Income Tax Act 1961 vs 2025: Which Rules Apply for ITR Filing FY 2025–26?

Introduction

India’s direct tax framework is entering a significant transition phase. The Government of India has introduced the Income-tax Act, 2025, a modernised legislation designed to replace the six-decade-old Income-tax Act, 1961.

While the new tax code aims to simplify compliance and modernise tax administration, taxpayers and investors are seeking clarity on a crucial question — which law will apply while filing Income Tax Returns (ITR) for Financial Year 2025–26?

Understanding this transition is important for accurate tax planning, return filing, and compliance decisions.

Which Income-tax Rules Apply for ITR Filing FY 2025–26?

Although the Income-tax Act, 2025 has been introduced as India’s future direct tax legislation, it is scheduled to come into force from 1 April 2026, subject to enactment and notification by the Government.

Therefore:

👉 ITR filing for Financial Year 2025–26 (Assessment Year 2026–27) will continue under the Income-tax Act, 1961.

The Central Board of Direct Taxes (CBDT) has clarified that the new legislation will apply prospectively, ensuring a smooth administrative transition without disrupting ongoing tax compliance cycles.

This means taxpayers should continue to follow:

• existing tax provisions,
• deductions framework,
• filing procedures, and
• compliance mechanisms currently governed by the 1961 Act.

👉 Government Press Note: Understanding the Income Tax Act, 2025

Income Tax Act 1961 vs Income Tax Act 2025 — Key Differences

Aspect	Income-tax Act, 1961	Income-tax Act, 2025
Structure	Complex and amended multiple times	Simplified and reorganised
Language	Legalistic and lengthy	Clearer, concise drafting
Compliance	Documentation-heavy	Digital and process-driven
Focus	Traditional tax administration	Technology-enabled compliance
Objective	Revenue collection framework	Ease of compliance & transparency

The new Act does not fundamentally change taxation principles immediately but aims to improve usability and reduce interpretational complexity over time.

Objective Behind Introducing the Income-tax Act, 2025

The Government’s move to introduce a new tax code is driven by structural reforms rather than immediate tax rate changes.

Key objectives include:

1. Simplification of Tax Laws

Over decades, amendments made the 1961 Act lengthy and difficult to interpret. The new legislation reorganises provisions for easier understanding.

2. Improved Ease of Compliance

A modern tax framework aligned with faceless assessments, online filings, and automated processing supports faster compliance.

3. Digital-First Tax Administration

The reform complements India’s expanding digital economy by enabling technology-based tax governance.

4. Reduction in Litigation

Clear drafting and streamlined provisions are intended to minimise disputes and interpretation issues.

What This Means for Taxpayers and Investors

For investors, salaried individuals, and market participants, the transition does not require immediate action for FY 2025–26 filing.

Continue to follow:

• Existing income tax slabs and rules
• Current deduction and exemption structure
• Standard ITR filing timelines
• Established compliance practices

The shift to the Income-tax Act, 2025 will become relevant from FY 2026–27 onwards, once operationalised.

Key Takeaway

India is moving toward a modernised tax regime, but continuity remains the priority during transition.

• ITR filing for FY 2025–26 will be governed by the Income-tax Act, 1961.
• The Income-tax Act, 2025 represents a forward-looking reform effective from April 2026.
• Taxpayers should focus on correct compliance under existing provisions while preparing for future structural changes.

Frequently Asked Questions (FAQs)