The Income-tax Act, 2025: what actually changes for founders, NRIs and foreign companies.
India is replacing the six-decade-old Income-tax Act, 1961 with the Income-tax Act, 2025, effective 1 April 2026. It is largely a consolidation and simplification — but it renumbers almost everything and introduces a single “tax year”. Here is what matters in practice, and a map from the sections you already know.
What it is — and isn't
The Income-tax Act, 2025 is a structural rewrite of Indian direct-tax law: shorter sections, plain language, consolidated schedules and fewer cross-references. It is not, for the most part, a change in tax policy — rates, heads of income, capital-gains treatment, TDS and treaty relief broadly carry forward. The practical disruption is in terminology and numbering: every section reference in your agreements, ESOP policies, valuation reports and engagement letters will need a second look.
The three changes you will actually feel
- One “tax year.” The “previous year” and “assessment year” distinction is replaced by a single tax year — simpler to reason about, but it changes how deadlines and disclosures are phrased.
- Renumbered sections. The provisions you cite daily — 9, 90, 92, 195, 197 — carry forward in substance but under new numbers. Templates and memos referencing “Section 195” should now read “the Income-tax Act, 2025 (erstwhile Section 195 of the 1961 Act)”.
- Consolidated reliefs and schedules. Exemptions and special-rate provisions are reorganised into tables/schedules, which makes them easier to find but means old paragraph references break.
Section map — 1961 → 2025
The provisions cross-border founders and NRIs rely on most, and where they stand:
| Erstwhile (1961) | Subject | Status under the 2025 Act |
|---|---|---|
| Sec 6 | Residence & RNOR status | Retained. The Act introduces a single “tax year”, replacing the “previous year / assessment year” split. |
| Sec 9 | Income deemed to accrue in India; indirect transfer | Retained — the indirect-transfer rule that catches offshore share sales deriving value from India continues. |
| Sec 10 | Exemptions | Largely consolidated into schedules; substance carried forward. |
| Sec 54 / 54F / 54EC | Capital-gains reinvestment relief | Retained — property and bond reinvestment reliefs continue. |
| Sec 56(2)(viib) | “Angel tax” on share premium | Abolished for all investors from AY 2025-26 and not carried as a charge into the 2025 Act. |
| Sec 90 / 91 | DTAA relief & Foreign Tax Credit | Retained — treaty relief and FTC (Form 67) continue across 90+ treaties. |
| Sec 92–92F | Transfer pricing | Retained — Form 3CEB, ALP and documentation obligations continue. |
| Sec 139 | Return of income | Retained — filing framework continues under the new numbering. |
| Sec 195 | TDS on payments to non-residents | Retained — withholding on foreign remittances (with Form 15CA/15CB) continues. |
| Sec 197 | Lower / Nil deduction certificate (Form 13) | Retained — the NRI cash-flow tool for property sales continues. |
Note: new section numbers should be confirmed against the final Act and notified Rules before filing or drafting. We track the mapping for active engagements.
What it means if you are…
A founder
ESOP policies, share-issue documentation and Rule 11UA valuation reports cite 1961-Act sections throughout. With angel tax (erstwhile Section 56(2)(viib)) already gone, the main task is a citation refresh and confirming capital-gains and ESOP-perquisite treatment under the new numbering before your next round or secondary.
An NRI
Residence and RNOR planning, Form 13 lower-deduction certificates and DTAA/FTC claims continue unchanged in substance. If you are selling property or repatriating funds across the 2026 transition, confirm which Act governs the tax year of the transaction.
A foreign company / GCC
Permanent-establishment exposure, Section 195 withholding, transfer-pricing documentation and treaty positions carry forward. Intercompany agreements and TP policies that hard-code 1961-Act sections should be updated at the next review cycle.
What to do now
- Refresh section references in ESOP policies, SHAs, TP documentation and engagement letters.
- Re-confirm any time-sensitive position (property sale, repatriation, exit) against the governing tax year.
- Keep a 1961 → 2025 concordance on file for audit and assessment correspondence.
The bottom line
The Income-tax Act, 2025 is more re-plumbing than revolution — but in cross-border work, a wrong section reference is exactly the kind of detail that surfaces in an assessment years later. The cost of getting ready is low; the cost of ignoring it is a document trail that no longer matches the statute.
This note is general guidance and is not legal or tax advice; it reflects our reading of the Income-tax Act, 2025 ahead of the notified Rules. Get in touch to review how the transition affects your structure.
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