India's Income-tax Act, 2025 (Act 30 of 2025), received presidential assent on 21 August 2025 and came into force on 1 April 2026, replacing the Income-tax Act, 1961 as the governing statute for income-tax matters in India from that date. The Income-tax Rules 2026 were notified on 20 March 2026. Foreign companies and cross-border investors should note, however, that income earned in FY 2025–26 remains assessed under the 1961 Act, making the transition a two-cycle concern rather than an immediate overnight shift.
What Changed – and What Did Not
The stated purpose of the new Act is to modernise the language, numbering and structure of Indian income-tax law without altering the underlying tax policy. Rates, thresholds, treaty positions and anti-avoidance rules are not described as substantively revised in the official communications accompanying the legislation. What has changed is the statutory architecture: provisions have been renumbered, definitions consolidated, and the drafting style updated to reduce the interpretive ambiguity that had accumulated across decades of amendments to the 1961 Act.
For international companies, this distinction matters in practice. Contractual clauses, transfer pricing documentation, tax audit responses and internal compliance policies that cross-reference specific sections of the 1961 Act will need to be reviewed and, where necessary, updated to reflect the corresponding provisions of the 2025 Act. A reference that was accurate before 1 April 2026 may now point to a provision that no longer exists under that number.
Who Is Affected in India
The transition is relevant to any entity or structure with Indian income-tax exposure, but the following categories face the most immediate operational questions:
- Foreign companies with a permanent establishment or deemed permanent establishment in India – their tax filings for FY 2026–27 and beyond will be governed by the 2025 Act, while any pending assessments or appeals for earlier years continue under the 1961 Act.
- Inbound and outbound investors relying on tax treaties – treaty interpretation and domestic anti-avoidance rules are now anchored in the 2025 Act's provisions; legal opinions and tax structuring memoranda that cite the old Act require review.
- Groups subject to transfer pricing documentation requirements – documentation prepared under the 1961 Act framework must be mapped against the 2025 Act equivalents ahead of any tax audit or compliance filing.
- Entities engaged in M&A, restructuring or NCLT proceedings – where tax representations, indemnities or warranties reference statutory provisions, updated drafting is required.
- Listed or SEBI-regulated entities and structures interacting with RBI requirements – disclosure and reporting obligations that overlap with income-tax provisions should be reviewed for consistency under the new numbering.
- Companies handling personal data subject to India's Data Protection Board – where tax records and filings intersect with data retention obligations, the applicable statutory references in privacy and tax policies should be updated.
If your group has ongoing correspondence with the Central Board of Direct Taxes or the Income Tax Department referencing specific sections, those references should be audited without delay.
For a preliminary review of how these transition issues interact with your existing India structure, contact our team at info@ferrazwhitmore.com or visit our contacts page.
The Two-Cycle Transition: Why FY 2025–26 Still Matters
Income earned during FY 2025–26 (1 April 2025 to 31 March 2026) is still assessed, audited and litigated under the Income-tax Act, 1961. This means that disputes, audit notices and appeal proceedings relating to that year – and all prior years – will continue to be conducted under the old statutory framework for some time to come, even as new filings for FY 2026–27 onwards are governed by the 2025 Act.
Foreign companies should therefore maintain parallel familiarity with both statutes and resist the temptation to treat the 1961 Act as entirely superseded. Legal teams, tax advisers and finance functions will need to identify clearly which statute applies to each matter on their India compliance calendar.
Immediate Action Points for International Companies
Given the scale of the legislative transition, we recommend the following steps:
- Map existing documentation: Audit all tax opinions, transfer pricing reports, compliance manuals, shareholder agreements and intercompany contracts that reference provisions of the Income-tax Act, 1961. Identify where re-referencing to the 2025 Act is required.
- Confirm treaty positions: Verify with your India counsel how each applicable tax treaty is being interpreted under the new statutory framework. Where treaty benefits depend on domestic provisions, the relevant domestic anchor may have been renumbered.
- Review pending assessments and litigation: For any open tax audit, reassessment proceeding or appeal, confirm with the Income Tax Department and your representatives which statutory provisions govern procedural and substantive matters.
- Update internal tax risk management policies: Risk registers and internal governance documents that refer to Indian tax law should be updated to avoid reliance on superseded references.
- Monitor forthcoming clarifications: The Central Board of Direct Taxes is expected to issue circulars and guidance as implementation questions arise. Assign responsibility within your compliance function to track these on a rolling basis.
Our India tax structuring practice can assist with the cross-border dimensions of this transition, including treaty analysis, transfer pricing documentation review and risk management advice for groups operating across multiple jurisdictions.
Transfer Pricing: A Priority Area
Transfer pricing continues to be one of the most actively enforced areas of Indian international tax. The renumbering of the relevant provisions in the 2025 Act does not reduce that enforcement intensity, and groups that treat the transition as an administrative formality risk gaps in their documentation that could be exploited in a tax audit. Intercompany agreements, benchmarking studies and local file documentation should all be reviewed to ensure they correctly identify the statutory basis for the positions taken.
Where a group's India operations connect with operations in other treaty jurisdictions, the interaction between India's domestic anti-avoidance rules under the 2025 Act and applicable treaty provisions will require careful analysis. Cross-border structures that were documented under the 1961 Act framework should not be assumed to be compliant without a fresh review.
Sources
Income Tax Department of India, press release, 1 April 2026: Income Tax Act 2025 Comes into Force from 01 April 2026 – available here. Facts last verified: 22 September 2026.
If you would like to discuss how the Income-tax Act, 2025 affects your group's India exposure, our team is available at info@ferrazwhitmore.com or via our contacts page.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.