Published: April 1, 2026 | Updated: April 15, 2026 | By CA V. Viswanathan, FCA, ACS, CFE, IBBI RV

Income-tax Act, 2025 vs 1961 — Complete Transition Guide and Key Differences

Quick Answer

The Income-tax Act, 2025 (Act 30 of 2025) received Presidential assent on 21 August 2025 and commenced on 1 April 2026. It replaces the Income-tax Act, 1961 and applies to tax year 2026-27 onwards. The biggest differences: a single “tax year” concept replacing PY/AY; the new regime as the statutory default; 12.5% flat LTCG without indexation; TDS rate cuts on commission, brokerage and rent; an extended 48-month updated return window; and statutory faceless assessment. Losses, depreciation WDV and MAT credit migrate from the 1961 Act. Pending 1961 Act proceedings continue under the 1961 Act.

Last Updated: 15 April 2026  |  Applicable From: Tax Year 2026-27 (1 April 2026 onwards)  |  Reference: Income-tax Act, 2025 (30 of 2025), as amended by Finance Act, 2026

Indian direct tax law lived under a single statute — the Income-tax Act, 1961 — for sixty-four years. From 1 April 2026, it lives under a new one. This comparison guide is written for CAs, in-house tax heads, accounts teams and informed taxpayers who need a clear, non-marketing, non-hype side-by-side account of what actually changed. It is built on a direct reading of the enacted PDF of the 2025 Act and the Finance Act, 2026 amendments. Where a section-number mapping is widely reported but not yet confirmed against the enacted text, the article cites the policy change and defers to the primary source. Use it as a reference before you file the first set of returns, notices and appeals under the new Act, and as a diagnostic before you touch closing 31 March 2026 balance sheets.

Definition — Transition (for 2025 Act purposes): The period beginning 1 April 2026 during which rights, liabilities and proceedings accrued under the Income-tax Act, 1961 continue to be governed by the 1961 Act under the repeal-and-savings clause in Chapter XXIII of the 2025 Act, read with Section 6 of the General Clauses Act, 1897, while new income from tax year 2026-27 onwards is governed by the 2025 Act.

Featured Answer — What is the single most important structural change from 1961 to 2025?

The biggest change is the replacement of the dual previous year / assessment year framework with a single concept called the “tax year”. Under the 1961 Act, income earned in the previous year 2024-25 was assessed in assessment year 2025-26 — two labels for every taxable cycle. Under the 2025 Act, income earned in tax year 2026-27 (1 April 2026 to 31 March 2027) is simply called tax year 2026-27 for both earning and assessment purposes. Every return, notice, computation sheet and judgement reference now uses one label. This change touches every practitioner template and every ITR form, and it is the one non-negotiable correction that must be made on day one of the transition.

Table of Contents

  1. Macro structural comparison
  2. The tax year concept — what actually changed
  3. Default regime and rates
  4. Capital gains overhaul
  5. TDS rationalisation
  6. Deductions and exemptions
  7. Assessment and updated returns
  8. Penalty grid comparison
  9. Transitional provisions — losses, WDV, MAT credit, pending matters
  10. Worked example — business transition schedule
  11. Practitioner checklist for 1 April 2026
  12. Expert Insight
  13. Key Takeaways
  14. Frequently Asked Questions

Macro structural comparison

Parameter Income-tax Act, 1961 Income-tax Act, 2025
Act number 43 of 1961 30 of 2025
Presidential assent 13 September 1961 21 August 2025
Commencement 1 April 1962 1 April 2026 (single, unconditional)
Chapters 23 (after many amendments) 23
Sections 298 (plus many “A-Z” inserts) 536 (higher count — provisos split into sub-sections)
Schedules 14 16
Primary year label Previous year + Assessment year Tax year (single concept)
Drafting style Proviso-heavy, explanation-heavy Numbered sub-sections, plain English
Default regime for individuals New regime default (per 2023 amendment) New regime default (statutorily baked in)
LTCG indexation Available (general) Removed (limited transitional election only)
Updated return window 24 months 48 months
Faceless assessment Scheme layered on top Statutory default
Angel tax (share premium > FMV) Sec 56(2)(viib) applied Abolished

The tax year concept — what actually changed

Under the 1961 Act, every income cycle had two labels. Income earned in the “previous year” was assessed in the “assessment year”, which was the financial year immediately following. A taxpayer filing an ITR in July 2025 was filing for assessment year 2025-26, which corresponded to income earned in previous year 2024-25 (1 April 2024 to 31 March 2025). This two-label structure caused endless confusion for lay taxpayers and wasted ink in every return form, every notice and every judgement.

