CHAPTER I — PRELIMINARY

Section 1 — Short Title, Extent and Commencement

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Short title, extent and commencement.

1. (1) This Act may be called the Income-tax Act, 2025.

(2) It extends to the whole of India.

(3) Save as otherwise provided in this Act, it shall come into force on the 1st April, 2026.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Short title, extent and commencement. [Section 1 of the 1961 Act]

1. (1) This Act may be called the Income-tax Act, 1961.

(2) It extends to the whole of India.

(3) Save as otherwise provided in this Act, it shall come into force on the 1st day of April, 1962.

BLOCK 3 : COMMENTARY

Section 1 of the new Act mirrors, almost word-for-word, section 1 of the 1961 Act. Three constituents — short title, territorial extent and commencement — are common to virtually every Indian Central enactment and section 1 of any taxing statute is, by tradition, no more than a doorway. Yet, a careful comparison reveals three small but consequential drafting choices.

Sub-section (1) — Short title. The change is, on its face, only a change of year. The 2025 Act is Act No. 30 of 2025; the 1961 Act was Act No. 43 of 1961. The new short title displaces the old. A point that often escapes notice is that the title of a taxing statute is itself a guide to construction: the short title "Income-tax Act" continues to suggest that the substantive charge remains income-tax (and by extension, super-tax, surcharge and cess that ride on income-tax). The 1961 Act preamble had originally referred to "income-tax and super-tax"; super-tax was abolished in 1965 but the preamble remained. The new Act drops every reference to super-tax — its preamble simply reads "An Act to consolidate and amend the law relating to income-tax" — confirming that super-tax is dead and gone, and that any future levy of an additional tax on income (such as the present-day surcharge or health-and-education cess) does not require statutory revival of "super-tax".

Sub-section (2) — Extent. The phrase "It extends to the whole of India" is identical. Two sub-sections deserve note. First, after the abrogation of Article 370 (effective 31 October 2019), the territory of India is uniformly governed by Central laws including the income-tax law; the proviso that earlier excluded Jammu & Kashmir is, of course, wholly absent. Second, the words "whole of India" must be read with the definition of "India" in section 2(52) of the new Act (corresponding to section 2(25A) of the 1961 Act), which incorporates the territorial waters, continental shelf, exclusive economic zone and any other maritime zone within the meaning of the Maritime Zones Act, 1976. In other words, the territorial reach of the income-tax law extends to offshore activities of every assessee — a vital matter for non-residents engaged in offshore drilling, undersea cables, and offshore service contracts. Drafting changes in section 2(52) have not narrowed this reach.

Sub-section (3) — Commencement. The new Act "shall come into force on the 1st April, 2026". The choice of date is deliberate and not merely conventional. Income-tax in India is charged section-by-section in respect of a tax year (under the new Act) that runs from 1 April to 31 March. Coming into force on 1 April 2026 means that the new Act will govern income earned in the financial year 2026-27, charged at rates enacted by the Finance Act, 2026. Income earned during financial year 2025-26 — even though it will be assessed only in the post-April-2026 period — continues to be governed by the Income-tax Act, 1961, because the substantive law is determined by the assessment year/tax year and the rate applicable to it. This much is consistent with the savings clause in section 536 of the new Act and with the Supreme Court's holding in Karimtharuvi Tea Estate Ltd. v. State of Kerala (AIR 1966 SC 1385) that the law applicable to the assessment is the law in force on the first day of the assessment year. Practitioners must therefore be careful not to apply the 2025 Act to income arising on or before 31 March 2026.

Words "Save as otherwise provided". The opening words of sub-section (3) are not ornamental. The new Act contains numerous provisions whose commencement is staggered — for instance, transitional provisions, certain procedural sections, and amendments effected by the Finance Act, 2026. Whenever a section says "with effect from" a date earlier or later than 1 April 2026, the controlling words of section 1(3) yield to that specific provision. This pattern was litigated extensively under the 1961 Act (see CIT v. Vatika Township (P) Ltd. (2015) 367 ITR 466 (SC), on prospective vs retrospective operation). The same interpretative discipline applies under the new Act: presumption of prospective operation unless clearly displaced.

