Income Tax Department Publishes 32-Point FAQ on Objective, Scope and Transition to Income Tax Act, 2025

The Income Tax Department has published a detailed 32-point FAQ on the objective and scope of the Income Tax Act, 2025, giving taxpayers and professionals a consolidated official explanation of how the new law is intended to work and, importantly, how the transition from the Income Tax Act, 1961 is being handled.

The FAQ is especially relevant for Chartered Accountants, tax practitioners, finance teams and businesses because the transition is not a clean break on a single date. The Department explains that while the 1961 Act stands repealed from 1 April 2026, proceedings and obligations relating to earlier periods can continue under the old law through the savings and transition framework in Section 536 of the 2025 Act.

Why the 2025 Act replaced the 1961 law

According to the Department, the primary objective of the 2025 law is simplification rather than the introduction of a new tax policy. The FAQ says the new Act seeks to use clearer language, consolidate provisions, reduce cross-referencing and modernise the structure of the law. It also expressly states that the new Act does not, by itself, impose a new tax or increase the tax burden merely because the statute has been replaced.

The scale of the drafting exercise is significant. The Department states that the Income Tax Act, 2025 contains 536 sections and 16 schedules, compared with 819 sections and 14 schedules under the 1961 Act. It also says the Income Tax Rules have been reduced from 511 rules and 399 forms to 333 rules and 190 forms. Provisos and explanations have been integrated into operative provisions in many places, while tables and formulas are used to replace longer narrative drafting.

Tax Year replaces the old Previous Year and Assessment Year terminology

One of the most visible structural changes is the move to the concept of a Tax Year. The FAQ explains that a Tax Year is a 12-month period contained in a financial year and applies from 1 April 2026 for income earned during FY 2026-27 onwards. The separate Assessment Year terminology is discontinued under the new Act.

The Department clarifies that this does not require businesses to change their accounting year. The Tax Year remains aligned with the financial year. A shorter Tax Year can arise where a business is newly set up, or a new source of income comes into existence during the year; in that case the Tax Year begins on the relevant commencement date and ends on 31 March.

Old and new laws will operate in parallel for transition cases

The most important practical clarification concerns continuity. Section 536 is the repeal-and-savings provision, and the FAQ says it contains 22 sub-clauses addressing transition situations. Proceedings relating to tax years beginning before 1 April 2026 can continue under the repealed 1961 Act, including assessment, reassessment, recomputation, rectification, penalty, reference, revision and appeal proceedings.

The Department gives a practical example: an assessment relating to AY 2024-25 can continue under the old Act even if the proceeding remains pending after the new law comes into force. Similarly, an application for rectification or revision concerning a pre-April 2026 tax year does not need to be re-filed merely because the statutory framework has changed.

Existing approvals, options and circulars can continue

The FAQ also addresses a key concern for entities relying on historic approvals, registrations, tax options and departmental guidance. It states that approvals, registrations and recognitions granted under the old Act can continue where they are not inconsistent with the new law.

Likewise, an option exercised under the old Act is generally treated as having been exercised under the corresponding provision of the new Act. The Department specifically says a taxpayer already under the new tax regime under Section 115BAC of the 1961 Act does not need to opt again merely because the regime is now located under the 2025 Act.

Old circulars, instructions and notifications also continue where they do not conflict with the new law. The FAQ points to Section 536(2)(j) for this continuity principle.

What happens to PAN, TAN and faceless proceedings

The administrative architecture largely continues. PAN, TAN, faceless assessment and faceless appellate frameworks remain in place. The Department also says the existing faceless schemes are treated as continuing under the corresponding provisions of the new Act or, where necessary, under the general scheme-making power in Section 532.

Presumptive taxation is consolidated

The FAQ notes that the presumptive taxation provisions familiar from Sections 44AD, 44ADA and 44AE of the old Act have been consolidated in Section 58 of the new Act in a tabular format. This is presented as a drafting and structural simplification rather than a statement that the underlying eligibility conditions have been removed.

Practical implications for CAs and finance teams

- Map the relevant period first: before applying a section reference, determine whether the matter belongs to a tax year governed by the old or new law.

- Preserve old-law records: assessments, appeals, rectification matters and older-year claims may continue under the 1961 Act for years after its repeal.

- Update internal section mapping: tax teams should maintain a cross-reference between commonly used 1961 Act sections and their 2025 Act equivalents.

- Do not automatically re-file or re-elect: existing approvals, registrations, options and pending applications may continue under the savings provisions.

- Check consistency: older circulars and instructions remain relevant only to the extent they are not inconsistent with the new statute.

Useful official links

Objective and scope of the New Act FAQs

Key takeaway

The new FAQ confirms that the Income Tax Act, 2025 is intended to simplify the structure and language of direct-tax law without erasing rights, obligations or proceedings created under the 1961 Act. For practitioners, the immediate compliance challenge is therefore not simply learning new section numbers; it is correctly identifying which law governs each year, proceeding, option and document during a multi-year transition.