Filing Income‑tax Returns Post 1 April 2026: Old Act vs New Act Clarified

With the Income‑tax Act, 2025 coming into force from 1 April 2026, the compliance landscape has undergone a fundamental shift. The first filing season after its commencement has raised a crucial practical question for every assessee:

For income earned in financial year 2025–26 and returns filed on or after 1 April 2026, should the assessee follow the Income‑tax Act, 1961 or the new Income‑tax Act, 2025?

The concern is rooted in timing: income was earned when the earlier law operated, but the return is being filed after the new law has begun. Many assessees instinctively feel that once a new Act is in place, all subsequent returns must fall under it. However, the department’s clarification distinguishes the period in which income was earned from the date on which the return is filed.

This article explains, in a structured and practical manner:

  • Which Act applies for financial year 2025–26
  • How to handle two parallel compliance regimes in the same calendar year
  • Key timelines and forms under the old law during the transition
  • Treatment of losses and continuity of rights under the old law
  • Practical steps to avoid mistakes while switching between the two Acts

Applicability of Law for Financial Year 2025–26

Which law governs income earned in FY 2025–26?

For income relating to financial year 2025–26, the department has clarified that:

  • The entire tax treatment, including filing of the income‑tax return, will continue to be governed by the Income‑tax Act, 1961.
  • This applies even if the return for this period is filed on or after 1 April 2026.

In other words:

Income of financial year 2025–26 will be assessed in assessment year 2026–27 strictly under the Income‑tax Act, 1961, despite the Income‑tax Act, 2025 already being in force at the time of filing.

This also extends to returns that may be required under any triggering provision of the new law (for example, similar to clause 263‑type requirements); the form and substance of the return, where it pertains to FY 2025–26 income, must still follow the 1961 Act for assessment year 2026–27.

What does this practically mean for the assessee?

For FY 2025–26 (AY 2026–27):

  • The charging provisions, exemptions, deductions, TDS rules, and penalty and prosecution provisions of the Income‑tax Act, 1961 will apply.
  • All consequential actions such as scrutiny assessments, demands, appeals, penalties, interest, belated filings, revised returns and updated returns for AY 2026–27 will continue to be handled under the old Act, even though the old Act has otherwise been superseded.

The new Act is therefore prospective in its application: it does not retroactively tax income earned under the old regime, nor does it alter the compliances already attached to that income.

Dual Compliance: Two Returns for Overlapping Periods

Parallel obligations in the transition year

The shift to the Income‑tax Act, 2025 introduces a dual compliance situation. An assessee will effectively deal with two distinct returns referring to two different concepts:

  1. Return for assessment year 2026–27

    • Covers income of financial year 2025–26
    • Governed by the Income‑tax Act, 1961
    • Filed using the existing return series (Forms 1–7) under the old regime