The New Income Tax Act 2025 Is Live — But Your ITR for FY 2025-26 Is Still Filed Under the Old Law: Here’s Why That Matters

The Income Tax Act, 2025 just went live — but millions of Indians are about to make a costly mistake filing their ITR. Your FY 2025-26 return still runs on a law that technically no longer exists. Before you file anything, read this. The reason will genuinely surprise you.

April 1, 2026 is a landmark date in India’s tax history. After more than six decades of navigating the dense corridors of the Income Tax Act, 1961, India has finally switched to a new legal framework — the Income Tax Act, 2025 — effective today. It is leaner, more readable, and built for the digital age. Social media is abuzz, tax professionals are updating their bookmarks, and news channels are running special segments on what this means for the average taxpayer.

But here is a fact that most people are missing amid all the noise: if you are about to file your ITR for the Financial Year 2025-26 (Assessment Year 2026-27), you are still filing under the old Income Tax Act, 1961. Not the new one. Not the shiny, restructured 536-section legislation that just went live. The old one.

That might seem like a bureaucratic technicality. It is not. It has direct, practical consequences for every salaried employee, freelancer, business owner, and investor in the country who will be filing their returns between now and July 31, 2026. Understanding why this transition works the way it does — and what it means for your specific situation — is not optional. It is essential.

What Changed on April 1, 2026

The Income Tax Act, 2025 received Presidential assent from President Droupadi Murmu on August 21, 2025, after being passed by Lok Sabha on August 11 and Rajya Sabha on August 12, 2025. However, getting assent and coming into force are two different things. The government announced during Union Budget 2026 that the new Act would formally come into effect on April 1, 2026.

So what actually changed today? Structurally, quite a lot:

• Number of sections was compressed from 819 to 536, eliminating decades of redundant, outdated provisions
• The archaic dual-year system of “Previous Year” and “Assessment Year” has been replaced by a single, intuitive concept called “Tax Year”
• TDS provisions that were scattered across Sections 192 to 194T are now consolidated under a single Section 393
• Virtual Digital Assets (VDAs), including cryptocurrencies and tokenized assets, have been formally defined in law for the first time
• Form 15G and Form 15H — used by millions of senior citizens and low-income earners — have been merged into a single Form 121
• The default tax regime now lives under Section 202 of the new Act (previously Section 115BAC of the old Act)

But — and this is the critical “but” — the Act is revenue-neutral in its first year. Tax rates have not changed. The fundamental computational logic of how your income is calculated has not changed. What has changed is the structure of the law itself: how sections are numbered, how provisions are cross-referenced, and how future compliance will be administered.

The Core Paradox: A New Law, But Your ITR Uses the Old One

Here is where most taxpayers get confused. The Income Tax Act, 2025 is now the law of the land. So why would you file your return for FY 2025-26 under the old Act?

The answer lies in a foundational principle of Indian tax law: the law that governs your income return is the law that was in force during the financial year in which that income was earned.

You earned your salary, business income, capital gains, and rental income during the period April 1, 2025 to March 31, 2026. During every single day of that period, the Income Tax Act, 1961 was the operative law. The new Act had received assent, yes — but it had not yet come into force. The government deliberately chose April 1, 2026 as the commencement date, which means every rupee you earned in FY 2025-26 falls squarely within the jurisdiction of the 1961 Act.

Tax experts have been unequivocal on this point. “It is important to note that this change will come into effect from April 1, 2026, and therefore will not apply to the Income Tax Returns being filed for AY 2026-27. Taxpayers will continue to follow the existing Income Tax Act, 1961 for filing their return for AY 2026-27,” said Kinjal Bhuta, Treasurer, Bombay Chartered Accountants Society.

In practice, this means:

• You will use existing ITR forms (ITR-1, ITR-2, ITR-3, ITR-4, etc.) — not new forms being designed under the Income Tax Rules, 2026
• You will claim deductions under the old section numbers — Section 80C, Section 80D, Section 24(b), Section 10(14), and so on
• You will compute capital gains, set off losses, and calculate tax liability using the provisions of the 1961 Act
• The concept of “Assessment Year 2026-27” remains valid and applicable — it does not get replaced by “Tax Year 2026-27” for this filing cycle

The new ITR forms, the new section numbering, the concept of Tax Year — all of that applies only from Tax Year 2026-27, which means it will be relevant when you file returns in 2027 for income earned during April 1, 2026 to March 31, 2027.

The Legal Architecture Behind This: Section 536

The transition is not accidental or poorly planned. It is backed by a carefully drafted legal mechanism: Section 536 of the Income Tax Act, 2025, titled “Repeal and Savings”.

