Income Tax Act 2025: What Changes for Small Businesses

This guide is general information, not tax advice. Rules can depend on your facts, so confirm your position with a chartered accountant before filing.

What is the Income Tax Act 2025?

It is the law that replaced India's Income-tax Act, 1961, from April 1, 2026. Reports describe a shorter structure: 536 sections instead of 819, and 23 chapters instead of 47.

Why it matters: the name on your paperwork is changing even where your tax bill may not. Old section numbers in contracts, invoice notes and software can cause confusion and, for TDS, filing errors.

What changed, and what mostly got a new number?

What does "tax year" mean?

Under the old system, income earned in FY 2025-26 was assessed in assessment year 2026-27. The new law uses one label, the tax year, for the 12 months from April to March.

Yes, but: the switch is not retroactive. The return you file for income earned from April 2025 to March 2026 is still under the 1961 Act. Your income from April 1, 2026 onward falls under the new Act, so you may see both systems for a while.

How does presumptive tax work for small businesses?

Presumptive tax lets eligible taxpayers declare income at a set share of turnover or receipts, with simpler bookkeeping. Commentary on the new Act reports that Section 58 combines the old schemes and carries over the core rates and limits. Check the current text with your accountant, because some commentators flag open questions on audit rules.

The Income Tax Department's ITR-4 FAQs, written for the old Act, give these limits:

• Eligible business: ₹3 crore of turnover if cash receipts are at most 5% of the total; ₹2 crore otherwise.
• Specified professionals: ₹75 lakh of gross receipts if cash receipts are at most 5%; ₹50 lakh otherwise.

By the numbers: commentary on Section 58 gives these presumptive rates.

• Business: 8% of turnover, or 6% on qualifying digital receipts.
• Specified professionals: 50% of gross receipts.

What should freelancers do under the Income Tax Act 2025?

Step 1: Check whether you qualify for presumptive tax

Not every freelancer counts as a "specified professional", and that affects which scheme fits. Ask your accountant which applies to your work, especially for newer online services.

Step 2: Track cash receipts

The higher limits depend on keeping cash receipts at or below 5% under the FAQs above. Taking payment through banking channels keeps this simple. Our guide to invoicing international clients covers cross-border payments.

Step 3: Plan advance tax

The department's FAQ says presumptive filers under 44ADA must pay 100% of advance tax by March 15. Commentary reports the single-instalment approach continues, but confirm the date for your tax year.

Step 4: Update your paperwork

Update templates that quote old sections, and label new periods "Tax Year 2026-27". Keep older documents as they are.

How does Section 393 change TDS?

Section 393 brings most non-salary TDS into one table-based section. It applies to transactions on or after April 1, 2026. Reports say deductors now use numeric payment codes, and that citing old sections such as 194C or 194J may trigger validation errors.

If you are paid after TDS, check that the certificates you receive match your receipts. If you deduct TDS from vendors, confirm that your software has been updated. Good records also support your cash flow planning, since TDS reduces the cash that arrives when you are paid.

Small business checklist for the new Act

• Update invoice notes, contract clauses and templates that cite old sections.
• Confirm that your accounting and TDS software supports the new references.
• Keep FY 2025-26 records separate from Tax Year 2026-27 records.
• Review whether presumptive tax still suits you this year.
• Confirm your return due date and advance tax dates on the official portal.
• Check any older contracts with TDS clauses when they renew.

If you are expanding, our guides on hiring your first employee and pricing your services cover the next decisions.

What to watch: rules, forms and official guidance under the new Act are still bedding in. Check the Income Tax Department's portal before relying on any summary, including this one.

Example: a freelancer moving between the two Acts

Consider a hypothetical freelance designer who invoices clients throughout 2026. An invoice for work and income falling in March 2026 belongs to FY 2025-26, so it sits under the 1961 Act when the return for that year is prepared. Income from April 2026 belongs to Tax Year 2026-27 under the new Act.

The designer's practical job is simple but easy to overlook. Records should show which period each receipt belongs to, and new client paperwork should stop quoting old sections for new payments. When a client's accounts team asks for details, the designer can then answer clearly.

The example shows how the labels work. It does not settle timing questions for any real business, because the accounting method and the facts can change when income is counted. Your accountant should confirm those points.

Common mistakes under the new Act

• Changing old records. Past documents reflected the law at the time. Leave them unchanged and apply the new references going forward.
• Assuming nothing changed. Similar rates do not mean every condition and form stayed the same. Read the current instructions each year.
• Assuming everything changed. Many articles describe the rewrite as simplification, so do not make major business decisions based on the name change alone.
• Mixing the two year labels. Using "assessment year" and "tax year" loosely on the same document causes confusion. State the period in months if in doubt.
• Relying on blogs alone. Commentary, including ours, can lag behind official updates or disagree. Use the department's portal and a professional for final answers.
• Ignoring cash limits. Under the department's FAQs, higher presumptive limits depend on keeping cash receipts within 5%. Review this during the year rather than at filing time.

What should you ask your chartered accountant?

• Which entry in Section 58, if any, covers my work?
• Does presumptive tax still suit me, given my real expenses?
• Are there any audit or record-keeping duties I should plan for?
• When are my advance tax and return dates for this tax year?
• Do my invoices, contracts and TDS records need any changes?

Why does the change matter if your tax stays the same?

Paperwork errors can cost time even when the amount of tax is correct. A client's accounts team may reject an invoice note that quotes an outdated section, or a certificate may carry a reference you do not recognize. Knowing the new terms makes those conversations shorter.

The change is also a useful moment to review your setup. Your income, expenses and client mix may have changed since you last chose how to file. A scheme that suited you three years ago might not suit you today, so ask your accountant to compare the options using your real figures.

Keep a simple folder for each year with invoices, bank statements, TDS certificates and expense receipts. Clear records make it easier to answer questions from the department, a bank or a future investor, whichever Act applies to that year.

The bottom line: treat the new Act as a paperwork update first and a tax review second. Update your references, separate your years, and ask an accountant to confirm your scheme, limits and due dates.