The 2025 Act collapses both labels into a single tax year. A tax year runs from 1 April to 31 March. Income earned in tax year 2026-27 is computed, assessed and taxed as tax year 2026-27. There is no assessment year lag in the naming. Chapter XXIII of the 2025 Act provides that where the Act refers to a “tax year commencing on the 1st April, 2025 or any earlier tax year”, such reference is construed as the corresponding previous year under the 1961 Act. This is the statutory bridge for looking backwards into the 1961 Act regime from the 2025 Act perspective.

For rewrites of client templates, the practical rule is: always lead with the tax year label, and cross-reference the old AY only when bridging a pre-commencement year for reader clarity. For example, “WDV as on 31 March 2026 (closing WDV of previous year 2025-26 under the 1961 Act) is the opening WDV of tax year 2026-27 under the 2025 Act”.

Default regime and rates

Under the 1961 Act, the new personal regime was the default only because the 2023 amendment had made it so. Under the 2025 Act, the new regime is the statutory default — built into the Act rather than added by amendment. A resident individual with non-business income is automatically taxed under the new regime unless they choose the old regime in the return. A resident individual with business or professional income must file Form 10-IEA on or before the due date of return under the Sec 139(1) equivalent to opt out to the old regime. Once opted out, a business income taxpayer can return to the new regime only once in a lifetime (once exercised, the right to switch back is lost).

Slab (₹) Old regime rate New regime rate (2025 Act)
Up to 2,50,000 Nil Nil
2,50,001–4,00,000 5% Nil
4,00,001–5,00,000 5% 5%
5,00,001–8,00,000 20% 5%
8,00,001–10,00,000 20% 10%
10,00,001–12,00,000 30% 10%
12,00,001–16,00,000 30% 15%
16,00,001–20,00,000 30% 20%
20,00,001–24,00,000 30% 25%
Above 24,00,000 30% 30%

In the new regime, a ₹60,000 rebate is available to resident individuals with total income up to ₹12 lakh. Effective nil-tax threshold is ₹12 lakh (₹12.75 lakh salaried, after ₹75,000 standard deduction). Marginal relief ensures that a taxpayer with income slightly above ₹12 lakh does not pay tax exceeding the excess over ₹12 lakh. In the old regime, the Sec 87A rebate remains at ₹12,500 for income up to ₹5 lakh.

Capital gains overhaul

Item 1961 Act (pre 23-Jul-2024 rules) 2025 Act
LTCG on listed equity / equity MF 10% above ₹1 lakh 12.5% above ₹1,25,000
STCG on listed equity / equity MF 15% 20%
LTCG on real estate 20% with indexation 12.5% without indexation (transitional election on pre-23-July-2024 assets)
LTCG on unlisted shares, gold, debt MF 20% with indexation 12.5% without indexation
Holding period — listed securities 12 months 12 months
Holding period — unlisted / real estate 24 / 36 months (mixed) 24 months (uniform)
Indexation Available Removed (transitional election only)
Sec 54 / 54F house property exemption Retained Retained

TDS rationalisation

The 2025 Act retains the TDS architecture but cuts several friction rates that had drawn consistent complaints from small businesses and individual taxpayers. Commission and brokerage is cut from 5% to 2%. Non-bank interest is 2% (banks continue at 10%). Individual rent (under the old Sec 194IB limb) is cut from 5% to 2%. Technical service fees are 2% while professional fees remain at 10%. A new equivalent of Sec 194T applies 10% TDS on remuneration, interest, salary or commission paid by a firm or LLP to its partners — a genuinely new section that closes a long-standing gap in partner-remuneration TDS.

