The Income-tax Act 2025 for small businesses: what changed from April 2026, and what only looks different
On 1 April 2026 India's income tax law was replaced for the first time in 65 years. For a small business the rates did not move, but every section number did, the assessment year disappeared, the TDS forms were renumbered, and the first return under the new law falls due in 2027 on dates that differ by type of taxpayer. This is the working guide.
On 1 April 2026 the Income-tax Act 1961 stopped applying to new income and the Income-tax Act 2025 took its place. For a small business the amounts are unchanged; the numbering, the forms and the vocabulary are new. Section 44AD is now Section 58, the assessment year no longer exists, and Form 26Q is Form 140. A notice for an old year still quotes the old numbers, and a certificate for the new year must quote the new ones.
Our October post, "The first year under the Income-tax Act 2025", covered the immediate filing points. This is the longer working guide, with the old-to-new section map, the substantive changes, the first-year deadlines and the misunderstandings we are already correcting in client meetings.
Why was the Income-tax Act rewritten?
The 1961 Act had become unreadable. It had been amended by about 65 separate amending Acts and more than 4,000 changes through annual Finance Acts, and had grown to 819 sections and over five lakh words, with roughly 1,200 provisos and 900 explanations qualifying the main text.
The 2025 Act has 536 sections in 23 chapters and 16 schedules, about 2.6 lakh words, 57 tables where the old Act had 18, and 46 formulae where it had six. The provisos and explanations are gone, folded into sub-sections or tables. The rules followed the same pattern: the Income-tax Rules 2026, notified on 20 March 2026, have 333 rules and 190 forms against 511 rules and 399 forms before.
The drafting exercise drew 20,976 online suggestions from the public. The Bill was introduced in the Lok Sabha on 13 February 2025 and sent to a Select Committee chaired by Baijayant Panda, which made 285 recommendations in its July 2025 report. The government withdrew the original Bill and introduced a revised one on 11 August 2025, which passed the Lok Sabha the same day and the Rajya Sabha on 12 August. It received Presidential assent on 21 August 2025 as Act 30 of 2025 and came into force on 1 April 2026.
The memorandum to the Finance Bill 2026 states the policy intent in one sentence: "There is no change proposed in tax rates either in these specific sections or in the First Schedule."
What is a tax year, and why does it matter?
The tax year is the twelve-month period beginning on 1 April in which income is earned and for which tax is paid. It replaces both the "previous year" and the "assessment year" of the old law.
Under the 1961 Act, income earned in the financial year 2024-25 (the previous year) was assessed in the assessment year 2025-26, and every form, notice and conversation had to specify which of the two years it meant. Under Section 3 of the 2025 Act there is one year. Income earned between 1 April 2026 and 31 March 2027 belongs to the tax year 2026-27, is returned in 2027 for the tax year 2026-27, and is assessed for the tax year 2026-27. For a business that starts during the year, its first tax year runs from the date it is set up to 31 March.
The first tax year under the new Act is 2026-27. The financial year 2025-26, whose returns are being filed now, remains a year under the 1961 Act, assessed in the assessment year 2026-27 on the old forms. The two systems overlap through 2026 and 2027, and it helps to be precise: "AY 2026-27" means the old law and the year that ended in March 2026; "tax year 2026-27" means the new law and the year that ends in March 2027.
What did not change?
Rates, thresholds, deductions and elections. Every one of them has a new section number, and the table maps the ones a founder, a professional or a small company reaches for most often.
