Transition to the Income-tax Act, 2025 and New TDS Compliance Framework effective April 1, 2026

Summary

We are writing to inform you of a landmark shift in India's direct tax landscape. Effective April 1, 2026, the Income-tax Act, 1961 stands repealed and is replaced by the Income-tax Act, 2025.

This transition introduces significant structural changes to your compliance obligations. Please review the key highlights below to ensure your business is prepared for the new "Tax Year" 2026-27.

1. Core Structural Changes

  • Replacement of "Assessment Year": The confusing dual-year concept of "Previous Year" and "Assessment Year" has been eliminated. Starting from April 1, 2026, the year in which income is earned and assessed will be simply referred to as the Tax Year.

2. New TDS Framework (Section 392 & 393)

The new Act consolidates all previous TDS sections (192 to 194T) into two primary sections. While most rates remain the same, the reporting structure has changed:

  • Section 392 (Salary): Governs all salary payments and now includes mandatory 10% TDS on EPF withdrawals exceeding ₹50,000.
  • Section 393 (Non-Salary): All other payments (Rent, Professional Fees, Commission) are now categorized in a simplified tabular format.

3. Changes in Compliance Forms

The number of statutory forms has been reduced by over 50% to simplify compliance:

  • Unified Tax Audit Report: Form No. 26 now replaces the erstwhile Forms 3CA, 3CB, and 3CD.
  • Single Declaration Form: Forms 15G and 15H are merged into a single Form No. 121.
  • Salary Arrears Relief: Form 10E is replaced by Form No. 39, which features auto-populated data for easier filing.

4. Action Points for Your Team

  1. Update Accounting Software: Your ERP and payroll systems must be updated to reflect the new Section 392/393 numbering and "Tax Year" terminology to avoid system-level validation errors on the portal.
  2. Challan Selection: Ensure that payments for the current period (April 2026 onwards) select "Tax Year 2026-27" on the e-filing portal to ensure correct tax credit.
  3. Threshold Monitoring: Be mindful of the new TDS obligation on partner remunerations, which may not have been applicable to your firm previously.

The Government's e-filing portal will support both Acts simultaneously during this transition. However, careful demarcation of records between the two regimes is essential to avoid penalties or interest.