New Income Tax Act 2025: Transition Guide for Businesses

The New Income Tax Act 2025, tabled in Parliament on 13 February 2025, replaces the Income Tax Act, 1961, with effect from 1 April 2026. This 536-clause, 23-chapter legislation cuts the old Act's 512,535 words to 259,676 words, a 50% reduction. For businesses, the transition costs zero in government fees, introduces no new taxes or rate changes, and requires 2 to 4 weeks of internal preparation covering document updates, software changes, and team training. This guide covers every aspect of the transition: what changed, what stayed the same, section-by-section mapping, entity-specific impact, step-by-step preparation process, costs, timeline, and common issues businesses face during legislative transitions.

What is the New Income Tax Act 2025?

The New Income Tax Act 2025 is a comprehensive rewrite of India's primary direct tax legislation, replacing the 64-year-old Income Tax Act, 1961. It consolidates 819 sections into 536 clauses, 47 chapters into 23 chapters, and reduces the statutory text by approximately 50% while preserving all existing tax rates, exemptions, and deductions without modification.

Finance Minister Nirmala Sitharaman announced the comprehensive review of the Income Tax Act, 1961, during the July 2024 Union Budget. The Central Board of Direct Taxes (CBDT) established 22 specialised sub-committees to examine every chapter of the old Act and propose simplifications. These sub-committees received over 6,500 actionable suggestions from a pool of 20,976 online submissions by tax professionals, industry bodies, chartered accountant associations, and individual taxpayers. The resulting Income Tax Bill, 2025, was tabled in Parliament on 13 February 2025 and spans 622 pages with 16 schedules.

The new Act operates on three explicit principles announced by the Finance Ministry: textual simplification of complex provisions, no introduction of major tax policy changes, and no modification of existing tax rates. This means a business paying 22% corporate tax under the current Section 115BAA continues to pay 22% under the corresponding new clause. An individual claiming ₹1.5 Lakh deduction under Section 80C continues to claim the same amount under the remapped clause in Chapter VIII of the new Act.

Why Was the Income Tax Act 1961 Replaced?

The Income Tax Act, 1961, accumulated 63 years of amendments, insertions, provisos, and explanations that made it increasingly difficult for taxpayers, professionals, and courts to interpret. Understanding why the government chose a complete replacement rather than further amendments provides context for the transition.

Complexity of the Old Act

The Income Tax Act, 1961, contained 819 sections spread across 47 chapters, with a total word count of 512,535. Over six decades, Parliament inserted hundreds of provisos (conditional exceptions), explanations (clarificatory notes), and sub-clauses that created layers of cross-references. A single section like Section 10 (exempt income) had grown to contain over 80 sub-clauses, each with its own provisos and explanations. Tax professionals spent significant time simply locating the applicable provision before they could begin interpreting it.

Language and Readability Issues

The old Act used dense legal prose with nested provisos that required reading a section, its proviso, the explanation to the proviso, and the exception to the explanation to understand a single rule. The new Act addresses this by replacing provisos with structured tables (57 tables in the new Act versus 18 in the old) and formulae (46 formulae versus 6). This tabular format allows taxpayers and software systems to parse rules as structured data rather than interpreting paragraph-length sentences.

The Review Process

The CBDT's 22 sub-committees included senior tax officers, legal experts, chartered accountants, and technology specialists. Each sub-committee focused on a specific area: one on salary and employment income, another on business income, a third on capital gains, and so on. The 6,500 accepted suggestions covered areas like redundant provisions that no longer applied (references to the pre-GST excise and service tax regime), overlapping sections that could be merged, and provisions where the same rule was stated in slightly different language across multiple sections.

Key Changes: Old Act vs New Act Comparison

The structural differences between the Income Tax Act, 1961, and the New Income Tax Act, 2025, are substantial even though the tax policy remains identical. This comparison table highlights every major structural change businesses need to track.

Section Mapping: Old Act to New Act

The most operationally critical information for businesses is the mapping of frequently used old sections to their new clause numbers. The CBDT will publish the complete official mapping before 1 April 2026. The following table covers the 20 sections most commonly used by businesses in daily compliance.