| What it is | 1961 Act | 2025 Act | Position in 2026 |
|---|---|---|---|
| Tax year (replaces previous year and assessment year) | Sections 2(9), 3 | Section 3 | New concept, no change to the period |
| Default individual regime and slabs | Section 115BAC | Section 202 | Nil to ₹4 lakh; 5 percent to ₹8 lakh; 10 percent to ₹12 lakh; 15 percent to ₹16 lakh; 20 percent to ₹20 lakh; 25 percent to ₹24 lakh; 30 percent above |
| Rebate for resident individuals | Section 87A | Section 156 | ₹60,000, which makes income up to ₹12 lakh tax-free under the default regime, with marginal relief |
| Concessional corporate rate, 22 percent | Section 115BAA | Section 200 | Unchanged; irrevocable option exercised by the return due date |
| New manufacturing company rate, 15 percent | Section 115BAB | Section 201 | Unchanged; for companies set up from October 2019 that began manufacturing by March 2024 |
| Presumptive income for business | Section 44AD | Section 58 (table, serial 1) | Turnover up to ₹2 crore, or ₹3 crore where cash receipts are within 5 percent; 6 percent on digital receipts, 8 percent otherwise |
| Presumptive income for professions | Section 44ADA | Section 58 (table, serial 3) | Receipts up to ₹50 lakh, or ₹75 lakh where cash is within 5 percent; 50 percent |
| Presumptive income for goods carriages | Section 44AE | Section 58 (table, serial 2) | Up to ten vehicles |
| Books of account | Section 44AA | Section 62 | Unchanged |
| Tax audit | Section 44AB | Section 63 | Turnover above ₹1 crore, or ₹10 crore where cash receipts and payments are each within 5 percent; professions above ₹50 lakh; report in Form 26 |
| Deductions allowed only on payment, including the MSME rule | Section 43B, including 43B(h) | Section 37, including 37(2)(g) | Payments to micro and small enterprises beyond the MSMED Act time limit are not deductible until paid |
| Startup tax holiday | Section 80-IAC | Section 140 | 100 percent of profits for three consecutive years out of ten; incorporation before 1 April 2030; turnover up to ₹100 crore |
| Carry-forward of losses on change in shareholding | Section 79 | Section 119 | Unchanged, including the startup relaxation |
| Loss carry-forward periods | Sections 71B, 72, 74 | Sections 110, 111, 112 | Eight tax years |
| Chapter VI-A deductions | Sections 80C, 80D, 80E, 80G, 80TTA/TTB, 80U | Sections 123, 126, 129, 133, 153, 154 | Same limits: ₹1.5 lakh under 80C, ₹75,000 and ₹1.25 lakh under 80U |
| Capital gains exemptions on housing | Sections 54, 54F | Sections 82, 86 | ₹10 crore caps unchanged |
| Cash transaction limits | Sections 269SS, 269ST, 269SU, 269T | Sections 185, 186, 187, 188 | ₹20,000 for loans and deposits; ₹2 lakh for receipts; e-payment facility above ₹50 crore turnover |
| Virtual digital assets | Section 115BBH | Section 194 (table, serial 4) | 30 percent, no deductions except cost, no set-off |
| Advance tax | Sections 208, 211 | Sections 404, 408 | Threshold ₹10,000; instalments of 15, 45, 75 and 100 percent by 15 June, 15 September, 15 December and 15 March; presumptive taxpayers pay in full by 15 March |
| Late filing fee | Section 234F | Section 428 | ₹5,000, or ₹1,000 where income is within ₹5 lakh |
| Under-reporting and misreporting penalty | Section 270A | Section 439 | 50 percent and 200 percent of the tax |
| General anti-avoidance rule | Sections 95 to 102 | Section 178 onward | Retained as it was |
| TDS provisions | Sections 192 to 196D | Sections 392, 393 (consolidated table) | Rates and thresholds in a single table |
| Lower or nil deduction certificate | Section 197 and Forms 15G/15H | Section 395 | Certificates issued under the old Act remain valid for the tax year 2026-27 |
| Return of income | Section 139 | Section 263 | Due dates below |
| Assessment, faceless assessment, reassessment | Sections 143, 144B, 147 to 151 | Sections 270, 273, 279 to 286 | Procedure carried over |
| Charitable and religious organisations | Sections 11 to 13, 12AB, 80G approval | Sections 332 to 354 | Consolidated in one part; existing registrations continue |
| Angel tax on share premium | Section 56(2)(viib) | No equivalent | Abolished from the financial year 2024-25 and absent from the new Act |
The table covers what most small businesses need; the Income Tax Department's portal has a complete old-to-new utility for anything not listed. The mapping is to the section, not always to the sub-section or clause, so where a clause number matters, as with the MSME rule in Section 37(2)(g), check the text.
What did change in substance?
These are the changes a small business or its adviser will notice.
Refunds on late returns are preserved. The Select Committee removed a clause in the original Bill that would have denied a refund to anyone who filed after the due date; the enacted Section 263 contains no such bar and Section 431 preserves the entitlement to a refund.
