What will happen to Income Tax Act, 1961 after Income Tax Act, 2025 from April 1, 2026?

The Income Tax Act 2025 will come into effect from April 1, 2026, replacing the existing Income Tax Act, 1961. But does this mean the Income Tax Act 1961 will become completely obsolete, or will it continue to remain relevant even after the implementation of the new tax law? This article answers these questions.

According to the Income Tax Department, the Income Tax Act 1961 will not become completely irrelevant from April 1, 2026. In fact, it will apply to any tax-proceedings related to the period prior to April 1, 2026.

"The Income-tax Act, 2025 will come into effect on 1st April 2026. However, the Income-tax Act, 1961 will continue to apply on any proceedings (including notices, assessments, reassessments, rectifications, penalties, references, revisions and appeals) relating to tax years prior to 1st April 2026," the Income Tax Department says.

"The Income-tax Act, 2025 will be applicable from the Tax Year 2026-27, while the Income-tax Act, 1961 will remain applicable for the Tax Year 2025-26," it adds.

The Income Tax Act 2025 has replaced the use of terms Assessment Year and Previous Year with a single unit of taxation called "Tax Year".

Under the Income-tax Act, 1961, the income of a particular year (previous year) was taxed in the following year (Assessment Year). This created confusion for taxpayers, especially when compared with international practices.

The use of "Tax Year" in the Income Tax Act 2025 aligns the Indian tax system with international norms and simplifies understanding for both domestic and foreign stakeholders.

The Government has introduced the Income Tax Act 2025 to make the income tax law more concise and easier to understand. The new Act, however, has not made any major policy changes.

"Significant policy reforms and tax rate rationalizations were already undertaken over the past decade, necessitating continuity in the new legislation," the Income Tax Department says.