It’s 31 March 2026. For Indian finance teams, this date is already dramatic enough—year-end provisions, audit checklists, and the familiar panic of “why is this ledger still unreconciled?” But this year, midnight carries an extra twist: India is not just closing a financial year; it’s switching rulebooks.

From 1 April 2026, the Income-tax Act, 2025 comes into force and the Income-tax Act, 1961 is formally repealed—marking one of the biggest structural rewrites in the history of Indian direct taxes.

If you’re a business, a CFO, a payroll leader, or an in-house tax professional, the real question is not “Is there a new law?” The real question is: what ended today, what begins tomorrow, and how do you run day-to-day compliance in FY 2025–26, FY 2026–27, and the awkward transition period where both laws still matter?

Let’s walk through it in practical terms—without pretending that “repeal” means your old litigations, notices, and return filings vanish into thin air (they won’t).

What ends today: FY 2025–26 closes, but the 1961 Act still governs it

Even though the new Act starts tomorrow, income earned during FY 2025–26 (1 April 2025 to 31 March 2026) remains governed by the Income-tax Act, 1961 and will be assessed in AY 2026–27. The government has been explicit that there is no “missing year” and no overlap created by the shift in terminology.

This point matters because it avoids the most common misconception I’m hearing right now: “From tomorrow, everything is under the new Act, so FY 2025–26 filings should also migrate.” They don’t.

For businesses, that means the compliance season you’re about to enter—tax audit planning, transfer pricing documentation, return filings for FY 2025–26—still sits under the old Act’s substantive framework, even though you’ll be doing much of the filing work after 1 April 2026.

What starts tomorrow: a new Act, new Rules, and the first “Tax Year” era

From 1 April 2026, the Income-tax Act, 2025 is effective. And the Income-tax Rules, 2026—notified by CBDT on 20 March 2026—also come into force on 1 April 2026, providing the operational scaffolding for the new Act.

The shift is also baked into the charging mechanism for the new year: the Finance Bill for the tax year commencing 1 April 2026 states that income-tax for that year will be charged under the Income-tax Act, 2025 at the rates specified in the schedule.

So tomorrow is not merely a “new format.” It’s the beginning of the first full year where business income, withholding logic, assessments, and dispute procedures will increasingly be referenced to the 2025 Act’s structure and sectioning.

The headline conceptual change: “Assessment Year” quietly dies (for new income)

If you’ve ever explained “previous year” and “assessment year” to a non-tax colleague, you’ll appreciate the core design choice: the new Act replaces ‘previous year’ and ‘assessment year’ with a single concept—‘tax year’.

Under the FAQs issued on transition, the logic is straightforward: tax is still assessed after the year ends (so the mechanics remain familiar), but the language becomes less confusing because the “tax year” aligns with the financial year.

Two practical nuances businesses should not miss:

First, a tax year can be shorter than a full year if a business is newly set up during the year or a source of income first comes into existence—meaning first-year compliance triggers can start mid-year.

Second, despite the new terminology, there is no requirement to change accounting year or financial statements merely because of “tax year” wording—the alignment is deliberate.

So yes, the “AY/PY” vocabulary is ending for new-year income—but your finance systems aren’t being forced into a fiscal-year redesign.

The transition reality: you will live with two Acts at the same time

Here’s the part most people underestimate: the 1961 Act is repealed, but it doesn’t disappear from your working life on 1 April 2026.

The new Act contains an extensive repeal-and-savings framework (Section 536), which broadly preserves the old Act for tax years beginning before 1 April 2026 and protects continuity for proceedings, options, credits, losses, and enforcement actions.

A very practical example: if a search is initiated before 1 April 2026, proceedings connected to that search continue under the old Act “as if” the new Act had not been enacted.

This is why “tomorrow is a fresh start” is only half true. For several years, most medium and large businesses will effectively run:

• compliance and computation for FY 2025–26 under the 1961 Act, and

• compliance and computation for FY 2026–27 onwards under the 2025 Act, and

• litigation/appeals/penalties relating to older years under the old Act’s machinery.

If that sounds like a governance headache, it can be—unless you plan the transition like a program, not like an event.

Returns and forms: what you file in 2026 vs what you file in 2027

The filing impact is easiest to understand by separating two timelines.