The Tax Year Concept Explained

One of the most visible changes in the new Act is the replacement of the Previous Year and Assessment Year system with a unified Tax Year concept. This change affects how businesses label their financial records, compliance documents, and communication with the Income Tax Department.

How the Old System Worked

Under the Income Tax Act, 1961, income earned during a financial year (called the Previous Year, e.g., 1 April 2024 to 31 March 2025) was assessed in the following year (called the Assessment Year, e.g., AY 2025-26). This created a dual-year reference system where the same income was described as "PY 2024-25" or "AY 2025-26" depending on context. Tax challans, ITR forms, and TDS certificates all used the Assessment Year label, while accounting records used the Financial Year label.

How the New System Works

The new Act introduces a single Tax Year reference. Tax Year 2026-27 covers income earned from 1 April 2026 to 31 March 2027, and the return for this income is filed under the same Tax Year label. There is no separate Assessment Year designation. All forms, challans, certificates, and communications from the Income Tax Department will use the Tax Year reference from 1 April 2026 onwards.

What Businesses Need to Change

Update these items to reflect the Tax Year concept:

• Accounting software settings: Change the year label from "AY/PY" to "Tax Year" in all reports and outputs
• Compliance calendars: Relabel deadlines from "AY 2026-27" to "Tax Year 2026-27"
• Board meeting agenda templates: Replace "Assessment Year" references with "Tax Year"
• Employee communications: Update Form 16 distribution cover letters and investment declaration forms
• TDS challan references: Use Tax Year instead of Assessment Year in challan particulars
• Tax audit reports: Reference the Tax Year in Form 3CA/3CB and Form 3CD headers

Impact on Different Business Entities

The transition affects every type of business entity registered in India, but the specific compliance changes vary by entity type. Here is a detailed breakdown by business structure.

Private Limited Companies

Private Limited Companies face the highest volume of compliance updates because they interact with the Income Tax Act across multiple touchpoints: corporate tax returns (ITR-6), TDS on employee salaries (old Section 192), TDS on vendor payments (old Sections 194C, 194J, 194H), advance tax payments, tax audit under old Section 44AB, and transfer pricing documentation for companies with international transactions.

Key actions for Private Limited Companies:

• Update the company's TDS policy manual with new clause references for all deduction types
• Revise board resolution templates that cite Income Tax Act sections (dividend distribution, CSR spending, director remuneration)
• Coordinate with the statutory auditor for updated tax audit formats under the new clause structure
• Confirm that payroll software will generate Form 16 with new clause references for Tax Year 2026-27
• Update the annual compliance checklist to map each old section to the new clause

Limited Liability Partnerships (LLPs)

LLPs have a simpler income tax compliance structure than companies but still need targeted updates. The flat 30% tax rate for LLPs continues under the new Act. Partner remuneration computation (governed by old Section 40(b)) maps to a new clause with identical limits.

Key actions for LLPs:

• Review the LLP Agreement for any references to Income Tax Act, 1961 sections and update them
• Update the partner remuneration computation sheet with new clause references
• Revise the LLP annual compliance calendar to use Tax Year terminology
• Ensure the designated partner's DSC is valid for filing under the updated e-filing portal interface

Startups Registered Under DPIIT

DPIIT-recognised startups claiming the 3-year tax holiday under old Section 80-IAC must verify that their eligibility window aligns with the transition date. If a startup's 3-year window spans both the old and new Acts (for example, starting in FY 2024-25 and ending in Tax Year 2027-28), the deduction continues without interruption under the new Act's corresponding clause.

Key actions for startups:

• Confirm the Startup India registration certificate references are valid under the new Act
• Verify that the 80-IAC deduction claim for the remaining tax holiday years maps correctly to the new clause
• Update investor communication and pitch decks that reference specific IT Act sections for tax benefits
• Review ESOP taxation provisions (old Section 17(2)(vi)) under the new clause structure

Sole Proprietorships and Freelancers

Sole proprietors and freelancers have the simplest transition. Their primary compliance involves ITR filing (ITR-3 or ITR-4), TDS certificates (Form 16A), and advance tax payments. The presumptive taxation provisions (old Sections 44AD and 44ADA) continue at the same thresholds under new clauses.

