- The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 for tax year 2026-27 onwards; it is a consolidation and renumbering, not a change of tax policy — rates, computation and most rules carry over.
- 'Previous year' and 'assessment year' are replaced by a single 'tax year'; filings for FY 2025-26 and earlier continue under the 1961 Act and old form numbers.
- For cross-border work the key renumberings are: transfer pricing sections 92–92F → 161–173; withholding on non-residents 195 → 393(2) Sl. 17; lower-deduction certificates 197 → 395; rates for foreign companies 115A → 207; treaty relief 90 → 159; thin capitalisation 94B → 177; CbCR 286 → 511.
- The substantive 2026 changes came through the Rules and the Finance Act, 2026: the 15.5% IT-services safe harbour with a ₹2,000 crore ceiling and five-year block, multi-year ALP determination, faster unilateral APAs, buy-back consideration back to capital gains, and the omission of the GST intermediary rule.
What the new Act is — and is not
The Income-tax Act, 2025 rewrites the 1961 Act in simpler language, fewer sections (organised with tables and schedules), and a single tax year in place of the previous-year/assessment-year pair. It does not change tax rates, the heads of income, the computation mechanics or the treaty override principle. The accompanying Income-tax Rules, 2026 (notified 20 March 2026) and new form numbers took effect on the same date. Returns, audits and assessments for financial year 2025-26 and earlier continue under the 1961 Act and 1962 Rules.
Renumbering that matters for cross-border work
| Topic | 1961 Act | 2025 Act | Comment |
|---|---|---|---|
| Income deemed to accrue in India (business connection, royalty, FTS, SEP) | 9 | 9 | Same number; sub-sections reorganised |
| Residence; POEM | 6 | 6 | Same |
| Royalty / FTS connected with PE | 44DA | 59 | Net basis |
| Transfer pricing | 92–92F | 161–173 | See the mapping page |
| Thin capitalisation | 94B | 177 | 30% EBITDA; ₹1 crore |
| Rates for foreign companies — dividend, interest, royalty, FTS | 115A | 207 | 20% + surcharge + cess |
| Relief under tax treaties; TRC; Form 41 | 90, 90(4), 90(5) | 159; 159(8) | Form 10F → Form 41 |
| TDS on salary | 192 | 392 | — |
| TDS on payments to non-residents | 195 | 393(2), Table Sl. 17 | All TDS now in one tabular section |
| Lower / nil deduction certificate | 197; 195(2)/(3); Form 13 | 395; Form 128 | — |
| Higher rate without PAN; relaxation for non-residents | 206AA; Rule 37BC | 397(2)(c); Rule 217 | Treaty rate without PAN on TRC etc. |
| Remittance information (15CA/15CB) | 195(6); Rule 37BB | 397(3)(d); Rule 220; Forms 145/146 | ₹5 lakh threshold unchanged |
| Country-by-country report | 286 | 511 | Forms 58–60 |
| Foreign tax credit | Rule 128; Form 67 | Rule 76; Form 44 | By return due date |
New form numbers in one place
Form 48 (accountant's report, old 3CEB); Form 49 (safe harbour option, old 3CEFA/B/C); Forms 50–54 (APA pre-filing, application, annual compliance, renewal); Form 55 (MAP request, old 34F); Forms 56–57 (master file, old 3CEAA/3CEAB); Forms 58–60 (CbCR, old 3CEAC–3CEAE); Form 41 (non-resident's treaty information, old 10F); Form 44 (foreign tax credit, old 67); Form 128 (lower-deduction application, old 13); Forms 145–146 (remittance declaration and certificate, old 15CA/15CB).
Substantive changes effective 2026
- Safe harbour for IT services consolidated at 15.5% on operating expenses, ceiling ₹2,000 crore, five-year block elected in Form 49 with electronic verification; data centre services at 15%. See safe harbour.
- Multi-year determination of arm's length price (Rule 82) on the taxpayer's option, to reduce repetitive annual disputes.
- APA process: two-year target for unilateral IT-services APAs; renewal form; modified returns by non-resident AEs.
- Buy-back consideration taxed as capital gains in the shareholder's hands again from tax year 2026-27 (Finance Act, 2026), after eighteen months of deemed-dividend treatment.
- Penalties and appeals: the Finance Act, 2026 rationalised the penalty for the accountant's report, combined assessment and penalty orders and reduced the appeal pre-deposit — details in the Finance Act text.
- Foreign tax credit statement in Form 44 by the return due date, with TIN of the foreign country mandatory.
- GST (separately, by the Finance Act, 2026): omission of the intermediary place-of-supply rule in section 13(8)(b) IGST from 30 March 2026.
- FEMA (separately): export regulations 2026 from 1 October with the monthly EDF replacing SOFTEX; ECB amendments from February 2026.
What to do
- Update intercompany agreements, transfer pricing policies and board papers to cite both old and new section numbers for the transition years.
- Re-map the compliance calendar to the new form numbers (Form 48 by 31 October; Form 145/146 for every remittance; Form 41 from each treaty payee annually).
- Decide on the safe harbour election before 30 June 2027 for tax year 2026-27.
- Ask the parent's tax team to refresh TRCs and Form 41 filings for 2026-27, and check whether any buy-back or capital return planned for 2026 should be re-timed.
- Keep the FY 2025-26 file on the old numbering; do not mix regimes in one set of working papers.
Frequently asked questions
When did the Income-tax Act, 2025 come into force?
On 1 April 2026, applying to income of tax year 2026-27 onwards. Financial year 2025-26 and earlier remain under the Income-tax Act, 1961.
Did tax rates change under the new Act?
No. The Act consolidates and renumbers; rates and computation carry over. Rate changes continue to come through annual Finance Acts.
What is section 195 called now?
Section 393(2), Table serial number 17 of the Income-tax Act, 2025 — TDS on interest and other sums chargeable to tax paid to non-residents.
What happened to Forms 15CA and 15CB?
They became Forms 145 and 146 under Rule 220 of the Income-tax Rules, 2026, with the same ₹5 lakh threshold for the CA certificate.
Is Form 3CEB still filed?
For financial year 2025-26, yes (due 31 October 2026). From tax year 2026-27 the accountant's report is Form 48 under Rule 85.
Where are the transfer pricing provisions in the new Act?
Chapter X, sections 161 to 173, with the Rules at 77 to 124 of the Income-tax Rules, 2026 (safe harbour at Rules 86 to 102; APA at 103 to 120).
Sources
Primary sources only. Statutory text is read from the official publication; where a provision has been renumbered, the pre-2026 reference is given alongside so older material can be reconciled.
- Income-tax Act, 2025 and Income-tax Rules, 2026 — Income Tax Department, Tax Laws & Rules
- FAQs and guidance notes on forms under the Income-tax Rules, 2026 — Income Tax Department
- e-Gazette of India — Finance Act, 2026; Income-tax Rules, 2026; FEMA notifications
- CGST Act, IGST Act, CGST Rules and GST circulars — CBIC
- FEMA notifications — Reserve Bank of India
Last reviewed on 1 November 2026 by Vidushi Jhunjhunwala, FCA, VMS Jhunjhunwala & Co. Law stated as at that date; the Income-tax Act, 2025 and Income-tax Rules, 2026 apply from 1 April 2026.