Non-filer / non-PAN higher TDS (the equivalent of the old Sec 206AA and 206AB) is preserved at the higher of twice the prescribed rate or 5%. For TCS, rates on foreign remittances under the LRS and on overseas tour packages have been rationalised. For VDA (virtual digital asset) transfers, the 1% TDS under the Sec 194S equivalent continues.

Deductions and exemptions

The treatment of Chapter VI-A equivalents depends on the regime. Under the new (default) regime, most traditional deductions are not available. The allowed list is short: standard deduction of ₹75,000, employer’s NPS contribution up to 14% of salary (both Government and private), family pension deduction of ₹25,000, and contribution to the Agniveer Corpus Fund. HRA, LTA, Sec 80C-equivalent (₹1,50,000), Sec 80CCD(1B)-equivalent (₹50,000), Sec 80D-equivalent health insurance, Sec 80E education loan interest, Sec 80G donations and Sec 24(b) home loan interest continue to be available only under the old regime.

Salaried taxpayers without business income may toggle regime each year. Taxpayers with business or professional income must file Form 10-IEA before the due date of return to opt into the old regime, and, having exercised the opt-out and later reverted to the new regime, they lose the ability to opt out again.

Assessment and updated returns

The 2025 Act completes the faceless project. Faceless assessment is the statutory default and no longer a scheme layered on top. The time limit for regular assessment is 12 months from the end of the tax year in which the return is filed. Reassessment of escaped income is permitted up to 3 years generally and up to 10 years where the escaped income — supported by evidence — exceeds ₹50 lakh.

The updated return window is extended from 24 months to 48 months from the end of the relevant tax year. Additional tax scales with time: 25% within the first 12 months, 50% in 12–24 months, 60% in 24–36 months and 70% in 36–48 months. An updated return cannot claim or enhance a refund and cannot be used to carry a loss forward — these restrictions are retained from the 1961 Act regime.

Penalty grid comparison

Default 1961 Act (pre-transition) 2025 Act
Under-reporting of income 50% of tax (Sec 270A) 50% of tax
Misreporting of income 200% of tax 200% of tax
Late filing fee ₹5,000 / ₹1,000 (Sec 234F) ₹5,000 / ₹1,000
Failure to maintain books ₹25,000 (Sec 271A) ₹25,000
Failure to audit 0.5% of turnover, max ₹1,50,000 0.5% of turnover, max ₹1,50,000
Cash loan / deposit > ₹20,000 100% of loan amount 100% of loan amount
False statement / fabrication Up to 200% of tax evaded Up to 200% of tax evaded

The rates are broadly preserved, but the drafting is cleaner and penalties across the 1961 Act’s scattered Sec 271-series are consolidated into a single chapter (Chapter XXI) in the 2025 Act.

Transitional provisions — losses, WDV, MAT credit, pending matters

The transitional framework is the single most practically important part of this article. Key rules are:

  1. Brought-forward losses: Business loss (8 years), speculation loss (4 years), capital loss (8 years), house property loss (8 years) — determined under the 1961 Act, migrate forward under the 2025 Act for their remaining unexpired period without a reset. Unabsorbed depreciation continues indefinitely.
  2. Depreciation WDV: Closing WDV of each block of assets as at 31 March 2026 (under the 1961 Act) becomes the opening WDV of the same block for tax year 2026-27 (under the 2025 Act).
  3. MAT credit: MAT credit computed under Sec 115JB of the 1961 Act as at 31 March 2026 is preserved for set-off under the 2025 Act for the remaining unexpired period (up to 15 years from original computation).
  4. Capital gains on pre-1-April-2026 assets: Cost of acquisition and holding period determined under the 1961 Act; transitional election for pre-23-July-2024 land / buildings (20% with indexation vs 12.5% without).
  5. Pending proceedings: Assessments, reassessments, appeals, revisions, searches and prosecutions pending on 1 April 2026 continue under the 1961 Act until final disposal.
  6. Tax credit migration: TDS, TCS and advance tax paid in pre-commencement periods are available as credit under the 2025 Act.
  7. DTAA and foreign tax credit: DTAAs continue; where the DTAA is more beneficial, it prevails over the 2025 Act.

