Income-tax transition in 2026: which rules apply to which period?
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Income tax
India’s Income-tax Act, 2025 came into force on 01-04-2026. That date did not move every tax return, payment and proceeding to the new Act at once. The period to which the income or proceeding relates determines which law applies.
This produces an overlap during 2026. A taxpayer may file a return for income earned up to 31-03-2026 under the Income-tax Act, 1961 while paying advance tax for income from 01-04-2026 under the Income-tax Act, 2025.
The Act received presidential assent on 21-08-2025. The Income-tax Rules, 2026 were notified on 20-03-2026, and the new framework commenced on 01-04-2026. Ministry of Finance release dated 01-04-2026.
Apply the 01-04-2026 dividing line
Use 01-04-2026 as the dividing line:
Income or matter | Governing law and terminology |
|---|---|
Income earned from 01-04-2025 to 31-03-2026 | Income-tax Act, 1961; Previous Year 2025–26 and Assessment Year 2026–27 |
Income earned from 01-04-2026 to 31-03-2027 | Income-tax Act, 2025; Tax Year 2026–27 |
A notice, assessment, appeal or other proceeding for a period beginning before 01-04-2026 | Continues under the Income-tax Act, 1961, including when initiated after 01-04-2026 |
The 2025 Act repealed the 1961 Act from its commencement, but section 536 preserves the old Act for earlier periods and specified existing rights, obligations and proceedings. The Income Tax Department’s transition guidance states that all tax years beginning before 01-04-2026 remain governed by the old Act and that earlier-period assessments and appeals continue under it until resolution. Income Tax Department, objective and scope of the new Act.
A return filed in 2026 may still belong to the old Act
Consider income earned between 01-04-2025 and 31-03-2026. Under the 1961 Act, this is Previous Year 2025–26 and the related return belongs to Assessment Year 2026–27. Filing happens after the new Act has commenced, but the income period began before 01-04-2026. The return therefore remains under the 1961 Act.
The department’s return FAQ confirms this treatment for FY2025–26 and AY2026–27. It also says that returns for earlier assessment years continue to use the forms applicable under the old Act for the relevant year. Income Tax Department, Income Tax Returns FAQs.
Select the Act, period and form shown for that return on the e-filing portal. Do not replace an older-period form or section reference with a new-Act number merely because the filing date falls after 01-04-2026.
Income from 01-04-2026 uses “Tax Year”
For income earned from 01-04-2026, the new Act uses “Tax Year” instead of the earlier pair of “previous year” and “assessment year”. Tax Year 2026–27 runs from 01-04-2026 to 31-03-2027. The income is still reported after the year ends; the terminology has changed, not the financial-year cycle.
For a business or source of income set up during a financial year, the Tax Year begins on the date of setup or the date the source comes into existence and ends on 31 March. The department gives the example of a business set up on 01-12-2026 having a Tax Year from that date to 31-03-2027. Income Tax Department transition guidance.
The portal applies the same period split to tax payments. Self-assessment tax for AY2026–27 falls under the 1961 Act, while advance tax for Tax Year 2026–27 falls under the 2025 Act. Both Act options remain available because taxpayers need them for different periods. Income Tax Department, tax-payment FAQs.
Earlier notices and proceedings do not restart
Suppose an assessment for AY2024–25 was pending on 01-04-2026. It continues under the 1961 Act. The same applies if a proceeding relating to a pre-01-04-2026 period begins after the new Act has commenced. Section 536 covers notices, assessments, reassessments, recomputation, rectification, penalty, reference, revision and appeals for those earlier periods.
Past orders and valid actions do not disappear because the governing Act was repealed prospectively. Rights, liabilities, approvals, options, notifications and instructions are preserved to the extent provided by the savings clause and where they are not inconsistent with the new Act. The exact transition treatment should be checked against the type of matter rather than inferred from the date printed on a notice.
This also means that old and new section numbers can appear in live work at the same time. A notice about an earlier assessment year may correctly cite the 1961 Act, while a current-year tax computation cites the 2025 Act. Replacing the old reference for visual consistency can make the document wrong.
A practical transition checklist
Before preparing a return, payment or response in 2026, identify five things:
The start and end dates of the income period.
Whether the portal task is a return, tax payment, correction or proceeding.
The Act and period selected on the portal.
The section and form applicable to that period, checked from current official material.
Any earlier option, approval, order or pending proceeding that the savings clause may preserve.
Maintain the period label on every computation and working paper. For old-law work, record both FY/Previous Year and AY. For new-law work, record the Tax Year. Where a document combines two periods, split the schedules so that each amount and citation can be traced to the correct law.