Key actions:

• Update personal records of section references used in previous ITR filings
• Verify that the CA or tax filing service is prepared for the new clause-based forms
• Confirm advance tax challan procedures under the new Tax Year system

Step-by-Step Transition Process for Businesses

The transition from the Income Tax Act, 1961, to the New Income Tax Act, 2025, is an administrative exercise, not a tax planning decision. Since no rates or rules change, the focus is on updating references, systems, and processes. Follow this 10-step process to ensure a complete transition before 1 April 2026.

Step 1: Audit All Current IT Act References (Week 1)

Assign your finance team or Company Secretary to audit every document, template, and software configuration that references Income Tax Act, 1961 section numbers. Create a centralised spreadsheet listing: document name, specific section referenced, purpose of the reference, and current status. Common documents include: board resolutions (referencing Sections 2(22), 115BAA, 194), employment contracts (referencing Section 10(13A) for HRA, Section 80C for investment declarations), TDS policy documents, and tax audit checklists.

Step 2: Obtain the CBDT Section Mapping (Week 1-2)

Download the official CBDT notification mapping old sections to new clauses from incometax.gov.in. If the final notification is not yet published, use the Bill text (622 pages, publicly available) to create a preliminary mapping for your most-used sections. The confirmed mappings (Section 139 to Clause 263, Chapter VI-A to Chapter VIII) provide the starting framework. Fill in the "new clause" column in your audit spreadsheet.

Step 3: Prioritise High-Impact Documents (Week 2)

Rank documents by compliance risk. Priority 1: TDS policy and challan templates (incorrect references cause processing errors). Priority 2: ITR filing checklists and tax audit working papers (used in every annual filing). Priority 3: Employment contracts and salary structures (affect employee tax computations). Priority 4: Board resolutions and legal agreements (less frequent but legally binding references).

Step 4: Update TDS/TCS Compliance (Week 2-3)

The TDS chapter consolidation is the single largest operational change. Map every TDS section your business uses:

• Section 192 (TDS on salary) to the corresponding new clause
• Section 194A (TDS on interest) to the corresponding new clause
• Section 194C (TDS on contractor payments) to the corresponding new clause
• Section 194J (TDS on professional fees) to the corresponding new clause
• Section 194H (TDS on commission) to the corresponding new clause
• Section 194I (TDS on rent) to the corresponding new clause
• Section 206C (TCS provisions) to the corresponding new clause

Update your TDS compliance calendar, quarterly return templates (Form 24Q, 26Q, 27Q), and challan payment records with new references.

Step 5: Coordinate Software Updates (Week 2-3)

Contact your accounting software vendor (Tally, Zoho Books, QuickBooks, custom ERP) and confirm:

• The timeline for releasing a new Act-compatible update
• Whether the update will automatically remap section references or require manual configuration
• The cost of the update (if any) and whether it is covered under existing AMC
• Testing availability: can you run the updated version in parallel before 1 April 2026?

Step 6: Revise Legal Documents (Week 3)

Work with your legal team or Company Secretary to update:

• Articles of Association (AoA) clauses referencing IT Act sections
• Shareholder agreements with tax indemnity clauses citing specific sections
• Employment offer letters and appointment letters referencing exemptions
• LLP Agreements referencing partner remuneration computation sections
• Vendor contracts with TDS clauses citing specific section numbers

Step 7: Train the Team (Week 3)

Conduct a 2-hour training session covering:

• The new 23-chapter structure and how to locate provisions
• Top 20 section-to-clause mappings relevant to your business
• The Tax Year concept and how it replaces AY/PY
• How to read table-based provisions (57 tables in the new Act)
• Updated e-filing portal interface (expected changes for Tax Year 2026-27)

Step 8: Update Filing Templates (Week 3-4)

Revise every template used in annual compliance:

• Tax audit working papers (Form 3CD clause references)
• ITR preparation checklists
• Advance tax computation sheets
• Form 16/16A generation templates
• ROC annual filing notes that cross-reference IT Act provisions

Step 9: Run a Parallel Test (Week 4)

In March 2026, process one complete payroll cycle and one set of vendor payments using the new clause references alongside the old section references. Compare outputs: TDS amounts should be identical (rates have not changed), but the section/clause references in challans and certificates should reflect the new Act. Fix any discrepancies before the live cutover on 1 April 2026.

