India is set for its biggest tax reform in over 60 years. The Income-tax Act, 2025, which received the President’s assent on August 21, 2025, will come into force from April 1, 2026. This new law will apply to all income earned in the financial year 2026-27 and onwards, completely replacing the Income-tax Act, 1961.
Key Terminology Changes ✍️
One of the most significant changes is a shift in terminology.
- The term “Previous Year” will now be called “Tax Year.”
- The term “Assessment Year” will no longer be used. Assessments will still happen in the year after the Tax Year, but the official terminology is being simplified.
According to CA Nitin Kaushik, this change will impact filing deadlines and compliance procedures, as everything will now be aligned with the Tax Year. He notes that tax professionals will need to adjust their reporting formats to stay compliant.
What Happens to the Old Act? 🔄
The Income-tax Act, 1961 will be repealed on April 1, 2026. However, it will continue to govern all pending cases and assessments from earlier financial years. This means both laws will operate in parallel for a transitional period, which could present some challenges for taxpayers and professionals.
Why This Matters 📈
This overhaul is a move to simplify India’s tax system, modernize legal language, and reduce litigation. It’s the first complete rewrite since 1961, and while it aims to make compliance easier, the transition period and new terminology may require a period of adjustment for everyone involved.