The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026. The first tax year under the new Act is 2026-27. The 1961 Act continues to govern earlier years, so returns, notices and assessments for AY 2026-27 and before are still handled under it.
Facts checked: 9 October 2026. Section 397 (higher rate where PAN is not furnished) and the Rules were read through the Income Tax Department's site as reported in search results; the department's own pages for section 393 and section 398 were read for our related articles on section 194H and Form 26A. The assent date (21 August 2025), the 1 April 2026 start and the Rules notification (G.S.R. 198(E), March 2026) are as reported by news and tax-media sources; confirm against the Gazette. Section counts and other mapping claims are not repeated here because we could not trace them to the Act.
The main changes
| Topic | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Applies from | Up to income of FY 2025-26 (AY 2026-27) | Tax year 2026-27 onwards |
| Time concept | Previous year and assessment year | Tax year |
| TDS on payments other than salary | Sections 194A, 194C, 194H and others | Section 393 |
| Higher TDS where payee gives no PAN | Section 206AA | Section 397(2) |
| TDS default and consequences | Sections 201(1) and 201(1A) | Section 398 |
| Rules | Income-tax Rules, 1962 | Income-tax Rules, 2026 |
Salary TDS is reported to sit in section 392, separate from 393. Section 398(2) of the 2025 Act carries the payee-relief route that Form 26A and the accountant's certificate serve under the 1961 Act; see our note on Form 26A.
What stays under the 1961 Act
Tax-year labels decide the Act, not the date a notice is issued. Returns for AY 2026-27 and earlier, proceedings on them (assessments, reassessments, appeals) and penalties for those years remain under the 1961 Act. The Rules notification is reported to state that it also preserves action under the older Rules for those periods. That is why a firm needs both books open for several years.
Tax audit for FY 2025-26 is still under section 44AB of the 1961 Act and the older forms; the extended date is covered in our note on the 21 October 2026 tax audit due date.
A practical scenario (illustrative)
A firm pays ₹40,000 commission to an agent in May 2026 and again in January 2027. Both payments fall in tax year 2026-27, so TDS is under section 393 of the 2025 Act (at the rate in its table). Suppose in September 2026 the firm gets a notice for a short deduction on a payment made in FY 2024-25. That default belongs to the 1961 Act: section 201 and its interest apply, not section 398. One client, two Acts. The amounts are invented.
What to do now
- Add a column to every working paper: "Act and section", for example "393 (2025 Act)" next to "194H (1961 Act)".
- Use the section mapper to translate numbers, then check them against the Act before you quote them in a report.
- Update engagement letters and templates for FY 2026-27 audits. The audit transition playbook covers this in detail.
- Re-read the new Rules and forms before filling any form for 2026-27 from memory.
Frequently asked questions
Does the 1961 Act still apply?
Yes, for income of earlier years and for proceedings relating to them. Check the year first.
What is "Income Tax 2.0"?
A popular name for the new Act, not a statutory term.
Is "assessment year" gone?
The new Act speaks of the tax year. The 1961 Act's assessment year continues only for earlier years, such as AY 2026-27.
Have the TDS rates changed?
Rates and thresholds are in the tables of section 393. Check each against the table; do not assume the 1961 Act rate carried over unchanged.
For a check on whether a client needs a tax audit, use the section 44AB applicability checker.
Statutory facts on this page are checked against their sources, and the page says where it relied on secondary reporting. How we verify · Report an error