Step 10: Go Live and Monitor (1 April 2026)

From 1 April 2026, all new transactions fall under the New Income Tax Act, 2025. Monitor the first month closely:

• Verify TDS challans are accepted with new clause references on the OLTAS portal
• Confirm that the e-filing portal accepts returns with new clause-based ITR forms
• Check that Form 16 generation for April salaries uses new references
• Address any software bugs or template errors immediately

Cost of Transitioning to the New Income Tax Act 2025

The transition involves zero government fees since the new Act applies automatically. All costs are internal: professional advisory, software updates, and staff training. Here is a detailed cost breakdown by business size.

All transition costs are deductible as business expenses under both the old Act (for costs incurred before 31 March 2026) and the new Act (for costs incurred from 1 April 2026). Maintain proper invoices and payment records for these expenses.

Timeline for the New Income Tax Act 2025 Transition

The timeline below covers the legislative progression and the preparation milestones for businesses.

Tables and Formulae: The New Format Explained

The shift from provisos to tables is one of the most practical improvements in the new Act. Understanding how the new format works helps businesses read and apply provisions faster.

How the Old Act Presented Rules

Under the Income Tax Act, 1961, a rule with multiple conditions was written as a paragraph followed by provisos. For example, TDS on rent (Section 194I) had the main provision, a proviso for the threshold limit, an explanation defining "rent," and additional provisos for specific exemptions. A reader had to parse the entire section sequentially, mentally holding each condition, before understanding the final rule.

How the New Act Presents Rules

The same rule under the new Act is presented as a table with columns for: condition, applicable rate, threshold, and exceptions. The 57 tables in the new Act cover TDS rates (one master TDS table replacing multiple sections), slab rates, depreciation rates, penalty rates, and time limits for various filings. Each table row is self-contained: a reader can locate the applicable row without reading the entire provision.

Formulae for Complex Computations

The old Act described complex computations like deemed income under transfer pricing, MAT credit calculation, and set-off of losses in paragraph form. The new Act expresses these as mathematical formulae (46 formulae versus 6 in the old Act). For example, the formula for computing book profit under MAT provisions is now stated as an algebraic expression with defined variables, replacing a paragraph-length computation instruction.

This structured approach benefits accounting software vendors who can now parse rules programmatically from the statutory text rather than interpreting natural language descriptions.

TDS and TCS Changes Under the New Act

While TDS rates and thresholds remain unchanged, the structural reorganisation of TDS provisions is the single most impactful change for business compliance teams that process payments daily.

Old Structure: Scattered Across 15+ Sections

Under the old Act, TDS provisions were spread across Sections 192 (salary), 193 (interest on securities), 194 (dividends), 194A (other interest), 194B (lottery winnings), 194C (contractor payments), 194D (insurance commission), 194H (commission), 194I (rent), 194J (professional fees), 194N (cash withdrawals), 194Q (purchase of goods), and several others up to Section 206C for TCS. A business making 6 types of payments needed to reference 6 different sections, each with its own threshold, rate, and proviso structure.

New Structure: One Chapter, Sequential Clauses

The new Act consolidates all TDS and TCS provisions into a single chapter with clauses arranged in logical sequence. A master TDS rate table lists all payment types, applicable rates, thresholds, and exceptions in one place. This table-based format means a compliance officer can look up the TDS rate for any payment type from a single reference point instead of flipping through 15+ sections.