Practical takeaway for the practitioner. (i) For all income up to 31 March 2026 — including assessments, reassessments, appeals, refunds, penalty proceedings — keep working from the 1961 Act. (ii) For income from 1 April 2026 onwards, switch to the 2025 Act. (iii) Where a single proceeding straddles both regimes (for example, a search assessment block covering FY 2025-26 and FY 2026-27, or a reassessment notice issued in 2026 for FY 2024-25), the law applicable to each year must be applied separately — section 536 of the new Act and the corresponding savings notification preserve the 1961 Act for that purpose. (iv) Software, ERP and tax-filing systems must be retrofitted to identify the operative statute by reference to the tax year, not the date of assessment.

Section 2 — Definitions

Section 2 of the 2025 Act is the longest and structurally the most reorganised section of Chapter I. It contains 112 sequentially-numbered clauses replacing the 113-odd irregularly-numbered clauses of section 2 of the 1961 Act. Owing to the volume of definitions, this commentary reproduces the opening words of section 2 in full, then sets out a representative table of the principal new and renumbered definitions, and finally analyses the structural and substantive changes. The complete verbatim text of all 112 clauses is reproduced in Annexure A to this volume.

BLOCK 1 : SECTION TEXT (NEW ACT, 2025) — Opening Words & Key Clauses

Definitions.

2. In this Act, unless the context otherwise requires,—

(1) "accountant" shall have the meaning assigned to it in section 515(3)(b);

(2) "Additional Commissioner" means a person appointed to be an Additional Commissioner of Income-tax under section 237(1);

(3) "Additional Director" means a person appointed to be an Additional Director of Income-tax under section 237(1);

(4) "advance tax" means the advance tax payable as per Chapter XIX-C;

(5) "agricultural income" means— (a) any rent or revenue derived from a land which is situated in India and is used for agricultural purposes; (b) any income derived from such land by agriculture, etc.; (c) any income derived from any building owned and occupied … (subject to the conditions in items (i) and (ii)); (d) any income derived from saplings or seedlings grown in a nursery; but shall not include … [as set out in items (i) and (ii) of the proviso].

… … …

(11) "assessee" means a person by whom any tax or any other sum of money is payable under this Act, and includes — (a) every person in respect of whom any proceeding under this Act has been taken — (i) for the assessment of his income or of the loss sustained by him or refund due to him; or (ii) for the assessment of the income of any other person in respect of which he is assessable …; (b) every person who is deemed to be an assessee under this Act; (c) every person who is deemed to be an assessee in default under this Act;

(13) "assessment" includes reassessment and recomputation;

(40) "dividend" includes [eight inclusive limbs (a) to (h), substantially in pari materia with section 2(22) of the 1961 Act];

(49) "income" includes [twenty-six inclusive limbs covering profits and gains, dividends, perquisites, allowances, capital gains, sums received under section 28, voluntary contributions, key-man insurance, virtual digital asset gains, etc., substantially in pari materia with section 2(24) of the 1961 Act];

(96) "resident" means a person who is resident in India as per section 6;

(108) "total income" means the total amount of income referred to in section 5, computed in the manner laid down in this Act;

(111) "virtual digital asset" means — (a) any information or code or number or token (not being Indian currency or foreign currency) generated through cryptographic means or otherwise … providing a digital representation of value …; (b) a non-fungible token …; (c) any other digital asset, as the Central Government may, by notification, specify, with the power to exclude any asset from this definition, subject to specified conditions;

(112) "zero coupon bond" means a bond — (a) issued by any infrastructure capital company / fund / public sector company / scheduled bank on or after 1 June 2005; (b) for which no payment / benefit is received before maturity; (c) which the Central Government may, by notification, specify.

BLOCK 2 : CORRESPONDING SECTION IN OLD ACT (1961)

Definitions. [Section 2 of the 1961 Act]

Section 2 of the 1961 Act opens with the same words: "In this Act, unless the context otherwise requires,—" and then sets out the inclusive and exhaustive definitions in clauses (1) to (48), with numerous sub-numbered insertions (1A, 1B, 1C, 1D, 7A, 9A, 9B, 12A, 13A, 14A, 19AA, 19AAA, 22AA, 22AAA, 22B, 23A, 23AA, 23B, 23C, 24A, 25A, 26A, 27A, 28A, 29A, 29B, 29BA, 29C, 29D, 31A, 32A, 35A, 37A, 41A, 42A, 42B, 42C, 43A, 43B, 43C, 47A, 48 etc.) accumulated over six decades of amendment. The structural arrangement of the corresponding 1961 definitions is set out in the mapping table below.