Section 536 is the last substantive provision of the new Act, and arguably the most important one for taxpayers right now. Its sub-section (1) formally repeals the Income Tax Act, 1961. But sub-section (2) is where the real action is — it lists out a comprehensive set of savings that ensure the repeal does not invalidate anything that happened before April 1, 2026.

Here is what Section 536 specifically protects:

• Pending assessments, appeals, and proceedings relating to tax years beginning before April 1, 2026 will continue to be governed and decided under the 1961 Act
• Revised returns for AY 2026-27 will be filed under Section 139(5) of the old Act — the fact that the revision happens after April 1, 2026 does not matter
• Carry-forward of losses computed under the 1961 Act can be carried forward under the new Act, but only if they were correctly computed and eligible under the original provisions
• Tax credits such as MAT credit under Section 115JAA and AMT credit under Section 115JD, accumulated before April 1, 2026, carry over under corresponding provisions of the new Act
• Exemptions under Sections 54, 54B, and 54F of the old Act — claimed before April 1, 2026 — remain protected during the reinvestment lock-in period even if the new asset is transferred after April 1, 2026
• All existing approvals, recognitions, notifications, and administrative orders issued under the 1961 Act are deemed to have been issued under the corresponding provisions of the new Act

This provision codifies what legal scholars call the “savings clause doctrine” — the principle that repeal of a statute does not automatically extinguish rights, obligations, or proceedings that arose under it. The government has essentially told every taxpayer: the old law no longer exists going forward, but everything you did under it is still valid and protected.

What This Means for You Right Now

Let us break this down into specific taxpayer categories to make this absolutely practical.

If You Are a Salaried Employee

Your employer has been deducting TDS throughout FY 2025-26 under the provisions of the 1961 Act — specifically Sections 192 and 115BAC. Your Form 16 will reflect old section numbers. When you file your ITR-1 or ITR-2 for AY 2026-27, you will use those same old section references. Nothing about your filing process changes because of the new Act.

If you were in the old tax regime (claiming HRA, Section 80C, 80D deductions, etc.), you continue claiming them using the old section numbers in the old ITR form. If you were in the new tax regime under Section 115BAC, you continue under those provisions — not under Section 202 of the new Act, which only kicks in from Tax Year 2026-27.

If You Are a Business Owner or Self-Employed Professional

For taxpayers filing ITR-3 or ITR-4, the due date for AY 2026-27 is August 31, 2026 (for non-audit cases). Audit reports for FY 2025-26 must be filed in the prescribed forms under the old Act — Form 3CA/3CB/3CD as applicable — even though the actual filing will occur after April 1, 2026. The governing Act for all these filings is the Income Tax Act, 1961.

If you have pending notices, defective return intimations, or audit objections relating to AY 2026-27 or earlier years, all proceedings continue under the old Act by virtue of Section 536(2)(c).

If You Have Capital Gains or Carried-Forward Losses

This is where things get especially important. Any losses you have been carrying forward from previous years (business losses, capital losses, speculative losses) were computed under the 1961 Act. You will continue to set off and carry forward these losses in AY 2026-27 under the same provisions.

However, going forward — from Tax Year 2026-27 — those carry-forward losses will be absorbed under the corresponding new Act provisions. The eligibility rules remain the same; what changes is merely the section number they live under. Critically, losses that were ineligible or belated under the old Act cannot be revived under the new one — Section 536 offers continuity, not a second chance.

If You Are an NRI

The Income Tax Act, 2025 introduces stricter compliance for Non-Resident Indians, particularly around disclosure of foreign assets. However, for AY 2026-27, your return is still governed by the 1961 Act. The interest earned from NRE accounts continues to be tax-free under the new Act as well.

The Dual-Year Reality: AY 2026-27 vs Tax Year 2026-27

One of the most confusing aspects of this transition is that both the old and new frameworks will coexist in 2026, referring to what is essentially the same calendar period but in entirely different ways.

This table makes it clear: if you are filing in 2026, you are in the “AY 2026-27” column — governed by the old law. The new Act’s terminology and forms do not apply to you until you file returns in 2027 for income earned in FY 2026-27.

