The New Income Tax Act: Transition & Rules
The Government of India initiated a comprehensive review of the Income-tax Act, 1961, to draft the New Income Tax Act, 2025/2026. The objective is to make the tax code concise, clear, and easy to read, eliminating obsolete sections and reducing dispute rates.
Transition Machinery for AY 2026-27
During the transition period, taxpayers must navigate a dual framework:
- Procedural Compliance: All filing, processing, assessments, and appeals for AY 2026-27 are governed by the new procedural sections and the updated e-filing utilities.
- Substantive Rights: Historical claims, accumulated losses, and pre-existing disputes are mapped from the Income-tax Act, 1961 to the corresponding transition sections of the new Act to ensure continuity.
- Default New Regime: The New Tax Regime serves as the default framework under the new Act, with the basic exemption limit set at ₹4,0,000 and Section 87A rebate extended up to ₹12,0,000 taxable income.
Key Section Mapping: 1961 Act vs. New Act
| Provision Category | Section under 1961 Act | Status / Section under New Act |
|---|---|---|
| Basic Charge / Exemption | Section 4 & Section 5 | Streamlined charging sections with simplified residential status rules. |
| Salary Standard Deduction | Section 16(ia) | Enhanced standard deduction (₹75,000 under New Regime, ₹50,000 under Old Regime). |
| Deemed Dividend | Section 2(22)(e) & 2(22)(f) | Consolidated dividend income schedule under Other Sources. |
| TDS on Professional Fees | Section 194J | Simplified TDS schedule with lower rates for technical services (2%). |
| Reassessments | Section 147 to 153 | Streamlined assessment timelines, reducing reassessment windows to 3-5 years. |
Frequently Asked Questions
1. Why is a New Income Tax Act being drafted?
The goal is to simplify the Income-tax Act, 1961, which has become complex and cluttered over six decades due to hundreds of annual amendments. The new Act aims to improve readability, reduce litigation, and enhance tax compliance.
2. What happens to old tax cases and disputes during this transition?
All pending tax disputes, appeals, and reassessments initiated under the 1961 Act will continue under the transitional provisions of the new Act. The substantive rules of the 1961 Act remain applicable to those historical financial years.
3. Will the Old Tax Regime be completely abolished under the new Act?
The default tax regime is the New Tax Regime. The new Act consolidates exemptions and deductions, but switch options are provided for salaried individuals, while business/professional income taxpayers have restricted switching rights.
4. Is the basic exemption limit changing under the new Act?
Yes, the basic exemption limit under the default New Tax Regime is ₹4,0,000. Under the Old Tax Regime, it remains ₹2,50,000.
5. How does the Section 87A rebate change under the new Act?
Under the New Tax Regime, the Section 87A rebate is available for individuals with taxable income up to ₹12,0,000 (tax rebate up to ₹60,000). For the Old Regime, the rebate limit remains at ₹5,0,000 (tax rebate up to ₹12,500).
6. What are the major changes in capital gains taxation?
The new Act simplifies holding periods into two categories: 12 months for listed securities/equity units, and 24 months for all other assets (unlisted shares, real estate). LTCG rate is simplified to 12.5% without indexation across asset classes.
7. Are the due dates for filing ITR changing?
No. The standard filing due dates remain the same: July 31 for salaried individuals and non-audit cases, October 31 for tax audit cases, and December 31 for belated/revised returns.
8. What is the penalty for late filing under the new Act?
The late fee under Section 234F remains ₹5,000 if total income exceeds ₹5,0,000, and ₹1,000 if total income is ₹5,0,000 or below.
9. Are agricultural income exemption rules changing?
No. Agricultural income from land situated in India remains exempt from tax under Section 10(1) of the Act. The integration method for computing tax rates on non-agricultural income remains unchanged.
10. How are TDS and TCS rules simplified under the new Act?
The new Act consolidates overlapping TDS sections, reduces rates for contract payments and professional fees, and enforces higher TDS (typically 20%) for non-furnishing of PAN.
11. What is the status of the Black Money Act disclosures?
Disclosures of foreign assets and income in Schedule FA remain mandatory for Resident and Ordinarily Resident (ROR) taxpayers. The penalty for non-disclosure remains ₹10 lakh under the Black Money Act.
12. How is the standard deduction for salaried individuals affected?
The standard deduction is ₹75,000 under the New Tax Regime and ₹50,000 under the Old Tax Regime.
13. Are corporate tax rates changing under the new Act?
Corporate tax rates remain stable, with domestic companies having options for concession rates (like 22% u/s 115BAA) without exemptions, and MAT credit transition rules fully mapped.
14. What is the reassessment window under the new Act?
The time limit for reopening tax assessments is generally reduced to 3 years from the end of the relevant assessment year, extendable up to 5 years only in cases of tax evasion exceeding ₹50 lakh.
15. How do taxpayers claim credit for foreign taxes paid under DTAA?
You must file Form 67 online before filing your ITR, along with a Tax Residency Certificate (TRC) to claim Foreign Tax Credit (FTC) under Section 90/91.