The Income Tax Act 2025 Is Now in Force: What Actually Changes for You

A New Statute After 65 Years

On April 1, 2026, the Income Tax Act, 2025 came into force, fully replacing the Income-tax Act, 1961 — a statute that had been amended 65 times and had swollen to 819 sections across 47 chapters. The new Act is a cleaner 536-section law written for a digital economy, and the old Income Tax Rules, 1962 (500+ rules) have been replaced by the Income Tax Rules, 2026 — just 333 rules, notified on March 20, 2026.

First, What Does NOT Change

Your tax liability. The new Act imposes no new tax and Budget 2026 made no changes to the slabs for FY 2026-27. The New Regime remains the default, the Section 87A rebate continues to make income up to ₹12 lakh effectively tax-free for residents (₹12.75 lakh for salaried taxpayers with the ₹75,000 standard deduction), and both regimes carry forward.

Also important: your AY 2026-27 return (for FY 2025-26 income) is still filed under the old 1961 Act. The first filing under the new law happens in 2027.

The Vocabulary Change: "Tax Year"

The confusing "Previous Year" / "Assessment Year" pairing is gone. From April 1, 2026, there is a single term — the Tax Year. Income earned during FY 2026-27 is simply Tax Year 2026-27. One term, one period.

New Form Numbers You'll Start Seeing

• Form 16 → Form 130 (salary TDS certificate)
• Form 16A → Form 131 (non-salary TDS credit)
• Forms 15G and 15H → merged into a single Form 121 (nil-TDS declarations)
• PAN application forms 49A/49AA → four new category-specific forms

Substantive Changes Worth Knowing

• HRA expansion: the 50% HRA exemption now covers Bengaluru, Pune, Hyderabad and Ahmedabad — eight cities in total. Taxpayers must also disclose their relationship with the landlord.
• Share buybacks: from April 1, 2026, buyback proceeds are taxed as capital gains in shareholders' hands (previously deemed dividends).
• TDS on interest: the threshold rises to ₹1 lakh — a meaningful relief for senior citizens and deposit-heavy savers.
• Updated returns: the window to file an updated return is now four years instead of two.
• STT: Budget 2026 raised Securities Transaction Tax rates — F&O traders will feel higher transaction costs.

Transition Is Protected

The repeal does not disturb anything relating to earlier tax years — completed assessments stay valid and pending proceedings continue under transitional provisions. The department has also released a section-mapping utility to cross-reference 1961 Act sections against the 2025 Act.

What Should You Do?

For most taxpayers: nothing urgent, but expect new form numbers on every TDS certificate you receive from FY 2026-27. For businesses and NRIs with ongoing assessments or notices, the section renumbering makes professional review worthwhile before responding to any departmental communication that cites the new Act.