Income Tax Act 2025 vs Income Tax Act 1961: A Practical Auditor's Guide to What Changed

The Income-tax Act 2025 received Presidential assent in August 2025 and comes into force from 1 April 2026 (i.e., applicable from Assessment Year 2026-27 / Previous Year 2025-26 onwards for the first cycle, though full implementation phases through 2026-27). It replaces the Income-tax Act 1961, which has been the bedrock of Indian direct tax law for 64 years.

For Chartered Accountants, this is the single biggest shift in tax practice since GST. The substantive tax positions on most income heads stay broadly the same — the Act 2025 is a simplification and consolidation exercise rather than a wholesale policy redesign. But almost every section number that auditors have memorised over their careers has now changed. Form 3CD, Form 26AS, TDS challans, Schedule III disclosure references — all of this needs to be re-pointed to the new Act.

This guide walks through what's actually changed, what's stayed the same, and what concretely needs to be updated in your audit programme for FY 2026-27 onwards. Treat this as orientation, not authority — the Income-tax Department portal and the CBDT notifications page are the canonical sources.

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1. Why a new Act?

The 1961 Act had accreted over 750 sections, 14 Schedules, and thousands of provisos, explanations, and CBDT clarifications. Several Finance Acts each year layered new sections (115BAA, 115BAB, 115BAC, 115BAD, 115BBC, 115BBE, 115BBG, 115BBH) onto already-complex provisions. The result was a statute that even practitioners with 20+ years' experience had to look up before quoting.

The Act 2025 was drafted with three explicit objectives:

1. Plain-language drafting — provisions written in shorter sentences, fewer cross-references, more readable structure.
2. Consolidation — TDS / TCS rates that lived across Sections 192 through 196D (and various sub-sections) are now consolidated into two omnibus sections (392 and 393) with appended schedules.
3. Removal of redundancies — sections relating to obsolete situations (e.g. several pre-1991 transitional provisions, certain abolished cesses) have been removed.

Substantively, the Act 2025 preserves most of the 1961 framework. The big policy changes — new tax regime under Section 115BAC, faceless assessments, search and survey procedures, Section 44AB thresholds — are carried forward largely as-is. What changed materially is the structure, the section numbers, and the drafting style.

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2. Effective date and transition

• 1 April 2026 is the formal commencement date.
• Returns for AY 2025-26 (PY 2024-25) and earlier — file under the Income-tax Act 1961 as it stood.
• Returns for AY 2026-27 (PY 2025-26) onwards — file under the Income-tax Act 2025.
• Tax audit reports (Form 3CD) signed on or after 1 April 2026 referring to PY 2025-26 — under the new Act.
• TDS / TCS for transactions on or after 1 April 2026 — under new Act provisions (Sections 392 / 393 + new TDS Schedule).
• Pending assessments, appeals, and litigation — continue under the Act under which they originated (savings clause in the Act 2025).

CBDT has indicated phased rollout of certain rules (specifically e-filing portal updates and Form 3CD revisions) through Q1 / Q2 of FY 2026-27. Verify the operative date for any specific form before relying on it.

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3. Structure changes — the new chapter scheme

The 1961 Act ran 23 chapters, often with overlapping topics. The 2025 Act restructures into 15 cleaner chapters:

Chapter	Topic (Act 2025)	1961 Act mapping
I	Preliminary	Chapter I
II	Basis of charge	Chapter II
III	Incomes which do not form part of total income	Chapter III (Sec 10, 11, 12 etc.)
IV	Computation of total income	Chapters IV-VI
V	Income of other persons included in assessee's income	Chapter V (Sec 64-65)
VI	Aggregation of income and set-off / carry-forward of losses	Chapter VI (Sec 66-80)
VII	Deductions to be made in computing total income	Chapter VIA
VIII	Rebates and reliefs	Chapter VIII
IX	Companies — special provisions	Chapter XII-DA + XII-H
X	Special provisions relating to avoidance of tax	Chapter X / X-A
XI	Income-tax authorities	Chapter XIII
XII	Procedure for assessment	Chapter XIV
XIII	Collection and recovery of tax	Chapter XVII (TDS, TCS, advance tax, recovery)
XIV	Appeals and revision	Chapter XX
XV	Miscellaneous	Chapters XXII / XXIII

The substantive provisions are largely preserved but renumbered consistently within each chapter. For auditors, this means rebuilding the section-reference map in your working paper templates.

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4. The big consolidation — TDS / TCS (Sections 392 & 393)

The single most consequential change for tax-audit and TDS-verification work. Under the 1961 Act, TDS rates were scattered across Sections 192 (salaries), 193 (interest on securities), 194 (dividends), 194A (interest other than securities), 194B (lottery winnings)... and so on through 196D. Each section had its own threshold, rate, exemption, certificate-for-lower-deduction provisions, and reporting form. Section 392 of the Act 2025 consolidates all TDS provisions into a single section with appended schedules. Section 393 does the same for TCS.

