Indian businesses prepare for a major overhaul in tax reporting systems as the Income Tax Act 2025 introduces significant changes to terminology, forms, and digital procedures, while maintaining the core tax structure for the 2025-26 assessment year.
Indian businesses are being told to treat the new Income Tax Act, 2025 as a major rewrite of the system without mistaking it for an immediate change to this year’s filing. The legislation took effect on April 1, 2026, but returns for financial year 2025-26, assessed in 2026-27, are still filed entirely under the Income Tax Act, 1961, with the same sections, forms and challan formats still in use for that period. According to PKC India, the shift is best understood as a boundary set by when income was earned, not when the return is submitted.
The practical consequence is that income earned before April 1, 2026 continues to be taxed and reported under the old framework, while income earned from that date falls under the new law. PKC India says the new act is less a fresh tax regime than a recodification, trimming hundreds of sections and reorganising the legislation into a shorter, cleaner structure. The core tax burden, however, has not changed: slabs, rates and deduction limits remain broadly intact.
Where businesses will feel the change first is compliance infrastructure. From tax year 2026-27, terminology shifts from “assessment year” and “previous year” to “tax year”, section references for tax deducted at source and tax collected at source are renumbered and payroll systems will need to recognise the new codes. PKC India says the transition also brings new form numbers and new challan formats, with old payment codes already being rejected in some cases, making software updates a priority for payroll and finance teams.
The headline relief for taxpayers is that the substance of common deductions is largely unchanged. PKC India notes that the familiar Section 80C deduction, for example, survives in renamed form with the same ₹1.5 lakh ceiling, while health insurance relief and salary-related deductions continue in substance under new numbering. The firm also says employer National Pension System contributions remain deductible within the existing limits, and that belated filers now have a clearer route to claiming tax deducted at source refunds.
For companies, the safest approach is to separate the filing season that is under way from the systems overhaul that is now unavoidable. FY 2025-26 should be completed as before, but finance teams are being advised to update section mapping, employee declaration templates, accounting software and challan workflows before the first tax year 2026-27 transaction lands. In PKC India’s telling, the challenge is administrative rather than fiscal: the law’s language, numbering and digital plumbing have changed, but the amount most taxpayers owe has not.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
