Income-tax Act, 2025 for SMEs: What Changed From 1 April 2026 and How to Switch Over
What moved, what is new and how to switch over: tax year, section numbers, TDS codes, Form 26 and deadlines under the Income-tax Act, 2025.
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026, with the Income-tax Rules, 2026 notified on 20 March 2026. For SMEs in Mumbai and elsewhere, the substance is largely the same, but almost everything has a new reference:
- Tax year: one “tax year” replaces the previous year and assessment year; tax year 2026–27 is the first under the new Act.
- New section numbers: for example, presumptive taxation is now section 58, tax audit section 63, depreciation section 33, and most TDS sits in a table in section 393.
- New forms and codes: the tax audit report is Form 26, and TDS and TCS use new forms and tax codes.
- Some real changes: reported changes include a fixed fee for late tax audit reports, clearer deductibility of employees’ PF and ESI deposited by the return due date, and longer windows for revised returns.
FY 2025–26 returns and audits stay under the old Act. This guide from NDS Advisors, Chartered Accountants, Mumbai, explains what moved, what changed and how to switch over. It is based on the law and published sources as of 3 November 2026. For the firm’s work in this area, see our income tax services page.
- From 1 April 2026: income is taxed under the 2025 Act; FY 2025–26 stays under the 1961 Act.
- Rates, presumptive limits, audit thresholds and most TDS rates carried forward, as reported.
- New references: section 58 (presumptive), 63 (tax audit), 33 (depreciation), 392 (salary TDS), 393 (other TDS), 394 (TCS).
- Form 26 replaces Forms 3CA, 3CB and 3CD for tax years from 2026–27.
- MSME payment rule continues as section 37(2)(g); update software, deeds and calendars now.
Which Sections Have Moved?
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| Topic (1961 Act section) | 2025 Act section | Note |
|---|---|---|
| Presumptive taxation (44AD, 44ADA, 44AE) | 58 | Consolidated; one mapping gives 61, so confirm |
| Tax audit (44AB) | 63 | Report in Form 26 from tax year 2026–27. See our income tax audit page |
| Business deduction, general (37) | 34 | |
| Payment-basis deductions (43B), including MSME (43B(h)) | 37 (MSME at 37(2)(g)) | No relaxation of the MSME rule, per Rajya Sabha reply of 21 July 2026 |
| Disallowances for non-deduction of TDS (40(a)(ia)) | 35 | |
| Cash payments (40A) | 36 | |
| Depreciation (32) | 33 | |
| New tax regime for individuals (115BAC) | 202 | |
| Return of income (139) | 263 | Covers original, belated, revised and updated returns |
| Salary TDS (192) | 392 | |
| Other TDS (193 to 196D) | 393 (table) | Each payment type is a row; check the row number |
| TCS (206C) | 394 |
Mappings are from published concordances (TaxGuru and others) and are not official; check them against the Act and the Income Tax Department’s mapping utility before quoting them in filings or replies to notices.
What Actually Changed for SMEs?
- Tax audit penalty: the old penalty for not getting accounts audited is reported to be replaced by a fixed fee of ₹75,000 for delays of up to a month and ₹1,50,000 beyond that.
- Employees’ PF and ESI: contributions credited by the return due date are reported to be deductible, removing a common tax audit adjustment.
- Returns: as reported, non-audit business returns are due by 31 August, audit cases by 31 October and transfer pricing cases by 30 November; revised returns may be filed within 12 months of the end of the tax year, and updated returns within 48 months with additional tax. See our business tax filing page.
- Partners: TDS at 10% is reported to apply to payments to partners above ₹20,000 a year, and partner remuneration limits carry forward.
- Companies: commentary reports that minimum alternate tax falls to 14% of book profit and that buy-back proceeds are again taxed as capital gains.
How Should an SME Switch Over?
