The Income-tax Act, 2025 is now live: meet the “Tax Year”

What changed

The Income-tax Act, 1961 ceased to be the operative law on 1 April 2026. In its place is the Income-tax Act, 2025 — a consolidation and simplification exercise rather than a change in tax policy. The accompanying Income Tax Rules, 2026 were notified by the CBDT in March 2026 and took effect on the same date.

The government's stated aim was shorter and clearer language, removal of obsolete provisions and a more logical structure. The statute is substantially smaller than the one it replaced, and the operative sections have been renumbered.

The most visible change for an ordinary filer is a single word.

“Previous Year” and “Assessment Year” become “Tax Year”

Under the old law you earned income in a previous year and it was assessed in an assessment year. Income earned in 2025-26 was assessed in AY 2026-27. Two labels for one stretch of time, and a reliable source of confusion at every filing season.

The new law uses one term: the Tax Year, a twelve-month period beginning 1 April. Income you earn between 1 April 2026 and 31 March 2027 is simply your income for Tax Year 2026-27. The substance is unchanged — income is still assessed after the year ends — but there is now one label instead of two.

Key highlights

• The Income-tax Act, 2025 applies to income earned from 1 April 2026 onward.
• Income earned up to 31 March 2026 continues to be governed by the 1961 Act.
• The first return under the new law will be filed in 2027, for Tax Year 2026-27.
• Rates, deductions and exemptions were not changed by the new Act itself.
• Pending assessments and appeals under the old Act continue until completed.
• New ITR forms are to be notified to reflect the consolidated provisions.

Why it matters — and where it does not

For most individual taxpayers, liability is unaffected. A rewrite that renumbers sections and retires archaic language does not by itself change what you owe. Where it matters is in the machinery: which form you file, which section numbers appear on notices and certificates, and which year label your paperwork carries.

That machinery matters more than it sounds. A mismatch between the year label on a capital gain statement and the year label on your return is exactly the kind of small discrepancy that generates a defective-return notice and a delayed refund.

What to check

1. Which law applies to the return you are filing now — returns for income up to 31 March 2026 still fall under the 1961 Act.
2. That statements you collect from banks, AMCs and registrars carry the year label you expect.
3. Whether any recurring reference in your records — a section number quoted in a declaration to your employer, for example — has been renumbered.
4. That your tax professional has confirmed which ITR form applies to you for Tax Year 2026-27 before the filing window opens.

Frequently asked questions