Key Due Dates to Remember for AY 2026-27

Now that it is confirmed that your FY 2025-26 return is governed by the 1961 Act, here are the critical deadlines to keep on your calendar:

• July 31, 2026 — Last date for individual (non-audit) taxpayers filing ITR-1 and ITR-2
• August 31, 2026 — Last date for individuals with business/professional income filing ITR-3 and ITR-4 (non-audit cases)
• October 31, 2026 — Last date for taxpayers requiring a tax audit (businesses above turnover threshold)
• November 30, 2026 — Last date for taxpayers covered under transfer pricing provisions
• December 31, 2026 — Last date for filing a belated return (with late fee applicable under Section 234F of the 1961 Act)
• March 31, 2031 — Last date for filing an updated return (ITR-U) for AY 2026-27

Missing the July 31 deadline means paying a late fee of Rs. 1,000 (for income up to Rs. 5 lakh) or Rs. 5,000 (for income above Rs. 5 lakh) under Section 234F of the Income Tax Act, 1961 — because yes, even the penalty provision you face for late filing this year comes from the old law.

Why the Government Chose This Transition Approach

The year-wise transition model adopted by India is a deliberate and globally tested approach to major statutory overhauls. There are several strong policy reasons for it:

1. Legal Certainty: Applying a new law retroactively to income already earned would create enormous uncertainty. Taxpayers planned their investments, tax-saving instruments, and declarations with specific provisions of the 1961 Act in mind. Changing the rules mid-game would be both legally problematic and deeply unfair.

2. Administrative Readiness: The new Income Tax Rules, 2026 — the supporting regulations that specify forms, procedures, and compliance mechanics under the new Act — are still being finalized. Rolling out new ITR forms, new TDS return formats, new audit report templates, and new digital infrastructure simultaneously on April 1 is not feasible.

3. Avoiding Litigation: India’s tax system already carries a massive backlog of litigation. A sudden transition without proper savings clauses would trigger thousands of new disputes around which law applies to what transaction. Section 536’s savings provisions proactively eliminate this litigation risk.

4. Systemic Trust: Tax compliance in India has improved significantly over the last decade. An abrupt, confusing transition risks eroding taxpayer confidence and compliance rates — the opposite of what the new Act aims to achieve.

What You Should Actually Do Right Now

Given everything above, here is your practical action plan for the next few months:

• Do not wait for new ITR forms under the Income Tax Act, 2025 for your FY 2025-26 filing — they are not coming for this cycle. Use the existing forms notified by CBDT for AY 2026-27
• Gather documents using old section references — your 80C proofs, 80D premium receipts, HRA calculation, Form 16, Form 26AS, and AIS/TIS as generated on the income tax portal
• If you have carry-forward losses from AY 2025-26 or earlier, ensure they are correctly reflected. These will be critical in the first filing under the new Act (Tax Year 2026-27) when corresponding new Act provisions come into play
• If you received any notice, defective return intimation, or assessment order related to earlier years, respond under the old Act provisions. All such proceedings continue under the 1961 Act
• For NRIs and those with foreign assets, use this transition period to audit your asset disclosures. The new Act introduces significantly stricter penalties for foreign asset non-disclosure, which will apply from Tax Year 2026-27
• Consult your Chartered Accountant specifically about how carry-forward losses, deferred tax liabilities, and pending exemption lock-ins under Sections 54/54F will be treated at the transition boundary

The Bigger Picture: India’s Tax Modernization Story

The Income Tax Act, 2025 is more than a legal housekeeping exercise. It represents India’s deliberate shift toward a simpler, technology-first, litigation-resistant tax architecture. The original 1961 Act had grown to 819 sections over six decades, weighed down by thousands of amendments, sub-clauses, provisos, and explanations that even seasoned tax professionals found difficult to navigate.

The new Act reduces this to 536 sections, removes obsolete provisions, introduces clearer drafting, formally defines digital assets, consolidates TDS provisions, and — through a single “Tax Year” concept — eliminates the endless confusion between “Previous Year” and “Assessment Year” that has tripped up taxpayers for generations.

But the true test of any tax reform is not in its drafting — it is in its implementation. The government has wisely chosen a phased, year-wise transition approach rather than a big-bang switch. This protects taxpayers, protects the revenue machinery, and gives professionals and systems time to adapt.

April 1, 2026 is Day One of the new tax era in India. But for the returns you file this year — for the income you earned in FY 2025-26 — the old law governs. Understand this distinction clearly, file your AY 2026-27 return correctly under the Income Tax Act, 1961, and by the time Tax Year 2026-27 returns are due in 2027, you will be fully prepared to navigate the new framework with confidence.

This article is authored for informational purposes and is based on publicly available provisions of the Income Tax Act, 1961, the Income Tax Act, 2025, CBDT circulars, and expert commentary as of April 1, 2026. It does not constitute legal or tax advice. Readers are encouraged to consult a qualified Chartered Accountant or tax professional for advice specific to their individual circumstances.