Certificates for lower or nil deduction of tax at source are available more widely. Section 395 provides for them, and the enacted text widened access compared with the original draft.
The standard 30 percent deduction on house property is now computed on the annual value after municipal taxes, and pre-construction interest is deductible in five instalments for let-out property as well as self-occupied.
Search and seizure powers in digital space are spelt out. Section 247 allows the authorised officer to override the access code of "any computer system", and Section 261 defines "virtual digital space" to include email servers, social media accounts, online investment, trading and banking accounts, websites that store asset ownership details, cloud servers and application platforms. The Select Committee retained the provision after debate; the CBDT's position is that the powers existed before and are now written down.
The provisions on trusts and institutions, scattered through the old Act, are consolidated into Sections 332 to 354 under a single concept of a registered non-profit organisation, with anonymous donation relief for religious-cum-charitable trusts reinstated at the Committee stage.
The Finance Act 2026 also amended the new Act before it took effect, and its changes matter more to a small business than anything in the rewrite itself.
For the tax year 2026-27 and after, the return due date for business and professional taxpayers who are not subject to audit, and for partners of such firms, moves from 31 July to 31 August. Salaried and other non-business individuals stay at 31 July, audit cases at 31 October, and transfer pricing cases at 30 November.
The window for a revised return under Section 263(5) is extended from nine months to twelve months after the end of the tax year.
The rate on unexplained cash credits, investments and expenditure under Section 195 (the old Section 115BBE) falls from 60 percent to 30 percent, with the penalty regime adjusted and the immunity provisions widened.
Offences under Sections 473 to 485 are graded by the tax evaded: fine only up to ₹10 lakh, imprisonment up to six months between ₹10 lakh and ₹50 lakh, and up to two years above that, with rigorous imprisonment replaced by simple imprisonment.
Several penalties become fees. In the Finance Bill as introduced, the penalty for failing to get accounts audited becomes a fee of ₹75,000 or ₹1,50,000, with similar conversions for related defaults and a cap of ₹1 lakh on daily fees; the figures in the Act as passed on 25 March 2026 govern.
Supply of manpower is treated as "work" for contractor TDS, so the one and two percent rates apply.
What should a small business do now?
File the financial year 2025-26 return under the old law. It is an assessment year 2026-27 return on the old ITR forms, with the old Form 3CD for audit cases, and the CBDT has extended the audit report date to 21 October 2026 and the audit-case return date to 21 November 2026. Nothing about the new Act touches this return.
Quote the new sections in everything dated on or after 1 April 2026. The CBDT's transition FAQs are explicit: a deductor must quote Section 393(1) and the relevant table entry of the new Act, not Section 194C of the old one, and quoting old sections "may result in system-level validation errors". The TDS returns for the tax year 2026-27 are Form 138 (salaries, replacing 24Q) and Form 140 (other payments, replacing 26Q); the certificates are Forms 130 and 131 (replacing 16 and 16A); the property TDS return is Form 141; the self-declarations for nil deduction are Form 121 (replacing 15G and 15H). The first quarter's returns under the new numbering were due on 31 July 2026.
Update the software and the templates. Payroll, accounting and invoicing systems carry section references in TDS certificates, Form 12BB equivalents (now Form 124), board resolutions and vendor declarations. Mainstream payroll and accounting software updated in April 2026; in-house spreadsheets and templates need to be checked by hand.
Leave the registrations alone. Section 536(2) of the new Act carries forward every approval, registration and certificate granted under the old one. A startup's inter-ministerial board certificate, a charity's 12AB registration, a Section 197 certificate for the tax year 2026-27 and a pending refund all survive. New applications for charitable registration use Form 104 in place of Form 10A.
Expect old numbers in old matters. A notice for any assessment year up to 2026-27 will cite the 1961 Act: Section 143(2), Section 148 and the rest. Proceedings, appeals and refunds for those years continue under the old law. The new numbers appear only in matters concerning the tax year 2026-27 onward.