What Businesses Must Update

• TDS payment challans: Update the section/clause code used when depositing TDS with the bank
• Quarterly TDS returns: Forms 24Q (salary), 26Q (non-salary), and 27Q (NRI payments) will reference new clause numbers
• Form 16 and 16A: TDS certificates issued for Tax Year 2026-27 must carry new clause references
• Vendor communication: Lower deduction certificates (old Section 197) will reference the new clause number
• TDS compliance software: Confirm the vendor has updated the clause mapping in the software before April 2026

Common Issues During the Transition

Based on previous legislative transitions (GST in 2017, Companies Act 2013 replacing the 1956 Act), businesses face predictable challenges. Identifying these issues early allows you to prevent them.

Issue 1: Old Section Numbers Persisting in Templates

The most common error is submitting filings or documents with old section numbers after the cutover date. This happens when businesses update their primary templates but miss secondary documents like internal memos, email templates for TDS intimation to vendors, investment declaration forms sent to employees, and automated email notifications from accounting software.

Solution: Run a text search (Ctrl+F for "Section" or "Sec.") across all document templates, email templates, and software-generated outputs in March 2026 to catch residual old references.

Issue 2: Software Update Delays

Accounting and ERP software vendors release updates based on the CBDT's final notification timeline. If the CBDT publishes final rules in February 2026 (one month before the effective date), software vendors need time to develop, test, and deploy updates. Businesses using the software in the interim face a gap.

Solution: Contact your software vendor by October 2025 and ask for their planned update timeline. If the vendor cannot confirm an update before 1 April 2026, evaluate alternative software or plan for manual workarounds during the transition month.

Issue 3: E-Filing Portal Transition Errors

The Income Tax e-filing portal at incometax.gov.in will undergo interface updates for the new Act. Early filings after 1 April 2026 (advance tax challans, TDS returns for Q1) carry a higher risk of portal-side issues: incorrect form versions, validation errors on new clause codes, or mismatched references between the portal and the new Act.

Solution: File the first transactions under the new Act within the first two weeks of April 2026, not on 1 April itself. This allows the portal to stabilise after the initial cutover. Keep screenshots of every filing as evidence in case of processing disputes.

Issue 4: Confusion Between Old and New Act Proceedings

Businesses with pending assessments, appeals, or reassessments for AY 2025-26 and earlier will operate under the old Act for those proceedings while simultaneously complying with the new Act for Tax Year 2026-27 income. This dual-track operation confuses teams that are not trained to distinguish which Act applies to which year.

Solution: Create separate folders (physical and digital) for old Act proceedings and new Act compliance. Label all documents clearly with the applicable Act version. Assign specific team members to handle old Act matters and others to handle new Act compliance during the overlap period (April 2026 to completion of all old Act proceedings).

Issue 5: Vendor and Client Communication Gaps

Businesses that issue TDS certificates, lower deduction certificates, or tax invoices referencing IT Act sections need to ensure their vendors and clients understand the new references. A vendor receiving a Form 16A with unfamiliar clause numbers instead of the expected Section 194C reference will raise queries.

Solution: Send a proactive communication to all regular vendors and clients in March 2026 explaining the transition. Include a brief note: "From 1 April 2026, TDS certificates and challans will reference clause numbers under the New Income Tax Act, 2025, replacing section numbers under the old Act. TDS rates and amounts remain unchanged."

Deductions and Exemptions: What Stays the Same

A critical reassurance for businesses: every deduction and exemption available under the Income Tax Act, 1961, continues at identical limits under the New Income Tax Act, 2025. The following list confirms the continuity of the most-used provisions.

