Compliance
Compliance Essentials for India’s Transition from Income Tax Act 1961 to 2025
With Act 1961 repealed from 1 April 2026, Indian taxpayers face major transition tasks — choosing correct forms, managing Tax Year vs Assessment Year, and filing “updated returns”.
By NomadicTax Research Team • 5-8 min read • August 17, 2026
## Understanding the Transition
India’s **Income-tax Act, 2025** has replaced the 1961 law effective **1 April 2026**. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/node/11678?utm_source=openai)) Taxpayers with income from FY 2025-26 and before follow the old law; FY 2026-27 income onward is under the new Act. New concepts like **“Tax Year”** replace “Assessment Year”. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/help/all-topics/e-filing-services/objective-and-scope-new-act-faq?utm_source=openai))
## Key Compliance Changes
| Topic | What Has Changed | Action Needed |
|---|---|---|
| TDS deductions | New exemptions for payments to IFSC units (aircraft/ship leases, financial income) under Notifications like 75/2026, 80/2026 | If you're lessor or service provider, file required declaration; if payer, adjust TDS withholding accordingly. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/sites/default/files/2026-07/EnNotification-no-75-2026.pdf?utm_source=openai)) |
| ITR forms & payments | Old ITR forms continue for AY 2026-27; new forms under the 2025 Rules are being rolled out. New challans for tax payments under the 2025 Act are live. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/latest-news?link=6&page=%2C3&year=2026&utm_source=openai)) |
| Filing deadlines & late fees | Returns for AY 2026-27 must be filed by **31 July 2026** for non-audit cases; late fee rules under section 234F continue under old Act until expiration. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/latest-news?utm_source=openai)) |
| Updated returns (common in discovery of omitted income) | Under Section 139(8A) of old Act; new Act allows **“updated returns”** under Section 263(6) within 48 months. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/node/11724?utm_source=openai)) |
## Practical Steps
- **Verify which Act applies**: If your income is from before 1 April 2026 (i.e. FY 2025-26 or earlier), old law governs. Post April 2026 incomes fall under new laws.
- **Choose correct ITR form**: For AY 2026-27, use forms of old Act. For future returns (tax years from FY 2026-27), use new Act forms when notified.
- **Monitor TDS changes**: If paying to IFSC units, watch for declarations and don’t deduct TDS where eligible; if payments received, ensure the payer acted properly so your cash flows aren’t unnecessarily withheld.
- **Maintain filing history**: Keep records of declarations, receipts, and TDS certificates — these may be scrutinized under new rules.
## Examples
- **Example A**: Consultant services provided to IFSC unit starting June 2026. The payments fall under new exemptions under Notification 80/2026. The firm must ensure correct service classification and declaration to claim non-TDS status.
- **Example B**: If you discover unreported income in AY 2024-25 after 1 April 2026, you can still file an updated return under section 139(8A) of old Act within the timeframe. New Act’s updated return provision kicks in for incomes earned in FY 2026-27 onward.
## Pitfalls to Avoid
- Using wrong forms: Filing under new Act when your return relates to the old Act period or vice versa can lead to rejection or penalties.
- Ignoring transitional rules: Assess pending assessments, notices, etc., must be completed under old Act if they relate to pre-April 2026 periods. ([incometax.gov.in](https://www.incometax.gov.in/iec/foportal/help/all-topics/e-filing-services/objective-and-scope-new-act-faq?utm_source=openai))
- Neglecting declaration requirements for IFSC benefits — missing 20-year statements results in TDS applying.
## Conclusion
The passage of Income-tax Act, 2025 brings clarity and simplification, but compliance demands are shifting. Identify whether your obligations fall under old or new law, adapt forms, manage TDS exemptions carefully, and retain robust documentation. These steps will help ensure smooth filings and avoid surprises during audits.