Mapping — Selected Key Definitions (New Act ↔ Old Act)

BLOCK 3 : COMMENTARY

Renumbering — the most visible change. The 1961 section 2 had become a graveyard of insertions. The Finance Acts of every year between 1962 and 2024 added clauses with letter suffixes — 1A, 1B, 1C, 1D — and re-numbered cross-references inconsistently. The 2025 draftsman has discarded this pattern and renumbered every clause from (1) to (112) in plain Arabic numerals. This is not merely cosmetic: it permanently breaks the chain of citation in case law. Counsel and judges referring to "section 2(22)(e)" of the 1961 Act (deemed dividend) must henceforth speak of "section 2(40)(e)" of the 2025 Act. The CBDT is expected to issue a comprehensive citation-conversion table; until then, every commentary, prescribed form, accounting software, and ITR utility will need explicit translation. Where this commentary cites "section 2(40)", the practitioner should treat it as the reincarnation of "section 2(22)".

Disappearance of "previous year" and "assessment year". Sections 2(9) and 2(34) of the 1961 Act, which housed the definitions of "assessment year" and "previous year" respectively, are absent from section 2 of the 2025 Act. They have been merged into a single concept of "tax year" carved out as a stand-alone section 3 (commented separately below). The conceptual shift is fundamental and is examined under section 3.

Re-pointing of internal cross-references. Every definition that previously pointed to a particular section of the 1961 Act now points to the corresponding section of the 2025 Act. Thus, "Additional Commissioner" (now in clause (2)) refers to section 237(1) of the new Act instead of section 117(1) of the old; "annual value" refers to section 21 instead of section 23; "Appellate Tribunal" refers to section 361 instead of section 252. The substantive content of each definition is preserved, but the citation universe has been completely re-mapped. Practitioners must be alert to this when reading orders, notifications and circulars: a 1961-Act order referring to "section 117(1)" remains good for 1961-Act periods; a 2025-Act order will refer to "section 237(1)". Cross-Act citation errors are likely in early years and should be flagged in audit working papers.

Definition of "agricultural income" — a re-cast that is substantively unchanged. Section 2(5) re-states section 2(1A) of the 1961 Act in cleaner prose, dropping the four Explanations and embedding their substance in the body of the clause. The exclusion for income from the transfer of urban agricultural land described in section 2(22)(iii) [erstwhile section 2(14)(iii)(a)/(b)] is preserved. The famed Bacha F. Guzdar v. CIT (AIR 1955 SC 740) test — that to qualify as agricultural income, the income must have a direct nexus with land used for agricultural purposes — continues to apply because the substantive ingredients are unchanged. The deletion of Explanations is, in this instance, a drafting improvement and does not affect taxability.

"Assessment" — small but important change. Clause (13) of the new Act says: "assessment includes reassessment and recomputation". The 1961 Act (section 2(8)) said only "assessment includes reassessment". Recomputation is now expressly within the scope of "assessment". This aligns the statutory definition with judicial usage (see, e.g., Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500 (SC)) and avoids the technical objection that recomputation under section 154 or section 155 falls outside "assessment". Practitioners challenging or supporting limitation/penalty claims will need to remember this expansion.

"Virtual digital asset". Clause (111) reproduces section 2(47A) of the 1961 Act (introduced by Finance Act, 2022). The definition continues to cover cryptocurrencies, NFTs and other digital tokens, and continues to give the Central Government power to add or exclude assets by notification. Tax under section 196 of the new Act (corresponding to section 115BBH of the old Act) on income from VDAs remains at a flat 30% with restrictive set-off rules — see Chapter XII commentary.

"Person" and "company". The seven categories of "person" — individual, HUF, firm, company, AOP/BOI, local authority, and "every artificial juridical person not falling within any of the preceding sub-clauses" — are preserved word-for-word in clause (77). "Company" (clause (28)) is also preserved with the additional preserving language for entities that were assessable as companies under the 1961 Act before its repeal. The intent is to ensure that no entity falls between two Acts during the transition.

