Revolutionizing Tax Compliance: The Shift to a New Framework

The Indian Income Tax Department announced on Monday that its e-filing portal will enable compliance under both the existing and the new Income Tax Acts. It clarified that all assessments, appeals, and proceedings related to previous years will continue under the old Act until finalized. This announcement precedes the implementation of the new Income Tax Act, 2025, which will start on April 1, 2026.

The forthcoming Act, replacing the long-standing 1961 law, aims to create a revenue-neutral environment with simplified tax rules, reduced litigation, and easier compliance. It does away with the bifurcation between the assessment year and the previous year. Effective April 2026, the 1961 Act will be repealed, but its provisions will govern all tax affairs initiated before this date.

The government's FAQs highlight the need for a transitional period during which both legislative frameworks will operate simultaneously. The Act introduces a single 'tax year' and allows for TDS refunds even after ITR deadlines without penalties. The law's Section 536 addresses transitional issues, ensuring continuity and alignment in tax practices.