Worked example — business transition schedule

Facts: ABC Private Limited (domestic company, concessional 22% regime under the Sec 115BAA-equivalent) has the following position as on 31 March 2026 under the 1961 Act:

  • Block of Plant and Machinery (15% rate) — WDV ₹2,40,00,000
  • Block of Computers (40% rate) — WDV ₹18,00,000
  • Business loss of previous year 2023-24 — ₹32,00,000 (5 years remaining)
  • Business loss of previous year 2024-25 — ₹14,00,000 (6 years remaining)
  • Unabsorbed depreciation — ₹9,50,000 (no time limit)
  • MAT credit — ₹6,20,000 (c/f from AY 2024-25, 10 years remaining at the relevant measurement date)

Transition mechanics for tax year 2026-27 (1 April 2026 onwards):

  • Plant and Machinery opening WDV under 2025 Act: ₹2,40,00,000. First year depreciation at 15%: ₹36,00,000.
  • Computers opening WDV: ₹18,00,000. First year depreciation at 40%: ₹7,20,000.
  • Business loss of ₹32,00,000 is available for set-off up to 5 more tax years (2026-27 to 2030-31) under the Chapter VII equivalent of the 2025 Act.
  • Business loss of ₹14,00,000 is available for set-off up to 6 more tax years.
  • Unabsorbed depreciation of ₹9,50,000 is available indefinitely against any business income.
  • MAT credit of ₹6,20,000 remains set-off-able against the excess of regular tax over MAT for the remaining unexpired period under the preserved Sec 115JAA equivalent.

ABC Private Limited’s CA should record a formal “opening position memorandum” as at 1 April 2026 capturing all five items (block-of-assets WDV, loss schedule, unabsorbed depreciation, MAT credit, and TDS/TCS credit receivable) and cross-reference it to the 31 March 2026 tax audit report. This memorandum becomes the single source of truth for tax year 2026-27 computation.

Practitioner checklist for 1 April 2026

  1. Close 31 March 2026 with a clean block-of-assets WDV schedule signed off by management and auditors.
  2. Draft the loss schedule statement year-wise, showing unexpired remaining years for each loss and for unabsorbed depreciation.
  3. Draft the MAT credit register for companies, indicating year of origin and remaining unexpired period.
  4. Build an opening memorandum in the format “Closing position under 1961 Act → Opening position under 2025 Act” and store it in the tax working papers folder.
  5. Update every computation template to use “tax year 2026-27” as the primary label; keep a bridging note for references to pre-commencement years.
  6. Remap old section numbers in letters, draft submissions and appeal templates to the 2025 Act numbering.
  7. Update TDS master rate tables to the rationalised 2025 Act rates; review vendor PAN and filing status flags.
  8. Run a regime-choice computation (new vs old) for every business-income client and capture the Form 10-IEA decision.
  9. Update standard engagement letters to reference the 2025 Act and Finance Act, 2026.
  10. Review client DTAA positions for FY 2026-27 — the Act’s residence and foreign-tax-credit architecture is preserved but needs one pass for cross-references.

Cross-links to related articles

Expert Insight

CA V. Viswanathan: Having compared the 1961 Act and the 2025 Act line by line while rewriting our firm’s internal tax library, the most honest summary I can give is this: the 2025 Act is not a radical substantive reform. The five heads are unchanged. The charging architecture is unchanged. The residence tests are unchanged. DTAA mechanics are unchanged. MAT, AMT, concessional corporate rates and search procedures are all preserved. What the 2025 Act does change is the language, the date architecture, a handful of high-impact rates (LTCG at 12.5% flat, TDS cuts on rent / commission / non-bank interest, new regime as statutory default), and the discipline of a single tax-year label. Those are real and they matter, but readers who expected a clean-sheet redesign will be underwhelmed. The bigger risk in transition is not the substantive law — which most CAs know cold — it is sloppy drafting and template failures. Every time we see a wrong assent date, or a reference to “AY 2026-27 (FY 2025-26)” as the first year under the new Act, we see a template that will misfire on every client the firm touches. Get the dates right. Get the year labels right. Reconcile WDV, losses and MAT credit with signed working papers. Decide the regime in advance. Update section citations. If you do those five things before 1 April 2026, the transition will feel boring, which is exactly what you want a tax transition to feel like.