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| Area | What to update | Why |
|---|---|---|
| Accounting and payroll software | TDS sections, tax codes, challan and statement formats, Form 16 equivalents. Confirm your TAN registration details | Filings and deductions must use new references from 1 April 2026 |
| Compliance calendar | Return, audit, advance tax and TDS due dates under the new Act. Use our compliance calendar | Some dates and windows changed |
| Contracts and documents | Section references in agreements, partnership deeds, board resolutions, bank and investor documents | Old references can cause confusion or rejected forms |
| Payables | MSME payment tracking under section 37(2)(g); check each supplier’s Udyam registration | The 45-day rule continues |
| Payroll | PF and ESI deposit timing; employee declarations | Deductibility of employee contributions |
| Tax audit | Checklists for Form 26 and audit timelines | New format from tax year 2026–27 |
| Records | Keep 1961 Act files for FY 2025–26 and earlier | Old-year assessments continue |
What Should SMEs Watch Into 2027?
- The first returns and tax audits under the new Act, for tax year 2026–27, filed in 2027.
- CBDT circulars and FAQs clarifying transition questions and new forms.
- Budget 2027 changes to the new Act.
- Updates to the e-filing portal, TRACES and the department’s section mapping utility.
Frequently Asked Questions About the Income-tax Act, 2025 for SMEs
When did the Income-tax Act, 2025 come into force?
On 1 April 2026. Income from that date, called tax year 2026–27, is taxed under the new Act, with returns filed in 2027. Income of FY 2025–26 (AY 2026–27) and earlier years stays under the Income-tax Act, 1961, including its assessments and appeals.
Did tax rates change for small businesses?
Largely no. Commentary reports that rates and slabs, presumptive taxation limits, tax audit thresholds and most TDS rates on ordinary business payments carried forward. The main change is structure: new section numbers, forms and codes.
What is a tax year?
The new Act replaces the separate “previous year” and “assessment year” with a single “tax year”, generally the financial year in which income is earned. Tax year 2026–27 runs from 1 April 2026 to 31 March 2027.
Where are the presumptive taxation schemes now?
Sections 44AD, 44ADA and 44AE of the 1961 Act are consolidated in section 58 of the 2025 Act, according to published section mappings. The limits and conditions were reported as carried forward; check the text before relying on a specific threshold.
What replaced Form 3CD for tax audit?
From tax year 2026–27, the tax audit report is Form 26 under the Income-tax Rules, 2026 (notified 20 March 2026), with tax audit itself in section 63. Audits for FY 2025–26 still use the old forms under the 1961 Act. See our income tax audit page for the audit process.
How has TDS changed?
Salary TDS moved from section 192 to section 392. Most other TDS provisions, the old 194-series, are now rows in a table in section 393, and TCS is in section 394. Challans and statements use new form numbers and tax codes, so accounting and payroll software must be updated. Check that your TAN registration details are current.
Is the MSME 45-day payment rule still in the new Act?
Yes. The old section 43B(h) disallowance for late payments to micro and small enterprises carries forward as section 37(2)(g) of the 2025 Act, and the government told the Rajya Sabha on 21 July 2026 that no relaxation is proposed.
What are the return due dates under the new Act?
As reported in commentary, non-audit business cases file by 31 August, audit cases by 31 October, and transfer pricing cases by 30 November. A revised return can be filed within 12 months of the end of the tax year, and an updated return within 48 months with additional tax.
Which TDS rules apply around 31 March 2026?
TDS follows the date of credit or payment. Amounts credited or paid up to 31 March 2026 fall under the 1961 Act; those from 1 April 2026 fall under the 2025 Act, with the new sections, forms and codes.
What should an SME update first?
The main updates are:
- accounting and payroll software for new TDS sections, tax codes and forms
- the compliance calendar, including new due dates
- section references in agreements, partnership deeds, resolutions and bank instructions
- processes for MSME payments and PF and ESI deposits
- the tax auditor’s checklist for Form 26
NDS Advisors
NDS Advisors is an ICAI-registered firm of Chartered Accountants in Andheri (East), Mumbai, advising individuals and businesses on income tax, GST, audit, company law and compliance.
Questions on the Income-tax Act, 2025?
For general queries on income tax, audit and compliance, contact info@ndsadvisors.com or +91 91670 58000, or visit our contact page. You can also read about our income tax services.