FY 2025–26 income: filed as AY 2026–27 under the old forms

For income earned in FY 2025–26, taxpayers will use the ITR forms applicable under the Income-tax Act, 1961, selecting AY 2026–27 on the portal.

The transition FAQs also clarify that even after the new Act comes into force, ITR forms for earlier assessment years will continue to be used, and the portal will support them.

This matters for corporate tax teams because your FY 2025–26 return preparation, tax audit references, and TP report narratives can remain anchored to the old Act’s language and sectioning without “forced translation” into the new structure.

FY 2026–27 income: new forms under the new Rules

For Tax Year 2026–27, new ITR forms under the Income-tax Rules, 2026 will be notified, and made available well before due dates.

That is the point at which the “Tax Year” era becomes fully operational in day-to-day compliance.

What changes for daily business operations: the “section mapping” problem will be real

If the new Act were only a renumbering exercise, life would be easy. But renumbering is precisely what breaks operational compliance—because businesses don’t run tax on PDFs, they run tax on processes: ERP configuration, vendor onboarding, payroll rules, contract templates, internal SOPs, and compliance trackers.

The government’s own explainer highlights structural consolidation—for instance, it notes that TDS provisions have been streamlined and grouped (illustratively pointing to Section 393 for TDS-related structuring).

This will create a practical “translation layer” requirement for businesses:

Your procurement team may still ask vendors for declarations under an old section reference. Your payroll team’s tax engine may still label a withholding rule by an old section number. Your intercompany agreements may reference section numbers that were familiar in 1961 Act language.

None of these are fatal, but they do create two kinds of avoidable risk:

First, operational errors—wrong withholding category, wrong reporting bucket, mismatched return fields—because the compliance team is working with a mixed dictionary of old and new section references.

Second, audit friction—because what the tax authority sees in filings and certificates must line up cleanly with the new Act’s language for Tax Year 2026–27 onwards.

The smart move for April–June 2026 is to build a “crosswalk” between old and new references and embed it into SOPs—especially for TDS/TCS workflows, payroll, and finance shared services.

Digital enforcement meets business data reality: “virtual digital space” is now explicit

A subtle but high-impact shift for businesses is the explicit statutory attention to digital environments. The new Act contains definitions around “virtual digital space” and modern digital record environments in the context of enforcement and information systems.

For businesses, this is less about fear and more about hygiene: retention policies, access control, audit trails, and the ability to produce reliable records quickly when asked. If your compliance posture relies on “the data is with IT” as a strategy, this is a good year to retire that strategy.

Administrative continuity: PAN, TAN, faceless systems don’t reset

A major relief for operations teams is that the transition is designed to preserve continuity of the administrative backbone: PAN, TAN, faceless assessment and appellate frameworks continue under the new Act.

So you don’t have to re-learn the entire compliance ecosystem. But you do have to re-train teams on what matters: new terminology, new sectioning, and new return formats as they are notified.

What this means for FY 2025–26 and FY 2026–27: the clean way to run the switch

For FY 2025–26 (closing today), the business goal is straightforward: complete your close, complete your tax positions, and prepare filings under the 1961 Act without getting distracted by the new Act’s vocabulary. The new law doesn’t change the governing statute for that year.

For FY 2026–27 (starting tomorrow), the goal shifts: treat April 2026 as the beginning of an operational change management program. Update templates, align systems, and ensure your tax and finance teams are not using AY/PY language where the new compliance architecture expects “tax year” framing.

And for the transition period (which will last years, not weeks), the real discipline is governance: track which issues fall under which Act, and avoid mixing legal references across years in a way that creates needless controversy.

Closing thought: the law changed overnight—your risk will change slowly (unless you manage it)

Tonight, the Income-tax Act, 1961 “ends” in a formal sense. Tomorrow, the Income-tax Act, 2025 begins. But for businesses, the real shift is not at midnight. It’s in the months after—when old-year filings continue under the old Act, new-year transactions begin under the new Act, and your internal teams must operate in a dual-law world without tripping over terminology or section mapping.

If you manage this well, the transition can actually reduce friction over time—because the design intent is clarity, continuity, and simplification rather than rate shocks. If you manage it poorly, April 2026 will produce a new category of “unforced errors”: not because the tax burden changed overnight, but because your processes didn’t.