Income Tax Act 2025: What Changes for Small Businesses

The Income Tax Act 2025 replaced India's Income-tax Act, 1961 on 1 April 2026. It keeps most tax rules but rewrites them in simpler language, cuts the number of sections to 536, and introduces a single "tax year" in place of previous year and assessment year. Familiar sections are renumbered: 44ADA moves to section 58 and 194J to section 393.

For small businesses and freelancers the rewrite is less dramatic than the headlines suggested. Your income is still taxed in much the same way. What changes is the vocabulary: section numbers, form names and the way the year is described. If your contracts, invoices, software and habits still talk in 1961 Act language, now is the time to update them. This guide explains what the Income Tax Act 2025 is, how the tax year works, which sections you are most likely to meet under new numbers, and a checklist for the first full year.

What is the Income Tax Act 2025?

The Income-tax Act, 2025 (the official spelling uses a hyphen and comma) is a complete rewrite of India's income tax law. Key facts:

• Passed by Parliament in August 2025 and given presidential assent on 21 August 2025 as Act No. 30 of 2025.
• Came into force on 1 April 2026, replacing the Income-tax Act, 1961, which had grown to more than 800 sections over six decades of amendments.
• Contains 536 sections in 23 chapters with 16 schedules. Many conditions that used to be buried in provisos and explanations now appear in tables.
• Supported by the Income-tax Rules, 2026, notified by the CBDT in March 2026 and also effective from 1 April 2026, which replace the 1962 Rules and renumber most forms.

The government's stated aim was simplification, not a new tax policy. Rates, slabs and most deductions continue, though annual Finance Acts can still change them. The new tax regime remains the default for individuals.

The tax year concept explained

The change most people notice first is the tax year. Under the 1961 Act you earned income in a "previous year" and were assessed in the following "assessment year". That caused endless confusion: income earned in 2025-26 was filed as AY 2026-27. The Income Tax Act 2025 replaces both terms with a single tax year, which is simply the financial year in which you earn the income.

Income earned between	Old Act description	New Act description	Which law applies
1 April 2025 to 31 March 2026	FY 2025-26, AY 2026-27	Not applicable	Income-tax Act, 1961
1 April 2026 to 31 March 2027	Would have been FY 2026-27, AY 2027-28	Tax year 2026-27	Income Tax Act 2025
1 April 2027 to 31 March 2028	-	Tax year 2027-28	Income Tax Act 2025

This creates an overlap during 2026. The return you file in mid-2026 covers income from 2025-26, so it is filed under the old Act with the old form names. Your first return under the new Act will cover tax year 2026-27 and is due in 2027. Advance tax instalments you pay during 2026-27 relate to the new Act.

Section renumbering: the ones small businesses use

Most professionals do not need the full mapping, only the dozen or so sections they actually meet. The table below shows commonly cited mappings from the 1961 Act to the Income Tax Act 2025, based on official materials and professional commentary. Always confirm against the Act text, because some provisions were merged or split.

Topic	1961 Act	Income-tax Act, 2025
Presumptive tax for professionals	Section 44ADA	Section 58 (merged with 44AD and 44AE)
Presumptive tax for small businesses	Section 44AD	Section 58
Tax audit	Section 44AB	Section 63
TDS on professional and technical fees	Section 194J	Section 393(1), table entry for professional or technical services
TDS on contractors, rent, commission	Sections 194C, 194I, 194H	Section 393 (single table)
Rebate for lower incomes	Section 87A	Section 156
Annual tax credit statement	Form 26AS	Form 168 (under the 2026 Rules)
Non-salary TDS certificate	Form 16A	Form 131 (under the 2026 Rules)

Two of these matter most for freelancers, and each has its own guide: presumptive taxation under 44ADA and section 58, and TDS on professional fees under 194J and section 393.

What changes for freelancers and professionals

Presumptive taxation

Section 58 combines the old presumptive schemes in one table. For professionals, commentaries report the same core numbers as before: 50 percent of gross receipts is treated as income, with a limit of 50 lakh rupees, rising to 75 lakh rupees when cash receipts are no more than 5 percent of the total. One wording change has drawn attention. Section 58(4) says no loss, allowance or deduction under the Act is allowed against the presumptive income, which some advisers read as wider than the old 44ADA wording. If you claim deductions, ask your accountant how this affects you.

TDS on your fees

Clients who deduct TDS on your fees now do so under section 393. Commentaries report the professional fees rate is still 10 percent with a 50,000 rupee annual threshold, and technical services still 2 percent. The timing rule decides which law applies: if the client credited or paid your fee before 1 April 2026, section 194J applies; from 1 April 2026 the new Act applies.

