The Income-tax Act, 2025 for Business Owners: What Actually Changes

The question a business owner is actually asking

Nearly everything published about the Income-tax Act, 2025 is written for a salaried reader. Slabs, the rebate, the standard deduction, whether the new regime is better. If you run a business, none of that is why you are here.

What you want to know is narrower and more awkward: my chartered accountant has spent twenty years saying "43B(h)" and "44AB" and "194J". Do those numbers still mean anything? Does my compliance calendar still work? Is there anything I have to do differently before 31 March?

Short version: your obligations are broadly the same, your vocabulary is not, and there are three or four places where the change is operational rather than cosmetic. This piece walks through those.

If your question is instead the narrow one — which Act governs the return sitting on my desk this month — read does the Income-tax Act, 2025 apply to the return you are filing now first and come back.

Tax Year: the terminology change that breaks everything you know

This is the single largest source of confusion in the transition, and it is worth spending a paragraph on properly.

Under the 1961 Act you earned income in a Previous Year and were assessed on it in the following Assessment Year. FY 2025-26 income, AY 2026-27 assessment. Two labels for one stretch of income, offset by a year, and a permanent source of error in every conversation between a business owner and their accountant.

The Income-tax Act, 2025 collapses both into one term. There is now only the Tax Year — the twelve months in which the income arises. No offset, no second label.

For a new business the Tax Year starts on the date the business is set up or the source of income comes into existence, and runs to the end of that financial year. So a company incorporated in November has a first Tax Year of roughly five months, not twelve.

Which Act governs which year

One table, and it settles most of the arguments.

The consequence worth internalising: for most of the coming year you will be operating both systems at once. Your current-year books are being kept under the 2025 Act, while the return and audit you are completing are 1961 Act work. That is not a transitional glitch — it is simply how the changeover falls, and it lasts until the AY 2026-27 assessments are closed.

The mapping problem, and how to handle it safely

Going from 819 sections to 536 means almost every number moved. That has produced a large volume of confidently written mapping tables online, and not all of them agree with each other.

We are going to do something less satisfying and more useful: state only the mappings that appear in a Central Board of Direct Taxes source, and describe everything else by what it does rather than by a number we cannot stand behind.

This matters more than it sounds. A wrong section number in a reply to an assessing officer is not a typo; it is a signal about the quality of the rest of the reply.

What actually changes for a business

Five areas where the change is operational. Everything else, for most businesses, is a relabelling exercise.

1. The tax audit report is a different document

Form No. 26 replaces the 3CA / 3CB / 3CD family for tax years commencing on or after 1 April 2026. Part A carries the particulars, Part B is the statement of particulars that used to be Form 3CD, Part C corresponds to 3CA and Part D to 3CB. The thresholds under Section 63 are the familiar ones — ₹1 crore for business, ₹10 crore where cash receipts and cash payments are each 5 per cent or less of the totals, ₹50 lakh for a profession.

The report is due one month before the return due date under Section 263(1), carries a mandatory UDIN, and is signed by an Accountant as defined in Section 515(3)(b).

2. Your accounting software became a disclosure

Rule 46 requires electronically maintained books to remain accessible in India at all times, with a daily backup on India-located servers. Form No. 26 requires your auditor to state the server IP address, the country the server is in, and the address of the India-located backup server.

For any business running foreign-hosted cloud accounting, this is the one item on this page that needs attention this quarter rather than next year, because the compliance is being tested across the whole of the current tax year. We have written it up in full: Form No. 26 and the accounting software disclosure.

3. Foreign remittance forms were renumbered

Form No. 145 replaces Form 15CA. If you pay overseas vendors, remit royalties, or send funds abroad for any reason, the form your banker asks for has a new number. Confirm which form your bank is working to before the payment run rather than during it, because a rejected remittance at the bank counter is a slow problem to fix.

4. TDS on partner payments is now routine, not exotic

Section 194T brought partner remuneration, interest, bonus and commission inside TDS from 1 April 2025 — introduced by the Finance (No. 2) Act, 2024, so this is 1961 Act law, and FY 2025-26 is its first full year of application. It is not a 2025 Act change, but it lands in the same conversation and it is the single most common thing firms and LLPs have got wrong this year.

The rule and its traps are covered in TDS on partner payments under Section 194T. If you have already missed it, the remediation path is in Section 194T TDS not deducted.

5. The MSME payment disallowance is unchanged and still under-managed

Section 43B(h) of the 1961 Act disallows a deduction for amounts owed to micro and small enterprises that are not paid within the statutory window — 45 days where there is a written agreement, 15 where there is not. The corresponding provision continues under the new Act. This is an accounts-payable control problem rather than a tax-return problem, and it is set out in the 45-day MSME payment rule.

What did not change

Worth stating plainly, because a certain amount of alarm has been generated by people with something to sell.

• The Act did not rewrite rates or slabs. It restructures and simplifies the statute; rate changes come from the Finance Act each year, as they always have.
• Your filing calendar is broadly intact. Advance tax quarters, TDS quarters, the audit-versus-non-audit split of return due dates — the shape of the year is the same.
• Books, vouchers and evidence requirements are the same, with the addition of the electronic-books rule discussed above.
• GST is a separate statute and is untouched by any of this. The GST changes of the last year are their own story.
• Assessments, appeals and proceedings already under way for earlier years continue under the 1961 Act. Nothing is reopened by the new Act coming into force.

A checklist for the transition year

• Establish where your accounting data is hosted and whether a daily India backup exists. If it does not, start that project now.
• Ask your auditor to confirm which form set they will be using for the tax audit you are completing this season, and which for the next one.
• Update internal templates — engagement letters, board notes, policy documents — to say "Tax Year" where they currently say "Assessment Year", but only for periods from 1 April 2026.
• Brief whoever handles foreign payments about Form No. 145.
• Confirm your firm or LLP has a TAN and is deducting under Section 194T on partner payments, including year-end credits to capital accounts.
• Flag every micro and small vendor in your vendor master with their Udyam number and classification, so the 45-day clock is visible before year end and not after it.
• Do not rush to reprint stationery or rewrite contracts around new section numbers. Wait until the numbering is settled in CBDT sources.

If you would like this handled rather than tracked, tax planning and advisory and our virtual CFO service both cover the transition work. The compliance calendar carries the dates.

Common mistakes

• Filing the FY 2025-26 return as though the new Act applied. It does not. That return is 1961 Act work end to end.
• Reading "2026-27" without asking which system it belongs to. Assessment Year 2026-27 and Tax Year 2026-27 are different years of income.
• Quoting new section numbers picked up from a blog. Several circulating mapping tables disagree with each other.
• Assuming a restructuring Act means nothing to do. The electronic-books rule alone is a real project for a lot of businesses.
• Waiting for the first Form No. 26 to think about the server position. By then the year it covers is over.

Key takeaways

• In force 1 April 2026; 536 sections; applies to Tax Year 2026-27 onwards.
• "Tax Year" replaces Previous Year and Assessment Year. Same digits, different year — check which system a figure belongs to.
• FY 2025-26 returns are still 1961 Act returns.
• Verified new references so far: Section 63 and Rule 47 for tax audit, Form No. 26, Section 263(1), Section 515(3)(b), Rule 46, Form No. 145.
• Describe provisions by function until the numbering is settled in official sources.

Frequently asked questions