Key Takeaways

Frequently Asked Questions

What is the single most important difference between the 1961 Act and the 2025 Act?

The single tax year label replacing the dual “previous year / assessment year” structure. It touches every ITR form, computation template and notice format. The first tax year under the new Act is 2026-27.

When exactly does the 2025 Act take over from the 1961 Act?

Assent 21 August 2025; commencement 1 April 2026 (single, unconditional). Income earned up to 31 March 2026 stays under the 1961 Act; income from 1 April 2026 onwards is governed by the 2025 Act.

Has the default tax regime changed?

Under the 2025 Act the new regime is statutorily the default. Business / professional taxpayers must file Form 10-IEA to opt out to the old regime and can return to the new regime only once.

How does the 12.5% flat LTCG regime affect existing investors?

Indexation is gone as a general feature. Resident individuals and HUFs holding land or buildings acquired before 23 July 2024 can elect 20% with indexation or 12.5% without, whichever is lower. Run the computation before selling.

Do brought-forward losses migrate?

Yes. Business loss (8), speculation loss (4), capital loss (8), house property loss (8) — all carried forward for their remaining unexpired period without a reset. Unabsorbed depreciation continues indefinitely.

Is the MAT credit preserved?

Yes. MAT credit under Sec 115JB of the 1961 Act is preserved for set-off under the 2025 Act for the remaining unexpired period (up to 15 years from origin). The 2025 Act retains MAT at 15% of book profits.

What is the new penalty for under-reporting and misreporting?

Under-reporting 50% of tax; misreporting 200%. Rates are substantively preserved from Sec 270A of the 1961 Act; the drafting in Chapter XXI is cleaner.

What happens to pending 1961 Act assessments, appeals and searches on 1 April 2026?

They continue under the 1961 Act procedure until final disposal. Chapter XXIII of the 2025 Act preserves the effect of repeal under Section 6 of the General Clauses Act, 1897.

How does the updated return window change?

Extended from 24 months to 48 months. Additional tax scales 25% / 50% / 60% / 70% in successive 12-month bands. Updated returns still cannot claim or enhance refunds, or carry losses forward.

Has corporate tax changed?

No. The Sec 115BAA-equivalent 22% regime and Sec 115BAB-equivalent 15% new-manufacturing regime are retained. Foreign companies are at 35%. LLPs and firms at 30%. MAT 15%, AMT 18.5% preserved.

Is the angel tax still in force?

No. The old Sec 56(2)(viib) mechanism has not been carried into the 2025 Act. Share premium above fair value is no longer deemed income, which is meaningful relief for unlisted companies and startups.

How should CAs rebuild templates for the transition?

Use “tax year” as the primary label; remap section numbers; update TDS master rates; add Form 10-IEA decisions to regime-selection workings; refresh appeal templates for post-1-April-2026 proceedings under the 2025 Act.

Are surcharge and cess unchanged?

New regime surcharge: 10% above ₹50L, 15% above ₹1Cr, 25% above ₹2Cr. The 37% top slab (old regime above ₹5Cr) is abolished under the new regime. Health and Education Cess is 4% on tax plus surcharge.

Is faceless assessment still in play?

Yes — and it is now the statutory default rather than an overlay scheme. Regular assessment must be completed within 12 months of the end of the tax year in which the return is filed.

Will NRI and DTAA rules change?

Residence and DTAA mechanics are preserved. The 182-day and 60/365-day tests continue, and the 120-day rule for high-income Indian citizens is retained. DTAAs override the domestic Act where more beneficial.

Need a bespoke transition plan? Speak to CA V. Viswanathan and the Virtual Auditor team. Contact us or call +91 99622 60333.

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