What this means practically:

• TDS rate by section reference is now Section 392(1) Item N rather than Section 194C. The thresholds and rates are preserved.
• A TDS Master Schedule appended to the Act enumerates all deductible payments, the threshold, the rate, the deductee category, and the form / certificate reference.
• Form 26Q, 27Q, 26QA — the return forms — get revised section-reference fields. CBDT issued draft formats in Notification dated 12 March 2026; expect final formats by July 2026.
• TDS challans (ITNS 281 family) get a section-mapping table on the back so deductors can match the new Section 392 item number with the old Section 194-series reference they're used to.
• TAN and other deductor infrastructure unchanged.

Section 194-series to Section 392-Item mapping (high-frequency items)

1961 Act	Description	Act 2025
Section 192	TDS on salary	Section 392(1) Item 1
Section 193	TDS on interest on securities	Section 392(1) Item 2
Section 194	TDS on dividends	Section 392(1) Item 3
Section 194A	TDS on interest other than securities	Section 392(1) Item 4
Section 194C	TDS on payment to contractors	Section 392(1) Item 7
Section 194H	TDS on commission / brokerage	Section 392(1) Item 12
Section 194I	TDS on rent	Section 392(1) Item 13
Section 194J	TDS on fees for professional or technical services	Section 392(1) Item 14
Section 194Q	TDS on purchase of goods	Section 392(1) Item 24
Section 195	TDS on payments to non-residents	Section 392(1) Item 31
Section 206C	TCS provisions	Section 393 (with sub-items)

The item numbers above are illustrative based on the Bill as introduced; the final order in the appended Schedule of Section 392 may differ. Verify against the CBDT-published Section 392 Schedule.

Audit implications

For Form 3CD Clause 34 (TDS / TCS information), this changes everything:

• Every TDS entry referenced by the old Section number needs to be re-stated against the new Section 392 item.
• TDS certificates (Form 16, Form 16A, Form 27D) issued before 1 April 2026 retain old Section references; those issued on or after will use new ones. For audit of FY 2025-26, certificates may straddle both formats.
• The auditor needs to confirm the deductor has correctly mapped each payment to the right Section 392 item and applied the right rate — this is now a substantive re-test, not the routine procedure it used to be.
• 26AS / AIS / TIS will use the new references; the auditor's reconciliation between books and 26AS must accommodate the renumbering.

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5. Tax Audit — Form 3CD changes

Form 3CD has been retained as the prescribed format for tax audit reports under Section 44AB, but CBDT has issued a revised Form 3CD via Notification dated 20 April 2026, effective for audit reports signed on or after 1 July 2026 (covering FY 2025-26 onwards). Key changes:

Clauses that have changed materially

• Clause 21(b) — Section 40(a) disallowances. References to old Section 195 (non-resident payments without TDS) now use Section 392(1) Item 31. Section 40(a)(ia) (resident payments without TDS) refers to Section 392(1) generally.
• Clause 22 — MSME interest disallowance reference updated to the corresponding section in the Act 2025 (was Section 23 of the MSME Development Act, that part of the disallowance is now in Income-tax Act 2025 cross-reference).
• Clause 26 — Section 43B disallowances. Now references the new section numbers for PF, ESI, GST, customs duty etc., consolidated under Chapter VII deductions of the Act 2025.
• Clause 31 — Cash payments and Section 269ST violations. The thresholds and prohibitions are preserved; section references in the form move from "Section 269SS / 269ST / 269T" to the new Act 2025 Section numbers (in Chapter X-A — anti-avoidance).
• Clause 34 — TDS / TCS information. This is the most affected clause. Every row needs the new Section 392 / 393 reference. Default mapping table provided in the Form 3CD utility.
• Clause 36A — Section 56(2)(viia) / (viib) deemed income. Updated section references.
• Clause 44 — Break-up of expenditure under GST (registered / not registered / composition / unregistered). Unchanged in substance, reference cross-mapped.

New clauses introduced

• Clause 45 — Reporting of any application of Section 132 (search and seizure surrender) — strengthens Clause 8 of the old form; now standalone.
• Clause 46 — Reporting of arrangements covered by the General Anti-Avoidance Rule (GAAR) under Chapter X of the Act 2025. The auditor must confirm whether any GAAR-impacted transaction was undertaken during the year.

Procedural change

The Form 3CD utility on the Income-tax e-filing portal has a section-reference auto-mapper. For audit reports of FY 2025-26 signed before 30 June 2026 (i.e. under transitional period), CAs can choose either the old Section reference or the new — both are accepted. From 1 July 2026 onwards, only the new Section references are accepted in the utility.

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6. Procedural law and faceless assessments

The Income-tax Act 2025 carries forward the faceless assessment, appeal, and penalty regimes essentially as the 1961 Act + Faceless Assessment Scheme 2019 framework had them. Renumbering follows:

• Section 143 (1961) — Assessment → Section 220 series (2025), specific items
• Section 144 (1961) — Best judgement assessment → Section 222 (2025)
• Section 147 / 148 (1961) — Income escaping assessment → Section 226 / 227 (2025)
• Section 250 (1961) — CIT(A) procedure → Section 320 series (2025)
• Section 253 (1961) — Appeals to ITAT → Section 322 (2025)

For audit firms with ongoing litigation (income-tax notices, appeals), pending matters continue under the section under which they originated (savings clause). New notices issued from 1 April 2026 onwards will reference the new sections.

