The Income-tax Act 2025 replaces the Income-tax Act, 1961, effective from Tax Year 2026-27 (1 April 2026 onwards). The Act is shorter (50% fewer sections), simpler in language, and consolidates several scattered provisions. The substantive tax positions are largely the same; the sections move, the form names move, and a few specific computations get cleaner.
What stays the same
- Corporate income tax rates (22% base + surcharge + cess for domestic companies under the new regime).
- Slab structure for individual income — both old and new regimes continue.
- DTAA treatment — treaties are independent of domestic law; rates and obligations under DTAAs are unchanged.
- Transfer pricing — TP regulations carry across to the new Act with renumbered sections.
- Most procedural mechanics — TDS deposit cycle, quarterly returns, annual ITR.
What changes for foreign-owned subsidiaries
| What | 1961 Act | 2025 Act |
|---|---|---|
| TDS on salary | Section 192 | Section 392 |
| TDS on non-salary (consolidated) | 194A, 194C, 194J, 194-I, etc. | Section 393 with three subsections (residents / non-residents / any person) |
| Salary TDS certificate | Form 16 | Form 130 |
| Non-salary TDS certificate | Form 16A | Form 130 (corresponding) |
| Regime opt-out (salaried) | Form 10-IE | Form 122 |
| TDS on payments to non-residents | Section 195 | Largely carried forward into Section 393(2) |
Section 392 — salary TDS
Section 392 is the direct successor to Section 192. The mechanics are unchanged: estimate the employee's annual tax liability at the start of the year, deduct 1/12 each month, true up at year-end. Form 130 replaces Form 16; the citation in the form template changes from '203 of 1961' to '392 of 2025'.
Section 393 — the non-salary consolidation
This is the biggest structural change. The 1961 Act had a multiplicity of TDS sections (194A interest, 194C contract, 194J professional fees, 194-I rent, etc.) each with their own rate, threshold and form. The 2025 Act consolidates all non-salary TDS into Section 393 with three subsections:
- Section 393(1) — payments to residents.
- Section 393(2) — payments to non-residents.
- Section 393(3) — any person (catch-all).
Within each subsection, a tabular schedule lists the payment types and their rates. The rates are largely the same as before; the structure is what's clean.
ITA 2025 transition handled by your consultant
FastLegal's tax consultant updates your payroll system, your contractor agreements, your Form 16 / 130 templates, and your TDS challan section codes for the ITA 2025 transition. The change is invisible to your operations — your March 2026 cycle uses 192/16; your April 2026 cycle uses 392/130. No re-training of your finance team.
Form 130 vs Form 16 — what employees see differently
For the employee, very little changes. The form layout is similar — header with employer/employee identification, Part A (TRACES-generated TDS summary), Part B (deductor-generated salary computation). The differences:
- Header says 'Form 130' instead of 'Form 16'.
- Certification statement cites Section 392 of the Income-tax Act, 2025 instead of Section 203 of the 1961 Act.
- Section references in the deductions section update (Standard deduction under Section 19 of 2025 Act replaces Section 16(ia) of 1961 Act, etc.).
- Visually it looks like Form 16; the legal citations underneath are what differ.
Transition checklist for FY 2026-27
- Update payroll system to issue Form 130 (not Form 16) for FY 2026-27 income.
- Update TDS challan codes — your payroll vendor handles this automatically if they're on the right software version.
- Re-template offer letters and employment contracts to cite ITA 2025 sections (Section 392 for salary TDS) instead of the 1961 Act.
- Update contractor / consultant agreement templates — cite Section 393 instead of 194J / 194C.
- Brief your finance team on Section 195 carryover under Section 393(2) — most of the section 195 mechanics survive substantively.
- Communicate to employees in the May 2026 newsletter: 'Your Form 16 for FY 2025-26 (income earned April 2025 - March 2026) will arrive by 15 June 2026 as usual. From FY 2026-27 onwards, the same document will be called Form 130 under the new ITA.'
Frequently asked questions
Will our DTAA position change?+
No — DTAAs are independent treaties. The benefit of any DTAA continues unchanged. Documentation (TRC, Form 10F) requirements continue too.
Is there a transition window for sections issued under the old Act?+
Yes — TDS deducted before 1 April 2026 remains governed by the 1961 Act. The 2025 Act applies to income earned from 1 April 2026. Forms issued for FY 2025-26 (by 15 June 2026) still use Form 16 / Section 192.
What about Section 195 specifically?+
Section 195 carries forward into Section 393(2). The substantive law on withholding from payments to non-residents stays the same; the form mechanics and the rate table are now under 393(2). DTAA caps remain effective.
Do we need to refile any prior-year returns?+
No — prior years stay under the old Act. Only the current year's filings going forward use the new Act.
Stop reading circulars. Start running clean payroll.
Every FastLegal plan ships with a dedicated payroll consultant — a real human who runs your PF, ESI, PT, TDS and Form 16 issuance, configured to your salary structure, your state, and your hiring plan. You sign off. We do the rest.