"Books or books of account" — modernised. Clause (19) replaces section 2(12A) of the 1961 Act and expressly recognises cloud-based storage, external hard drives, memory cards, and "any electromagnetic data storage device". The definition is medium-neutral and absorbs technological evolution. Print-outs are also expressly covered. This re-statement disposes of the recurring litigation under the 1961 Act on whether server logs and cloud data fall within "books". For tax audit (now to be conducted under section 63 of the new Act, corresponding to section 44AB of the old) and Department search/seizure operations, every form of data storage is now within the statutory net.

"Income" — the inclusive 26-limb definition. Clause (49) preserves section 2(24)'s inclusive structure with twenty-six items. The catch-all words and the established jurisprudence on the meaning of "income" — e.g., CIT v. G. R. Karthikeyan (1993) 201 ITR 866 (SC) (concept-of-income test) and Padmaraje R. Kadambande v. CIT (1992) 195 ITR 877 (SC) (inclusive but not exhaustive) — continue to apply. Items added in recent years (assistance/incentive, voluntary contribution to specified entities, key-man insurance, perquisite under section 28, and gains from VDAs) are retained. Practitioners may safely rely on the existing body of "income" jurisprudence.

Practical takeaway for the practitioner. (i) Maintain a side-by-side citation table for every internal reference in audit reports, replies to notices, draft pleadings, and tax software for at least 5–7 years post-1-April-2026 because authorities, courts and clients will continue to invoke 1961-Act numbers from habit. (ii) Where a definition has merely been renumbered, do not assume change of meaning — check the substantive text. (iii) Where the substantive text has changed (e.g., "assessment" now includes "recomputation"), update internal compliance manuals and SOPs. (iv) Watch for delegated legislation: notifications under "VDA", "company" sub-clause (d), "public sector company", and "infrastructure capital company" will continue to flow under section 536 read with the corresponding new sections.

Section 3 — Definition of "Tax Year"

BLOCK 1 : SECTION TEXT (NEW ACT, 2025)

Definition of "tax year".

3. (1) For the purposes of this Act, "tax year" means the twelve months period of the financial year commencing on the 1st April.

(2) In the case of a business or profession newly set up, or a source of income newly coming into existence in any financial year, the tax year shall be the period beginning with —

(a) the date of setting up of such business or profession; or

(b) the date on which such source of income newly comes into existence,

and ending with the said financial year.

BLOCK 2 : CORRESPONDING SECTIONS IN OLD ACT (1961)

"Previous year" defined. [Section 3 of the 1961 Act]

3. For the purposes of this Act, "previous year" means the financial year immediately preceding the assessment year:

Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year.

"Assessment year" defined. [Section 2(9) of the 1961 Act]

2(9) "assessment year" means the period of twelve months commencing on the 1st day of April every year;

BLOCK 3 : COMMENTARY

Section 3 of the 2025 Act is the most conceptually consequential provision in Chapter I. The dual-year construct that has anchored Indian income-tax law since 1922 is gone. "Previous year" and "assessment year" — words that every articled clerk and assessing officer have lived by for decades — no longer feature in the new Act. They have been replaced by a single, unified concept: the "tax year".

The mechanics of the unification. Under the 1961 Act, income earned in the financial year 2024-25 (the "previous year") was assessed to tax in the assessment year 2025-26. Sections, due dates, returns, and rate schedules cross-referred between the two. Under the 2025 Act, income earned in financial year 2026-27 is the income of "tax year 2026-27"; the same period is also the year of assessment. There is no separate "assessment year". The Finance Act, 2026 prescribes rates for the tax year 2026-27. The income-tax return for tax year 2026-27 is filed during the immediately succeeding period (in early- to mid-2027) with reference to the tax year 2026-27 — not an "assessment year 2027-28".

Why the change? The dual-year construct was a colonial inheritance — the Indian Income-tax Act, 1918, and its 1922 successor, used the income-of-the-previous-year/charge-in-the-assessment-year structure borrowed from the British Finance Act regime. As Indian taxation evolved into a self-assessment system with TDS, advance tax, and presumptive computation, the dual-year construct generated avoidable confusion: lay assessees rarely understood why a return for FY 2024-25 was called "AY 2025-26". Errors in selecting the correct year on online utilities and challans were endemic. The unified "tax year" eliminates that confusion. It also brings Indian terminology closer to international practice (most jurisdictions speak of "tax year" or "income year" without a separate "assessment year").

