961 Act and help you plan salary structure, HRA and regime choice for the first year of the Income Tax Act 2025 before filing.

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Frequently asked questions

When did the Income Tax Act 2025 come into force?

The Income Tax Act, 2025 came into force on 1 April 2026. It governs income earned in tax year 2026-27 onwards. Income of FY 2025-26 is still taxed and returns are still filed under the Income Tax Act, 1961.

What is a tax year under the Income Tax Act 2025?

A tax year is the twelve-month period of the financial year in which income is earned. It replaces the dual previous year and assessment year system of the 1961 Act, so income is reported and assessed for the same tax year.

Did income tax slabs change under the Income Tax Act 2025?

No. The Income Tax Act 2025 does not introduce new taxes or change slab rates. It is a simplification exercise with 536 sections and 23 chapters that carries forward the existing tax policy in a cleaner structure.

Is the ITR for FY 2025-26 filed under the old or new Act?

The return for FY 2025-26 (AY 2026-27), being filed during 2026, is still governed by the Income Tax Act, 1961. The 2025 Act applies only from tax year 2026-27 onwards, and earlier years remain valid under transitional provisions.

Sources reviewed

• Income Tax Department: Objective and scope of the new Act
• Income Tax Department: FAQs on interplay and transition
• Press Information Bureau: Income Tax Act, 2025 to come into effect from 1st April 2026

This guide is for general understanding. Section mappings between the 1961 and 2025 Acts and city-specific HRA rules should be confirmed against the notified rules before relying on them for payroll or filing decisions.