India’s tax system is witnessing one of its biggest structural overhauls, with the new Income-tax Act, 2025 kicking in from today, April 1, 2026. But contrary to popular belief, the decades-old Income-tax Act, 1961 is not going away anytime soon.
In fact, both the old and new tax laws will run in parallel for a few years — a transition phase that could impact taxpayers, assessments and even litigation.
Why old tax laws won’t disappear overnight
A major reason behind this overlap is administrative and legal continuity.
Kinjal Bhutta, Treasurer, BCAS (Bombay Chartered Accountants Society), explains the ground reality clearly:
“Many taxpayers also assume the new Income-tax Act, 2025 will replace the old law of 1961 overnight, whereas in practice both legislations will coexist for a few years due to pending assessments, appeals and litigation under the earlier law.”
This means cases filed under the old regime — including scrutiny assessments, reassessments, disputes and appellate proceedings — will continue to be governed by the 1961 Act until they are fully resolved.
In simple terms, even after April 1, 2026:
Old cases → governed by the 1961 Act
New income and transactions → governed by the 2025 Act
Not just law — even tax regimes will co-exist
There is another layer of confusion among taxpayers — the belief that the “old tax regime” (with deductions) is being scrapped.
Bhutta clarifies: “A key misconception is that the old tax regime is being abolished. In reality, the old regime continues as an optional regime and taxpayers can still claim deductions if they opt out of the new regime each year.”
This means taxpayers will continue to choose between old vs new regime annually, deductions under sections like 80C, 80D remain relevant — but only if the old regime is opted. Filing ITR still mandatory — even below Rs 12 lakh income.
Another misconception doing the rounds is about income up to Rs 12 lakh being tax-free.
Bhutta cautions: “One has to note that no tax is payable up to Rs 12 lakhs because they benefit out of Rebate u/s. 87A… For claiming that benefit, one needs to file the return of income… there are certain conditions… so one needs adopt a cautious and well informed approach.”
This highlights a critical point that Rs 12 lakh is not a blanket exemption and it is rebate-driven, conditional. ITR filing remains mandatory in many cases.
What remains unchanged even under new tax rules
While the new Income-tax Act, 2025 introduces structural changes like replacing “previous year” and “assessment year” with a “tax year”, several core tax principles continue largely unchanged — ensuring continuity.
A look at the notified Income-tax Rules, 2026 shows that many operational provisions remain familiar:
1. Taxability principles and definitions continue
The rules retain core definitions and interpretations, ensuring continuity in how income is understood and taxed.
2. Capital gains holding period logic remains
Rules continue to define how the period of holding is calculated for capital assets, including carry-forward of holding period in cases like conversion or restructuring.
3. Non-resident taxation framework intact
The method of determining income for non-residents where income cannot be precisely determined continues with similar estimation principles.
4. Significant economic presence rules continue
Thresholds like: Rs 2 crore transaction value and 3 lakh users remain for determining digital tax nexus.
5. Disallowance rules (exempt income expenses)
The familiar rule restricting deduction of expenses linked to exempt income (like 1% of average investments) continues.
6. Salary perquisites valuation largely unchanged
Valuation rules for accommodation, cars, utilities and club expenses continue with similar structures and percentages.
This continuity is deliberate — to ensure taxpayers and tax administrators don’t face disruption despite the new law.
What taxpayers should do now
Before 31 March 2026, taxpayers should evaluate whether the old regime remains beneficial and, if so, maximise deductions such as those under sections 80C and 80D, as the relevance of deduction-based planning continues only if the old regime is chosen, she suggests.
“After 1 April 2026, the focus should move towards salary restructuring, regime comparison each year, and reviewing investment and trading strategies in light of higher STT and dividend taxation changes. Also, the new Income Tax Act, 2025 immediately starts applying to advance tax provisions and TDS provisions, and therefore one needs to be careful to apply the new provisions,” she notes.
Summing up…
The transition to the new Income-tax Act, 2025 is not a “switch-off, switch-on” event — it is a phased shift.
For the next few years, two laws will co-exist, two tax regimes will co-exist. Compliance will require more awareness, not less.
For taxpayers, the message is clear: don’t assume simplification means fewer responsibilities. In fact, during this transition phase, staying informed will matter more than ever.
Disclaimer:
This article is for informational purposes only and does not constitute professional tax advice. Tax laws and regimes are subject to frequent changes by the government. Readers should verify details with official Income Tax Department notifications or consult a Chartered Accountant before making any financial decisions.