India's income-tax law was rewritten for the first time in 64 years. The Income-tax Act, 2025 received assent on 21 August 2025 and came into force on 1 April 2026. For a business owner, the honest summary is: your tax bill does not change, but the language of every section, form and notice does. Here is what to know — and the one transition rule that prevents most of the confusion.

The transition rule that answers most questions

Two Acts are relevant in 2026, and the split is clean:

  • FY 2025-26 income — everything you earned up to 31 March 2026, returned during 2026 — is governed by the 1961 Act. Old sections, old forms, familiar ITRs.
  • Income from 1 April 2026 — the tax year 2026-27 — is governed by the 2025 Act. The first returns under it are filed in 2027.

So the return you file this season is an old-Act return. For AY 2026-27, non-audit individuals file by 31 July 2026 and audit cases by 31 October 2026; transfer-pricing cases run to 30 November 2026.

What actually changed: structure, not policy

The new Act is a rewrite for readability. The numbers tell the story: 819 sections became 536, 47 chapters became 23, and roughly 1,200 provisos and 900 explanations were absorbed into plain text. Tables replace prose, especially in TDS and exemptions. And the dual “previous year / assessment year” system — the single most confusing idea in Indian tax — is replaced by one “tax year”: the financial year in which you earn the income.

What does NOT change

Worth stating plainly, because this is where the fear-mongering lives:

  • Tax slabs and rates — unchanged. The new-regime slabs and the rebate that zeroes tax up to ₹12 lakh continue.
  • Corporate rates — unchanged; the 22% option (old 115BAA) continues as section 200, the default individual regime (old 115BAC) as section 202.
  • Deduction limits — the ₹1.5 lakh 80C-type limit continues as section 123; 80D becomes 126, 80G becomes 133.
  • Heads of income, audit thresholds, presumptive rates, capital gains rates — all carried over.

If a vendor or adviser tells you the new Act demands a wholesale tax re-plan, ask them which rate changed. The answer is none.

For reference, the default-regime slabs that continue for individuals: nil up to ₹4 lakh, then 5% (4–8L), 10% (8–12L), 15% (12–16L), 20% (16–20L), 25% (20–24L) and 30% above ₹24 lakh. The rebate under section 156 (earlier 87A) of up to ₹60,000 means a resident with taxable income up to ₹12 lakh pays no tax in the new regime; salaried taxpayers add the ₹75,000 standard deduction, taking the effective tax-free line to ₹12.75 lakh. One caution that catches proprietors: the rebate does not apply against special-rate income such as listed-equity LTCG.

Presumptive taxation: section 58 (earlier 44AD, 44ADA, 44AE)

The three presumptive schemes for small businesses, professionals and transporters now live together in a single section 58. The substance is intact: declare profits at the prescribed presumptive rate, skip detailed books and audit, and keep compliance light. Non-resident presumptive schemes (old 44B-series) sit in section 61, and the books-of-account requirement (old 44AA) in section 62.

The old trap also survives: if you are eligible for the presumptive scheme but declare lower profits while your income exceeds the basic exemption, you can be pushed into maintaining books and getting audited. Presumptive is a commitment, not a toggle.

Who should look hard at section 58? Small traders and service businesses with healthy margins and clean digital receipts — the scheme trades a deemed profit for genuinely lighter compliance. Who should not? Businesses with thin real margins, heavy expenses, or plans to raise funding or borrow on the strength of audited financials. Once you opt out after opting in, re-entry restrictions can follow you for years, so treat the election as a multi-year decision.

Tax audit: section 63 (earlier 44AB)

The audit thresholds are unchanged — ₹1 crore for business, ₹10 crore where cash receipts and payments are each within 5%, and ₹50 lakh / ₹75 lakh for professionals. Forms 3CA/3CB/3CD continue for AY 2026-27. The full detail, including the widely misread 5% cash test, is in our dedicated guide to the tax audit under section 63 (earlier 44AB).

The short version

Rates, thresholds and policy: unchanged. Numbering: all new from 1 April 2026 — presumptive tax is section 58, audit is section 63, your return is filed under section 263. FY 2025-26 returns filed this year still run on the 1961 Act. The work for businesses is housekeeping: update references, retrain habits, keep the two years cleanly apart.

Filing returns: section 263 (earlier 139)

The return-filing machinery is renumbered as a block: section 263 for the return of income (old 139), section 262 for PAN/Aadhaar (old 139A/139AA), section 266 for self-assessment (old 140A). One genuine improvement rides along: the updated-return window is 48 months (section 267, extending the old 140B mechanism) — four years to come clean on a missed item, against the original two.

TDS: the renumbering your systems will notice first

For most businesses, the first place the new Act shows up is TDS. Salary deductions move to section 392, every non-salary deduction consolidates into the table-based section 393, and lower-deduction certificates move to section 395 with Form 128. The certificates and statements you handle — Form 16, 26AS, 24Q, the 26QB family — are all renamed. We have mapped every change in TDS under the Income-tax Act 2025, and the renumbered capital gains provisions in our guide to capital gains under the new Act.

A practical checklist for 2026

  • File FY 2025-26 on time under the old Act — 31 July or 31 October 2026 depending on audit status.
  • Update templates — contracts, rent agreements and engagement letters that quote sections should cite new numbers with old ones in parentheses.
  • Check your software — payroll and accounting systems must map to sections 392/393 and the new forms for tax year 2026-27.
  • Decide presumptive vs books early — the section 58 election shapes your audit exposure for the year.
  • Watch the cash test — the ₹10-crore audit limit needs both receipts and payments within 5% cash.
  • Keep GST in view — income-tax turnover and GST turnover get reconciled in audit; the January 2026 GST changes tightened that side too.
The 1961 Act took six decades to become unreadable. The 2025 Act's real gift to business owners is not a lower tax bill — it is a law you can actually look up yourself.

Where we fit in

Our taxation practice handles the full transition — FY 2025-26 filings under the old Act, new-Act readiness reviews, presumptive-vs-books decisions and TDS system checks — alongside the firm's audit work. If you want a one-hour review of what the renumbering touches in your business, get in touch.

SL
Reviewed by CA. Sunil Kumar Lahoti Founding Partner, S. K. Lahoti Associates, Chartered Accountants — advising Indian businesses since 1989.

Frequently asked questions

No. The 2025 Act is a rewrite for clarity, not a rate change. Slabs, corporate rates, deduction limits (the ₹1.5 lakh 80C limit continues as section 123) and core policy all carry over. What changes is the structure: 819 sections become 536, section numbers move, and “tax year” replaces the previous year / assessment year system.

The Income-tax Act, 1961. The 2025 Act governs income earned from 1 April 2026 (tax year 2026-27), and the first returns under it are filed in 2027. So returns filed during 2026 use the old Act, old section numbers and the familiar ITR forms.

They merged into section 58 of the Income-tax Act 2025, together with 44AE. The presumptive schemes themselves — for small businesses, professionals and transporters — continue with the same substance under the single new section.

Section 263 of the 2025 Act replaces section 139. PAN and Aadhaar provisions sit in section 262, self-assessment in section 266, and the updated-return mechanism in section 267 — with the window to file an updated return extended to 48 months.

The single 12-month financial year, beginning 1 April, in which income is earned — defined in section 3 of the 2025 Act. It replaces the old dual system of “previous year” (when you earned) and “assessment year” (when you were assessed), which confused taxpayers for decades.

Mostly housekeeping: update section references in contracts and systems, check that payroll and TDS software uses the new numbering for tax year 2026-27, and keep FY 2025-26 records clearly separated under the old Act. The obligations themselves are familiar; the labels are new.