New Income Tax Act 2025 & the "Tax Year": What Changes from April 2026
After more than six decades, the Income Tax Act, 1961 is being replaced. The Income Tax Act, 2025 together with the new Income Tax Rules, 2026 come into force from 1 April 2026. The headline change every taxpayer is searching for is the new "Tax Year" concept — so let's break down what it means, what else changes, and what you actually need to do right now.
What is the "Tax Year"?
Until now, Indian tax law used two overlapping terms that confused almost everyone:
- Previous Year (PY): the year in which you earned the income (e.g., 1 Apr 2025 – 31 Mar 2026).
- Assessment Year (AY): the next year, in which that income was assessed and the return filed (e.g., 2026-27).
The Income Tax Act 2025 scraps this twin system and introduces a single "Tax Year" — the 12-month financial year (April to March) in which income is both earned and assessed. So instead of "FY 2026-27 / AY 2027-28", you will simply refer to Tax Year 2026-27. One term, far less confusion.
| Old system | New system (from 1 Apr 2026) |
|---|---|
| Previous Year + Assessment Year | Single "Tax Year" |
| "FY 2026-27, AY 2027-28" | "Tax Year 2026-27" |
| Income Tax Act, 1961 | Income Tax Act, 2025 + Rules, 2026 |
Other key changes to know
1. HRA exemption extended to more cities
The 50% HRA exemption (versus 40% for non-metros) has been expanded to four more cities under the new rules, meaning more salaried taxpayers can claim the higher exemption. Check your eligibility with the HRA Calculator.
2. AIS & Form 26AS — the big practical change
This is the change that will actually affect your filing the most. Form 26AS is now streamlined to focus on TDS/TCS credits, advance tax and self-assessment tax, while the Annual Information Statement (AIS) captures comprehensive income and a transaction register. Crucially, non-reconciliation between your ITR and AIS is now the single biggest trigger for automated scrutiny notices.
3. Updated exemption limits & PAN-quoting thresholds
The Rules 2026 revise various exemption limits on allowances and update the thresholds for when PAN must be quoted. These are mostly procedural but worth confirming if you deal with large cash or high-value transactions.
4. New income-tax forms
New forms are being introduced for Tax Year 2026-27 onwards. For FY 2025-26, however, you continue using the existing ITR-1 to ITR-4 forms on the e-filing portal.
So what should you do right now?
- Filing for FY 2025-26? File as usual by 31 July 2026 (or 31 August for non-audit business cases) using the current forms. Don't wait for the new Act — it doesn't apply to this year's income.
- Reconcile your AIS/26AS first — this is the most important step this year. Use our AIS mismatch checker.
- Pick the right regime — compare old vs new with the Income Tax Calculator.
- Got a notice already? Decode it in plain English with the AI Notice Decoder.
Confused about the new rules or your AIS? Let KyaTax file your ITR correctly — from ₹499.
File ITR with KyaTax →Frequently asked questions
What is the "Tax Year" under the new Income Tax Act 2025?
The Income Tax Act 2025 replaces the twin concepts of "Previous Year" and "Assessment Year" with a single "Tax Year" — the 12-month financial year (April to March) in which income is earned and assessed. This removes the FY-vs-AY confusion for most taxpayers, effective for Tax Year 2026-27 onwards.
From when is the new Income Tax Act 2025 effective?
The Income Tax Act 2025 and the Income Tax Rules 2026 take effect from 1 April 2026 and apply for Tax Year 2026-27 onwards. For income earned in FY 2025-26 (AY 2026-27), you still file using the existing ITR forms and rules.
Do I need to do anything differently when filing for FY 2025-26?
No. Returns for FY 2025-26 (AY 2026-27) are filed using the existing forms by 31 July 2026 (or 31 August for non-audit business cases). The new "Tax Year" terminology and Rules 2026 apply from the next year. The most important change to act on now is stricter AIS/26AS reconciliation.
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