The first-year deadlines under the new Act
For the tax year 2026-27, the one running now:
| Obligation | Date |
|---|---|
| Advance tax instalments | 15 June 2026, 15 September 2026, 15 December 2026, 15 March 2027; presumptive taxpayers in full by 15 March 2027 |
| TDS returns, Forms 138 and 140 | 31 July 2026, 31 October 2026, 31 January 2027, 31 May 2027 |
| Return of income, individuals without business income | 31 July 2027 |
| Return of income, business or profession without audit, and their partners | 31 August 2027 |
| Return of income, audit cases including every company | 31 October 2027 |
| Return of income, transfer pricing cases | 30 November 2027 |
| Belated return | 31 December 2027 |
| Revised return | 31 March 2028 |
| Updated return | Within 48 months of the end of the tax year |
The ITR forms for the tax year 2026-27 had not been notified at the time of writing, in October 2026; the Department has said they will be issued well before the due dates.
The misunderstandings we keep hearing
The most common is that the rates have changed. The slabs, the corporate rates, the presumptive percentages and the deduction limits are where the Finance Act 2025 left them, and the Finance Act 2026 adjusted a handful of items at the margins. Anyone whose tax bill moved in April 2026 should look at their income.
The second is that old assessments lapse. Section 536 repeals the 1961 Act and saves everything done under it, and the General Clauses Act applies, so a notice for assessment year 2023-24 is as valid in 2027 as it was in 2025.
The third is that registrations have to be renewed. Approvals continue by operation of Section 536(2); only new applications use the new forms.
The fourth is that the assessment year has merely been renamed. Under the old law the year in which income was earned and the year in which it was assessed had different names. Under the new law there is one year with one name, and a document that reads "tax year 2026-27" refers to income earned between April 2026 and March 2027.
Frequently asked questions
When did the Income-tax Act 2025 come into force?
On 1 April 2026. It received Presidential assent on 21 August 2025 as Act 30 of 2025, and the Income-tax Rules 2026 were notified on 20 March 2026. The first tax year under the new Act is 2026-27.
What is the difference between tax year and assessment year?
The 1961 Act taxed income of a "previous year" in the following "assessment year". The 2025 Act uses a single "tax year", the financial year from 1 April to 31 March in which the income is earned. Income earned from April 2026 to March 2027 belongs to the tax year 2026-27 and is returned in 2027.
Did the Income-tax Act 2025 change tax rates?
No. The memorandum to the Finance Bill 2026 states that no change in rates was proposed. The slabs under the default regime, the rebate that makes income up to ₹12 lakh tax-free, the 22 percent and 15 percent corporate options and the presumptive percentages are unchanged.
What is Section 44AD called in the new Income-tax Act?
Section 58. The presumptive scheme for small businesses (turnover up to ₹2 crore, or ₹3 crore where cash receipts are within 5 percent) is serial 1 of the table in Section 58; the professional scheme that was Section 44ADA is serial 3; the goods carriage scheme that was Section 44AE is serial 2.
When is the first income tax return due under the new Act?
For the tax year 2026-27, 31 July 2027 for individuals without business income, 31 August 2027 for business and professional taxpayers not subject to audit and their partners, 31 October 2027 for audit cases including all companies, and 30 November 2027 for transfer pricing cases.
Do I need to re-apply for my 12AB, 80G or startup registration under the new Act?
No. Section 536(2) of the Income-tax Act 2025 continues every approval, registration and certificate granted under the 1961 Act. New applications made after 1 April 2026 use the new forms, such as Form 104 in place of Form 10A.
Sources
Income-tax Act 2025 (Act 30 of 2025), Sections 3, 37, 58, 62, 63, 140, 156, 185 to 188, 194, 195, 200 to 202, 247, 261, 263, 332 to 354, 393, 395, 404, 408, 428, 431, 439 and 536; Income-tax Rules 2026 (Notification 22/2026 of 20 March 2026) and the Fourth Amendment Rules of 17 September 2026; Income Tax Department press release of 1 April 2026 and the "Objective and scope of the new Act" page on the e-filing portal; CBDT FAQs on the transition to the Income-tax Act 2025 (Kar Setu); PIB releases of 13 February 2025, 3 September 2025 and 12 May 2026; PRS Legislative Research on the Income-tax Bill 2025; Finance Bill 2026 and its memorandum (1 February 2026); EY alert on the Finance Bill 2026 as enacted (March 2026); KPMG flash alert of 30 March 2026; CBDT Circular 07/2026 of 29 September 2026 on due date extensions; Notification 121/2026 of 24 September 2026 on property TDS forms; reports in The Tribune (25 August 2025) and Deccan Herald (16 July 2025) on the Select Committee.