Income Tax Department Publishes Detailed FAQ on Transition to Income Tax Act, 2025: Tax Year, Old Proceedings and Existing Choices Explained

The Income Tax Department has published detailed frequently asked questions explaining how the Income-tax Act, 2025 operates after replacing the Income-tax Act, 1961 from 1 April 2026. The guidance is on the e-filing portal as FAQs on the objective and scope of the new Act, and in a longer compendium, FAQs on Interplay and Transition to the Income-tax Act, 2025. It matters for taxpayers, CAs and tax teams who now handle current-year compliance under the new law while earlier-year proceedings continue under the repealed Act.

What the Department says changed

The FAQs state that the 2025 Act simplifies and consolidates the law without imposing new taxes or raising the tax burden. The volume of law has been cut sharply:

Explanations and provisos have been folded into the main text, and provisions have been regrouped. For example, the presumptive taxation schemes in sections 44AD, 44ADA and 44AE of the 1961 Act are now consolidated in section 58 of the 2025 Act in tabular form.

Tax Year replaces previous year and assessment year

A "tax year" is the twelve-month financial year and applies from 1 April 2026; the terms previous year and assessment year are no longer used for the new-law period. Income earned in 2026-27 is therefore income of Tax Year 2026-27. Businesses need not change their accounting period, because the tax year matches the financial year.

A tax year can be shorter where a business is set up or a new source of income arises during the year. The Department's example: a business started on 1 December 2026 has a tax year from 1 December 2026 to 31 March 2027.

Old proceedings continue under the 1961 Act

Section 536 of the 2025 Act is the repeal-and-savings provision, with 22 sub-clauses for transitional situations. Under section 536(2)(c), proceedings pending on 1 April 2026, and notices for tax years beginning before that date, continue under the old Act. The compendium lists notices, assessment, reassessment, recomputation, rectification, penalty, reference, revision and appeals. Reassessments already started under the 1961 Act continue under it even if completed after 1 April 2026, and rectification under section 154 of the old Act remains available for old-Act assessments. Where a situation is not covered by section 536(2), section 536(4) applies section 6 of the General Clauses Act, 1897. Rights, benefits, obligations and liabilities that arose under the old Act, including refund entitlements, continue.

Existing approvals, options and registrations

• PAN, TAN, faceless assessment and faceless appeal arrangements continue. PAN applications pending on 31 March 2026 need no fresh application.
• Approvals, registrations and recognitions under the old Act continue under corresponding provisions if not inconsistent with the new Act.
• Under section 536(2)(f), options already exercised under the old Act apply under the corresponding new provisions. The new tax regime of section 115BAC is now in section 202, and taxpayers who had opted do not need to opt again.
• Unutilised MAT and AMT credits carry forward as eligible credits under the 2025 Act.
• Applications for pre-April 2026 years continue under the old Act without refiling.

Old circulars may still apply

Section 536(2)(j) preserves circulars, notifications and instructions issued under the 1961 Act to the extent they do not conflict with the new Act. Professionals should first identify the period and the corresponding new provision before deciding whether an older clarification still applies.

Both laws run side by side

The e-filing portal supports compliance under both Acts. Returns filed in July 2026 for earlier years use old-Act forms, while advance tax for Tax Year 2026-27 follows the new Act. Portal utilities support old forms for AY 2026-27 and earlier and new forms for Tax Year 2026-27 onwards.

What CAs and tax teams should do now

• Identify whether an issue relates to a period before or after 1 April 2026.
• Map old and new provisions; section numbers differ even where the policy is unchanged.
• Keep old-law records, since earlier-year assessments and appeals will run under the 1961 Act for years.
• Check that existing options, approvals and registrations map to a corresponding new provision.

Updated on 28 September 2026: linked the official Income Tax Department FAQs and added the section 536 sub-clauses, the shorter tax year example, section 58 presumptive taxation, MAT credit carry-forward and pending PAN applications.