1961 Act or 2025 Act? Which Law Applies to Your Return or Notice

The year your income was earned decides which law applies. Income earned up to 31 March 2026 is taxed, assessed and corrected under the Income-tax Act, 1961, even when the return, notice or refund comes later. Income earned from 1 April 2026 falls under the Income-tax Act, 2025, which uses "tax year" in place of "previous year" and "assessment year".

So the return you filed in July 2026 for FY 2025-26 is an AY 2026-27 return under the 1961 Act. Its intimation, any rectification, any demand and its refund interest all follow the 1961 Act. Your first return under the new Act is for Tax Year 2026-27, and you file it in 2027.

What changed on 1 April 2026

The Income-tax Act, 2025 came into force on 1 April 2026 (section 1). Section 536(1) repeals the Income-tax Act, 1961. Most of the substance carries over, but almost every section number changes and the way years are named changes.

Tax year. Section 3 defines the tax year as the twelve months of the financial year starting on 1 April. A new business, or a new source of income, starts its tax year on the day it begins and ends it on 31 March.

No more assessment year. Under the 1961 Act, income of the "previous year" (say FY 2025-26) was assessed in the following "assessment year" (AY 2026-27). The 2025 Act names the year once. Income earned from April 2026 to March 2027 is simply Tax Year 2026-27.

The catch is that the two labels are one year apart for the same income period:

If you see "Tax Year 2026-27" and "AY 2026-27" side by side, they are different years of income.

Section 536: what stays under the 1961 Act

Section 536(2) is the savings clause. It keeps the old Act alive for everything connected with years that began before 1 April 2026. The parts that matter to an individual:

• Proceedings for old years run under the old Act. Clause (c) says the 1961 Act continues to apply to proceedings pending on 1 April 2026 and to proceedings started after that date "in respect of any tax year beginning before the 1st April, 2026". It lists notices, assessment, reassessment, rectification, penalty, revision and appeals, and says they follow the 1961 Act's procedure.
• Penalties for old years can be started and imposed under the 1961 Act (clause (d)).
• Interest on refunds and on unpaid demands for old years follows the 1961 Act's provisions, but for the period from 1 April 2026 the rate is the one in the corresponding provision of the 2025 Act (clause (g), as substituted by the Finance Act, 2026).
• Options you already exercised carry over. An election or option made under the 1961 Act and in force on 1 April 2026 is treated as made under the corresponding provision of the new Act (clause (f)).
• Old losses keep their place. Business, house property and other brought-forward losses are set off and carried forward in the manner of the old sections (clause (m)). A capital loss can be carried forward for up to eight financial years after the year it was first computed (clause (n)).
• Old circulars and notifications continue where they are not inconsistent with the new Act (clause (j)).

Section 536(3) closes the loop: any reference in the new Act to a tax year starting on 1 April 2025 or earlier is read as the "previous year" under the 1961 Act.

Which law covers what you are dealing with

For the new section numbers themselves, see old to new section numbers for notices. A quick test for any notice or order: look at the year it names. An assessment year (AY 2026-27 or earlier) points to the 1961 Act, and the section numbers in it will be the old ones. A tax year from 2026-27 onwards points to the 2025 Act and its new numbering.

A worked example

Rohan is a salaried employee who also started letting out a flat in May 2026.

• In July 2026 he filed his return for AY 2026-27. CPC (the Centralized Processing Centre) processes it under section 143(1) of the 1961 Act, and if it reduces his refund, he files a rectification under section 154. If the refund is late, interest is worked out under section 244A, with the rate for months after 1 April 2026 taken from the new Act.
• From September 2026 he pays advance tax on the rent. That payment is for Tax Year 2026-27 under the 2025 Act, because the rent is earned after 1 April 2026.
• In July 2027 he files his return for Tax Year 2026-27. It is filed under section 263 of the 2025 Act and processed under section 270(1).

Two returns, a year apart, under two different Acts. Each keeps its own law until it is closed.

What this means for you now

1. Keep using AY 2026-27 and old section numbers for anything about FY 2025-26 income: replies, rectifications, grievances and refund follow-ups.
2. Use Tax Year 2026-27 for anything about income from April 2026: advance tax, TDS from your current employer and the return you will file in 2027.
3. Check the year before the section. A new section number on an old-year matter, or an old number on a new-year matter, is worth a second look before you reply.
4. Ask a chartered accountant if a matter spans both periods, such as a loss carried forward from an old year into Tax Year 2026-27, or an option you exercised under the old Act.

If you are reading a 143(1), 143(2) or 148 notice for an old year, this comparison still applies as written.

If you are following AY 2026-27 returns and refunds for yourself or family members, myutils.me shows each PAN's ITR status, refunds and demands from the portal after you add the PAN or press Sync. It is an independent app; replies and rectifications are still filed on the portal.

FAQ

Is the Income-tax Act, 1961 still in force?

It is repealed from 1 April 2026, but section 536 of the 2025 Act keeps it applying to proceedings for any year that began before 1 April 2026. Returns, intimations, rectifications, penalties and appeals for AY 2026-27 and earlier still follow the 1961 Act.

Which law applies to the return I filed in 2026?

If it is for income of FY 2025-26, it is an AY 2026-27 return under the 1961 Act, and so is its processing under section 143(1). The 2025 Act starts with Tax Year 2026-27, whose returns are filed in 2027.

Is Tax Year 2026-27 the same as AY 2026-27?

No. AY 2026-27 is income from April 2025 to March 2026. Tax Year 2026-27 is income from April 2026 to March 2027, the year the 1961 Act would have called AY 2027-28.

Does refund interest for an old year change after 1 April 2026?

The 1961 Act's refund interest provisions still apply to old-year refunds, but section 536(2)(g) says the rate for the period from 1 April 2026 is the one in the corresponding provision of the 2025 Act.

Do I need to redo anything I chose under the old Act?

Generally no. Section 536(2)(f) treats an election or option in force on 1 April 2026 as made under the corresponding provision of the new Act. Check with a chartered accountant if your option has conditions that run across years.

Sources

• Income-tax Act, 2025, as amended by the Finance Act, 2026 (Income Tax Department)
• Section 536, Income-tax Act, 2025: repeal and savings
• Section 1, Income-tax Act, 2025: short title and commencement
• Section 270, Income-tax Act, 2025