Understanding the Transition to Income Tax Act, 2025

India's tax landscape is undergoing a significant transformation with the applicability of the Income Tax Act, 2025, from April 1, 2026. This new legislation introduces crucial changes impacting TDS (Tax Deducted at Source) obligations, Income Tax Return (ITR) filing, and tax audit reports. Taxpayers and deductors must understand these transitional rules to ensure compliance and avoid penalties.

TDS Obligations During the Transition

The determination of which Act governs TDS obligations—the Income Tax Act, 1961, or the new Income Tax Act, 2025—hinges on the 'earlier of the event of credit or payment'.

• If the earlier event occurs on or before March 31, 2026, the provisions of the Income Tax Act, 1961, will be applicable.
• If the earlier event occurs on or after April 1, 2026, the provisions of the Income Tax Act, 2025, shall apply.

For instance, if professional fees were credited in March 2026 but paid in April 2026, the Income Tax Act, 1961, applies, requiring TDS deduction in March 2026.

TDS on Salary for Financial Year 2025-26 and Tax Year 2026-27

Employers have distinct obligations for salary TDS during this transition:

• For salaries pertaining to FY 2025-26 (paid up to March 2026), TDS obligations are governed by Section 192 of the old Act.
• For salaries pertaining to Tax Year 2026-27 (paid from April 2026 onwards), TDS obligations fall under Section 392(1) of the new Act.

Employers are required to reset their TDS computation from April 1, 2026, for the new tax year, factoring in projected income, deductions, and the applicable tax regime for TY 2026-27.

Due Dates for TDS Deposits

Delays in depositing TDS will attract interest liability. For tax deducted in March 2026, the due date for deposit is April 30, 2026. A deposit made in May 2026, for example, would incur interest at 1.5% per month from the date of deduction.

ITR Filing and Tax Audit Reports Under the New Regime

The Income Tax Department has clarified several aspects concerning ITR forms and report filings.

New ITR Forms and Assessment Year vs. Tax Year

New ITR forms under the Income Tax Rules, 2026, will be notified well in advance of the due dates for filing returns for Tax Year 2026-27. These forms will be available on the e-filing portal.

It's crucial to distinguish between:

• AY 2026-27 (income of FY 2025-26): Returns must be filed using old ITR forms on the e-filing portal, selecting AY 2026-27. The due date is July 31, 2026, or August 31 for non-audit cases, etc.
• Tax Year 2026-27 (income of FY 2026-27): This return is not due until July 2027. However, taxpayers should track income, TDS, and advance tax payments under the new Act from April 2026 onwards.

Belated, Revised, and Updated Returns

• Revised/Belated Returns for AY 2025-26 or earlier: These cannot be filed after April 1, 2026, as the time for filing expires before this date. However, an updated return (ITR-U) can still be filed subject to Section 139(8A) of the old Act.
• Revised Returns for AY 2026-27: These will be governed by the Income Tax Act, 1961, and can be filed before March 31, 2027, or before completion of assessment, whichever is earlier.

Tax Audit Report for FY 2025-26 (AY 2026-27)

The tax audit report for FY 2025-26 (AY 2026-27) must be filed in the prescribed form under the old Act (Form 3CA/3CB/3CD), even if filed after April 1, 2026. The due date is typically one month before the ITR due date, for example, September 30, 2026, for cases with an ITR due date of October 31, 2026.