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7. What hasn't changed (for the practitioner's relief)

• Tax rates for FY 2025-26 are as per Finance Act 2025 — same regime, same slabs, same surcharge structure (old + new regime parallel). The Act 2025 doesn't tinker with tax rates.
• Section 44AB threshold — ₹1 cr / ₹10 cr digital / ₹50 lakh professional — unchanged. (Just the section number in the new Act differs; substance the same.)
• Section 80C deductions family — preserved with new numbering.
• Presumptive taxation regimes (44AD, 44ADA, 44AE) — same thresholds, same eligibility, new numbering.
• CARO 2020 — unaffected; CARO is under the Companies Act 2013 and operates independently.
• GST framework — entirely separate Act; unaffected.
• TDS / TCS substantive obligations — rates and thresholds unchanged. Only section references changed.

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8. What auditors must do — a 10-point readiness checklist

A practical checklist your firm should complete before signing any audit report referring to FY 2025-26:

1. Update Form 3CD templates in your working papers to the revised April 2026 format. Map old Section references to new (using CBDT's published mapping table).
2. Brief the audit team on the Section 392 / 393 TDS consolidation. Junior staff who learned "Section 194C" now need to recognise "Section 392(1) Item 7".
3. Update engagement letters for tax audit + statutory audit engagements covering FY 2025-26 onwards — reference the Income-tax Act 2025 (in addition to or instead of the 1961 Act, depending on date).
4. Update working paper templates for: TDS reconciliation, MSME 43B, Section 269 cash transactions, Section 56(2) deemed income, GST disclosure (Clause 44).
5. Verify deductor's mapping on a sample basis — does the client's payroll system / accounts payable system reference the new Section 392 items correctly? Misclassification at source is a common audit finding.
6. Update CARO checklist — CARO 2020 is unaffected, but where CARO clauses reference the Income-tax Act (e.g. CARO clause (vii) on statutory dues), update to new Act references.
7. Review pending litigation for clients — savings clause means old Section references continue; new notices use new references. Maintain a litigation tracker that handles both.
8. Update Form 26AS / AIS reconciliation workpapers — new Section references appear in 26AS for transactions from 1 April 2026 onwards.
9. Refresh tax-audit training for articled assistants — much of what they've learned references the 1961 Act; they need orientation to the new structure.
10. Subscribe to CBDT notifications at incometax.gov.in/notifications — the transitional clarifications are issued frequently through 2026-27 and you don't want to be caught short.

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9. Risk areas — where audits will go wrong this year

Expect these failure patterns in FY 2025-26 tax audits:

• TDS section misclassification at deductor end — clients (especially mid-size) update their accounting software with new section references inconsistently. Some payment categories may still flow through old Section codes. Audit needs to detect.
• Form 3CD straddle issues — audits signed in June 2026 covering parts of FY 2025-26 (e.g. amalgamation accounting periods, prior year refunds). Which Form 3CD format applies? Refer to CBDT's transitional notification.
• Specific old-section references in client documents — engagement letters, MRLs, board minutes — may continue to reference 1961 Act sections. This is OK substantively but creates documentation hygiene issues at peer review.
• Cross-references in non-IT documents — Ind AS notes, CARO observations, financial statement notes — may cite 1961 Act sections. Decide your firm's convention: cite both, cite new only, or cite new with old in parentheses for clarity.
• Pending litigation references — pending appeals, settlement applications, advance ruling applications — all reference the 1961 Act. Make sure audit documentation distinguishes the regime properly.

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10. The bigger frame

For most working CAs in India, the Income-tax Act 2025 transition is not a substantive tax-policy change — it's a renumbering and consolidation exercise that touches every workpaper, every form, every template, and every memory you've built over your career around section numbers. The substantive law on most issues is preserved.

But the operational burden is real. The first cycle of audits under the new Act (FY 2025-26 reports signed in 2026) will be slower, the section-mapping cognitive overhead higher, and the risk of misclassification non-zero. By the FY 2026-27 cycle, the new section numbers will have replaced muscle memory.

For audit firms, the practical move is to update templates and brief the team before audit season starts — not during it. The renumbering is best handled as a one-off project in Q1 of the FY rather than transaction-by-transaction during fieldwork.

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How CORAA helps with the transition

CORAA's Reporting hub was updated for the revised Form 3CD format ahead of CBDT's April 2026 notification. Section 392 / 393 mapping is built into the TDS reconciliation work (CORAA's Reconciliation hub handles Form 26AS / AIS / 26Q matching with the new section references), and the Scrutiny hub flags TDS section-misclassification patterns at the deductor end. For firms not yet on CORAA, this guide should be a useful starting checklist — and the templates in our tools library are being updated through Q2 2026 to match the new Form 3CD format.

For the authoritative latest position, always refer to:

• Income-tax Department portal
• CBDT notifications and circulars
• ICAI Direct Taxes Committee updates and circulars

The Income-tax Act 2025 is a long-overdue clean-up. The discomfort of the first cycle is the cost of admission to a statute that's actually navigable for the next 20 years.