Deductions That Continue Unchanged

• Section 80C equivalent (Chapter VIII): ₹1.5 Lakh limit for EPF, PPF, ELSS, life insurance, NSC, tuition fees
• Section 80D equivalent: ₹25,000 (self), ₹50,000 (senior citizen parents) for health insurance premium
• Section 80G equivalent: 50% or 100% deduction for donations to specified charitable institutions
• Section 80-IAC equivalent: 3-year tax holiday for DPIIT-recognised startups with turnover under ₹100 Crore
• Section 80CCD(2) equivalent: Employer NPS contribution up to 14% of salary (Central Government) or 10% (others)
• Section 24(b) equivalent: Home loan interest deduction up to ₹2 Lakh for self-occupied property

Exemptions That Continue Unchanged

• Section 10(13A) equivalent: HRA exemption based on rent paid, salary, and metro/non-metro city
• Section 10(10) equivalent: Gratuity exemption up to ₹20 Lakh
• Section 10(10AA) equivalent: Leave encashment exemption up to ₹25 Lakh (for non-government employees)
• Section 10(10D) equivalent: Life insurance maturity proceeds (subject to premium conditions)

Corporate Tax Rates That Continue Unchanged

• Section 115BAA equivalent: 22% (plus surcharge and cess) for domestic companies forgoing exemptions
• Section 115BAB equivalent: 15% (plus surcharge and cess) for new manufacturing companies incorporated after 1 October 2019
• Section 115BAC equivalent: Graded slab rates (0% to 30%) for individuals and HUFs under the new tax regime
• LLP/Partnership firm rate: 30% flat rate continues unchanged

How the New Act Affects Annual Compliance

Every recurring annual compliance activity for businesses undergoes a reference update. The compliance process itself does not change; only the section/clause numbers change.

Income Tax Return Filing

The ITR filing process, forms, and due dates remain functionally identical. ITR-1 (Sahaj) through ITR-7 continue as the applicable return types. The due dates (31 July for non-audit cases, 31 October for audit cases) are expected to remain the same under the new Act. The e-filing portal at incometax.gov.in will host updated forms referencing new clause numbers. File your income tax return using the updated forms from Tax Year 2026-27.

Tax Audit Compliance

The tax audit threshold (₹1 Crore turnover, or ₹10 Crore for 95% digital transactions) and Form 3CA/3CB/3CD structure continue. Auditors will update their working papers and the Form 3CD annexure to reference new clause numbers. The first tax audit under the new Act covers Tax Year 2026-27 and is due by 30 September 2027 (expected due date).

TDS Return Filing

Quarterly TDS returns (Form 24Q, 26Q, 27Q) continue on the same schedule. The TRACES portal will be updated to accept new clause codes. The first TDS return under the new Act covers Q1 of Tax Year 2026-27 (April to June 2026), due by 31 July 2026.

Advance Tax Payments

The four-instalment advance tax schedule continues: 15% by 15 June, 45% by 15 September, 75% by 15 December, and 100% by 15 March. Interest provisions for shortfall and deferment (old Sections 234B and 234C) continue at the same rates (1% per month) under new clauses.

ROC and Companies Act Compliance

ROC filings under the Companies Act, 2013, are unaffected by the new Income Tax Act. ROC annual filing (Form AOC-4, MGT-7) remains independent. However, the Director's Report and Board's Report that reference income tax provisions must be updated to cite new clause numbers from Tax Year 2026-27 onwards.

GST Compliance

GST return filing is governed by the CGST Act, 2017, and is completely unaffected by the new Income Tax Act. GSTR-1, GSTR-3B, and annual return (GSTR-9) processes, forms, and deadlines remain unchanged. Businesses do not need to make any GST-related changes for the income tax transition.

Preparing Your Accounting Software

Accounting software is the backbone of tax compliance for businesses. The transition requires software-level changes that businesses need to plan and validate.

What Software Vendors Need to Update

• TDS section codes: Every TDS entry in the software references a section number (192, 194C, 194J). These must map to new clause numbers
• ITR form templates: Software that generates ITR-ready data must output new clause-compliant formats
• Challan generation: TDS and advance tax challans must carry new clause codes for the OLTAS/TIN system to accept them
• Form 16/16A templates: Auto-generated TDS certificates must display new clause references
• Report headers: Profit & Loss reports, tax computation sheets, and compliance reports referencing AY must switch to Tax Year

Vendor Coordination Checklist

1. Contact the vendor by October 2025 and request their update roadmap for the new Act
2. Confirm whether the update is included in the existing AMC or requires additional payment
3. Request a beta/test version at least 4 weeks before 1 April 2026
4. Run parallel testing: process the same transactions through old and new versions and verify identical TDS amounts with updated clause references
5. Have a rollback plan in case the update introduces bugs on 1 April 2026

What Does Not Change Under the New Act

For clarity, here is a definitive list of elements that remain identical under the New Income Tax Act, 2025. Reference this list when evaluating transition impact.