Forms and statements

Your annual statement of TDS credits is now Form 168 (previously Form 26AS), and the certificate your client gives you is Form 131 (previously Form 16A), according to the notified 2026 Rules and commentary. The e-filing portal labels may still show familiar names during the changeover, so look for both.

What does not change

It is easy to over-read the rewrite. These things are broadly the same:

• GST is a separate law and is not affected. Your GST registration, GST invoice rules and returns carry on as before.
• The financial year still runs from 1 April to 31 March.
• Advance tax is still payable during the year in instalments if your tax liability crosses the threshold, with a simpler single-instalment option for presumptive taxpayers under the old rules. Confirm the due dates under the new Act.
• PAN, Aadhaar linking and the e-filing portal remain the main identity and filing tools.
• Record keeping obligations continue. Keep invoices, bank statements and TDS certificates for each tax year.

Worked example: one freelancer, two laws in one calendar year

Priya is a Bengaluru-based UX designer who opts for presumptive taxation. In 2026 she deals with both laws:

1. March 2026: she invoices a client 1,20,000 rupees plus GST. The client credits the fee in its books on 25 March 2026 and deducts TDS of 12,000 rupees under section 194J of the old Act.
2. April 2026: she invoices the same client 1,50,000 rupees plus GST. The client credits it on 10 April 2026 and deducts TDS of 15,000 rupees under section 393 of the new Act.
3. July 2026: she files her return for income earned in 2025-26 (AY 2026-27) under the old Act, using 44ADA. The March invoice and its 12,000 rupee TDS belong here.
4. 2027: she will file her first return under the Income Tax Act 2025 for tax year 2026-27, using section 58. The April invoice and its 15,000 rupee TDS belong there.

The lesson: the date the client credits or pays decides which law and which year a payment belongs to, so date your invoices accurately and keep clear records of when payments arrive. A consistent invoice numbering system makes this much easier at year end.

What the rewrite means for invoices and contracts

Invoices themselves are not governed by the Income Tax Act 2025; GST law decides what a tax invoice must contain. But many invoices, contracts and statements of work quote income tax sections in passing, and those references now age quickly.

Invoice notes

The most common reference is a TDS note, such as "TDS under 194J at 10 percent". For services credited or paid from 1 April 2026, change it to section 393, adding "formerly 194J" for a year or two so the client's accounts team recognises it. Keep your PAN on the invoice so clients can deduct against the right number; our guide to tax IDs on invoices explains which numbers belong where.

Contracts and engagement letters

Payment clauses often say the client "may deduct tax at source under section 194J". A safer wording is "may deduct tax at source as required under the Income-tax Act, 2025 or any law that replaces it". The same applies to clauses about tax residency, withholding on foreign payments and tax indemnities. For international work, our guide to withholding tax on invoices covers how other countries handle the same issue.

Books and audit

The requirement to keep books of account and the tax audit rules have moved to new section numbers (the audit provision is reported as section 63), but the logic is familiar. If you use presumptive taxation and declare at least the deemed income, you generally avoid detailed books and audit. If you leave the scheme, or your turnover crosses the audit thresholds, the regular rules apply. Your accountant will now quote the new numbers in their reports, so it helps to recognise them.

Software and record keeping

Accounting software used by small firms has generally been updated for the new Act and form names, but older versions may still label reports with 1961 Act sections. Check that your TDS and tax reports are tagged to the correct law based on the date of credit or payment, especially for transactions around 31 March 2026. Keep records for the period your accountant recommends; our guide on how long to keep invoices gives a starting point.

Checklist for your first tax year under the new Act

1. Update templates. Replace references such as "TDS under 194J" in invoice notes with "TDS under section 393 (formerly 194J)".
2. Update contracts. Clauses that cite old sections should refer to the Income Tax Act 2025 or say "or its successor provision".
3. Check your accounting software and your accountant's tools for tax year 2026-27 support and new form names.
4. Review presumptive eligibility under section 58, especially the cash receipts test and the new deductions wording.
5. Reconcile TDS quarterly against Form 168 so missing credits are fixed while clients still have time to correct their returns.
6. Pay advance tax on time under the new provisions.
7. Keep both sets of records clearly separated: up to 31 March 2026 and from 1 April 2026.

Conclusion

The Income Tax Act 2025 is mostly a new map of familiar ground. Learn the tax year concept, note the new numbers for the sections you use, and update your paperwork. This article is general information based on official announcements and professional commentary at the time of writing, not tax advice. Check incometaxindia.gov.in and talk to a chartered accountant about your own situation. When you need a clear invoice with GST and a notes line for TDS, our free invoice generator creates a PDF in your browser, and our tax compliance guides cover the details.