Sub-section (1) — the basic rule. The tax year is "the twelve months period of the financial year commencing on the 1st April". The Indian financial year (1 April to 31 March) is preserved; no shift to a calendar year was attempted. This reflects the fact that the financial year is constitutionally fixed by Article 112 (the annual financial statement of the Union) and is integrated with all other Central laws (GST, Companies Act, FEMA, Customs). To realign the income-tax tax year with the calendar year would have generated transitional havoc; the legislature wisely left it alone.

Sub-section (2) — the new-business rule. This sub-section reproduces the old proviso to section 3 of the 1961 Act. Where a business or profession is newly set up, or a new source of income comes into existence, during the financial year, the tax year for that business or that source begins on the date of set-up and ends on 31 March of that financial year. The substantive treatment is identical to that under the 1961 Act; the established jurisprudence — Sarabhai Management Corp. Ltd. v. CIT (1991) 192 ITR 151 (SC) (when business is "set up") and Western India Vegetable Products Ltd. v. CIT (1954) 26 ITR 151 (Bom.) (set-up vs commencement) — continues to apply. "Set up" remains a question of fact and depends on whether the business is in a position to commence operations, not on whether it has actually commenced earning.

Disappearance of the proviso form. The new sub-section (2) is in clean numbered form (clauses (a) and (b)) instead of the cumbersome proviso form. This is consistent with the modern drafting philosophy of the 2025 Act — provisos are used only sparingly; the substantive rule is set out in numbered sub-sections wherever possible.

Transitional issues. Section 536 of the new Act (savings and repeal) and notifications issued thereunder will determine how a return filed in 2027 for FY 2025-26 (under the 1961 Act) is to be denominated. The CBDT is expected to clarify that the return for income up to 31 March 2026 will continue to be filed under the 1961 Act with reference to AY 2026-27, while the return for income from 1 April 2026 will be filed under the 2025 Act with reference to tax year 2026-27. ITR utility forms, challans, and software code will need to recognise both forms. Practitioners must be especially careful in filing belated and revised returns for FY 2025-26 in or after April 2026 — these are governed by the 1961 Act despite being filed under the new regime.

Cross-Act citation alert. Whenever the new Act says "tax year", any 1961-Act jurisprudence referring to "previous year" applies mutatis mutandis (because the substantive content of section 3(1) is the same as the 1961 Act's section 3 read with section 2(9)). Where the new Act says "tax year" in relation to a charging or computational provision, the equivalent under the 1961 Act will usually be "previous year" (and rate-related references to "assessment year" collapse into the same tax year). Authors of opinions, replies and affidavits should add a footnote explaining the equivalence; failure to do so risks confusion in courts and tribunals during the early years of the new regime.

Practical takeaway for the practitioner. (i) Replace "PY" / "AY" with "TY" in templates from 1 April 2026 onwards. (ii) Update internal calendars: due dates, advance-tax instalments, TDS-return windows, and audit-report cut-offs all switch to a tax-year reference. (iii) Educate clients (especially individual clients with little technical exposure): a single number now covers what used to require two. (iv) For statutory audit, GST reconciliation and FEMA reporting that interface with the income-tax return, ensure that downstream systems also adopt "tax year" terminology to avoid mismatches. (v) When citing pre-2026 case law in post-2026 pleadings, expressly equate the old "previous year"/"assessment year" with the new "tax year" to keep the argument intact.

Chapter I — At a Glance

The table below summarises the principal points of comparison between Chapter I of the 2025 Act and the corresponding provisions of the 1961 Act. The mapping is intended as a quick reference; the substantive commentary in the preceding pages must be consulted for every operating decision.

Cross-references to the Income-tax Rules

As of the date of this commentary, the Income-tax Rules, 2026 (the Rules under the new Act) are notified and contained in the file "Income Tax Rules 2026" within the case folder. Chapter I of the new Act has limited interface with the Rules — the principal touch-points are: (i) Rule corresponding to verification of "agricultural income" claim and the maintenance of agricultural records (carrying forward the substance of erstwhile Rule 7/7A/7B/8 of the 1962 Rules); and (ii) Rules dealing with the manner of computation of "book profits" and "books of account" that interface with section 2(17) and the substantive sections in Chapter IV. These are addressed in the commentary on the corresponding charging and computational sections in subsequent volumes.