• Tax rates: Individual slab rates, corporate rates (22%/25%/30%), LLP rate (30%), startup rate, manufacturing rate (15%)
• Deduction limits: 80C (₹1.5 Lakh), 80D (₹25,000/₹50,000/₹1 Lakh), 80G percentages, NPS limits
• Exemption amounts: Gratuity (₹20 Lakh), leave encashment (₹25 Lakh), HRA calculation formula
• Filing due dates: 31 July (non-audit), 31 October (audit), 30 November (transfer pricing)
• Advance tax instalments: Four quarterly instalments with the same percentage distribution
• Tax audit thresholds: ₹1 Crore (₹10 Crore for 95% digital) for business; ₹50 Lakh for professionals
• Presumptive taxation limits: Section 44AD (₹3 Crore turnover), Section 44ADA (₹75 Lakh receipts)
• Interest rates on default: 1% per month under old Sections 234A, 234B, 234C equivalents
• Penalty rates: 50% for underreporting, 200% for misreporting (old Section 270A equivalents)
• TDS rates: All TDS rates (1%, 2%, 5%, 10%, 20%, etc.) remain identical under new clauses
• GST compliance: Entirely separate legislation; no changes from the new Income Tax Act
• ROC/MCA filings: Governed by the Companies Act, 2013; unaffected by income tax changes

Transitional Provisions: How Pending Matters Are Handled

The New Income Tax Act, 2025, includes specific transitional provisions that address the overlap between the old and new Acts. These provisions govern how pending assessments, appeals, reassessments, and other proceedings initiated under the old Act are resolved after 1 April 2026.

Pending Assessments and Reassessments

Any assessment or reassessment proceeding initiated by the Assessing Officer under the old Act for AY 2025-26 or earlier assessment years continues under the provisions of the Income Tax Act, 1961. The Assessing Officer uses old section references, old penalty provisions, and old procedural rules for these matters. If a notice under old Section 148 (reassessment) was issued before 1 April 2026, the entire reassessment proceeding is governed by the old Act, even if the reassessment order is passed after 1 April 2026.

Pending Appeals Before CIT(A) and ITAT

Appeals filed before the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal (ITAT) for assessment years governed by the old Act are decided using old Act provisions. The appellate authorities apply the law as it existed for the relevant assessment year. Businesses with ongoing appeals do not need to re-file or convert their appeals to reference new clause numbers. The transitional provisions explicitly state that the old Act governs all proceedings relating to income earned before 1 April 2026.

Advance Rulings and Settlement Commission Matters

Applications pending before the Board for Advance Rulings (old Section 245N to 245V) continue under the old Act framework. The new Act's corresponding provisions apply only to applications filed on or after 1 April 2026. Businesses that have pending advance ruling applications should not withdraw and re-file; the existing application is processed under the old Act provisions that were in force when the application was filed.

Brought Forward Losses and Unabsorbed Depreciation

Losses incurred and carried forward under the old Act (business losses for up to 8 assessment years, unabsorbed depreciation with no time limit) continue to be available for set-off under the new Act. The transitional provisions ensure that a loss computed under old Section 72 (business loss carry forward) is recognised under the corresponding new clause for set-off against income of Tax Year 2026-27 and subsequent years. Businesses do not lose their brought forward losses due to the legislative transition.

Tax Credits and MAT Credit

MAT credit (Minimum Alternate Tax credit under old Section 115JAA) accumulated by companies under the old Act carries forward under the new Act. The credit is available for set-off against regular tax liability in Tax Year 2026-27 and subsequent years. The 15-year carry forward window continues from the year the credit was originally generated, not from the transition date. Companies should verify their MAT credit balance with the Centralised Processing Centre (CPC) before 1 April 2026.

Registration and Approvals Under the Old Act

Registrations granted under the old Act remain valid under the new Act:

• Section 12AB registration for charitable trusts: Valid under corresponding new clause
• Section 80G approval for donation-eligible institutions: Continues under new clause
• Section 10(23C) approval for educational/medical institutions: Remains valid
• Section 35 approval for scientific research institutions: Carries forward
• DPIIT recognition for Section 80-IAC startup deduction: Recognised under new clause

Businesses and institutions do not need to re-apply for these registrations. The transitional provisions deem all existing registrations as valid under the corresponding new clauses until their original expiry date.

International Business Implications

Businesses with cross-border transactions, foreign subsidiaries, or non-resident directors face additional transition considerations related to transfer pricing, DTAA references, and withholding tax on international payments.

Double Taxation Avoidance Agreements (DTAAs)

India's DTAAs with 90+ countries reference specific sections of the Income Tax Act. The new Act's transitional provisions and the Ministry of Finance will issue clarifications confirming that DTAA references to old Act sections are read as references to corresponding new clauses. Businesses do not need to renegotiate or re-execute DTAA-related certificates (Form 10F, Tax Residency Certificate) due to the transition.

Transfer Pricing Documentation

Transfer pricing provisions (old Sections 92 to 92F) are remapped to new clauses. Multinational businesses must update their transfer pricing documentation, master file, local file, and Country-by-Country Report (CbCR) to reference new clause numbers from Tax Year 2026-27. The arm's length principle, prescribed methods (CUP, RPM, CPM, TNMM, PSM), and documentation deadlines remain unchanged.

Withholding Tax on Payments to Non-Residents

TDS on payments to non-residents (old Section 195) and the requirement for lower/nil deduction certificates (old Section 197) are remapped to new clauses within the consolidated TDS chapter. Businesses making royalty, FTS (fees for technical services), interest, or dividend payments to non-residents must update their withholding tax compliance templates. The rates specified in DTAAs continue to override domestic rates where applicable.

Foreign Company Branch Offices and Liaison Offices

Foreign companies operating in India through branch offices or liaison offices file returns under the Income Tax Act. These entities must update their filing templates and compliance processes for the new clause structure. The branch profit tax provisions (if applicable) are remapped without rate changes. Liaison offices that file annual activity certificates with the RBI and income tax returns must ensure both filings reference the correct Act version based on the income year.

Related Resources

Use these resources to handle specific compliance tasks during and after the transition:

• Income Tax Return Filing: File ITR under both the old Act (AY 2025-26 and earlier) and the new Act (Tax Year 2026-27 onwards)
• Private Limited Company Compliance: Annual compliance checklist for Pvt Ltd companies including IT Act-related filings
• LLP Compliance: LLP annual return and income tax filing requirements
• GST Return Filing: GST compliance remains independent of the income tax transition
• ROC Annual Filing: Companies Act filings that cross-reference income tax provisions
• Startup India Registration: DPIIT recognition and Section 80-IAC tax holiday eligibility
• Private Limited Company Registration: New company incorporation with compliance setup under the new Act

Summary

The New Income Tax Act, 2025, replaces the Income Tax Act, 1961, from 1 April 2026 with 536 clauses across 23 chapters, cutting the statutory text by 50%. No new taxes, rates, deductions, or exemptions are introduced or removed. The three changes that affect daily business operations are: renumbered sections (now called clauses), the Tax Year concept replacing Previous Year and Assessment Year, and consolidated TDS/TCS provisions in a single chapter. Businesses need to audit all IT Act references in their documents, update accounting software, train finance teams, and run a parallel test before 1 April 2026. The transition costs range from ₹5,000 for sole proprietors to ₹80,000 for mid-size companies, entirely driven by professional advisory and software update expenses. Start preparation by October 2025 to avoid the year-end compliance crunch. File your income tax return using updated forms from Tax Year 2026-27, and keep the CBDT's official section-to-clause mapping table as your primary reference throughout the transition.