Income-tax Act 2025: what changed in 2026 for startups

The Income-tax Act 2025 is India's rewritten income tax law. It replaces the Income-tax Act 1961, which had been amended so many times that it had become long and hard to read. The new Act reorganises the same ideas into fewer, shorter sections with simpler wording.

The aim was cleaner drafting, not a new tax philosophy. Rates, the idea of capital gains and the broad structure of company tax were carried across. That is why, for most startups, the first year under the new Act feels like a renaming exercise more than a change in how much tax is paid.

As of November 2026, the Act applies from 1 April 2026. According to summaries from tax advisers, the first tax year under it is 2026-27, which runs from April 2026 to March 2027. Income earned up to 31 March 2026 is still assessed under the 1961 Act.

That creates two systems side by side for a while. A startup filing a return for the year that ended in March 2026 uses the old Act and its old section numbers. A startup planning its 2026-27 payroll, TDS and advance tax uses the new Act. Notices, assessments and appeals for earlier years can also stay on the old law, so finance teams need both rulebooks.

The old Act used two terms for the same stretch of time: the previous year, in which income is earned, and the assessment year, in which it is taxed. The new Act replaces both with one term, the tax year. A separate StopDown guide explains the term and the new section numbers in detail.

Companies still keep books on a financial year under company law, and most startups still close accounts on 31 March. The change is in how the tax law refers to that period, not in when a company's accounts end.

Three startup-specific items matter most, and each survived in some form. The list below reflects law-firm and tax-adviser summaries as of November 2026, so a founder should confirm the details against the Act text.

The tax holiday for eligible startups, earlier in section 80-IAC, now sits in section 140 of the new Act. Summaries describe it as the same idea: an eligible startup can claim a deduction of its profits for any three consecutive tax years out of the first ten from incorporation, subject to certification and a turnover limit. Sources say the incorporation window now runs to 2030, though one gives 1 April and another 31 March, so the exact date needs checking in the statute.

• Startup tax holiday: old section 80-IAC, now section 140. Deduction for three consecutive years out of ten, with a turnover cap of ₹100 crore and certification by the inter-ministerial board.
• Angel tax: nothing to carry over. The tax on share premium above fair value (old section 56(2)(viib)) was abolished in 2024 for all investors, so the new Act does not bring it back.
• ESOP perquisite: employees are still taxed when they exercise options, on the gap between fair market value and the exercise price. Employees of eligible, recognised startups can still defer that tax, per summaries.
• Capital gains on selling startup shares: the structure of holding periods and rates carries across, with the sections renumbered.

The visible changes are labels. Salary TDS, professional-fee TDS and the annual salary certificate all sit under new section numbers and form names. For example, old section 194J on fees for professional and technical services is now covered by section 393(1), and the annual salary certificate Form 16 is reported as Form 130, per tax-adviser summaries.

Some startup finance tools, payroll software and accounting systems carry the old numbers on challans, certificates and reports. A mismatch is usually a clerical matter, but it can cause rejected filings or confused notices, so teams should ask their software provider and accountant which version each report uses.

One change that tax advisers highlighted is the treatment of share buybacks. A startup finance summary says buybacks are taxed in the shareholder's hands as capital gains from 1 April 2026, instead of as a dividend-style payout. Because this has big consequences for investors who sell through a buyback, the exact rule should be read in the Finance Act and a current note from a tax adviser before any deal is priced on it.

A short checklist covers most of the work. None of it changes how much tax a company owes by itself, but it avoids paper trails that point to repealed sections.

• Ask the accountant for a mapping of every old section the company cites to its new section.
• Update payroll, vendor-payment and TDS templates, and the wording of offer letters and ESOP documents that cite the old Act.
• Keep the old Act for any return, notice or proceeding about a year up to March 2026.
• Re-read investor agreements and term sheets for tax clauses that name old sections.
• Check any tax certificate, such as the startup recognition and holiday certificate, to confirm which Act it refers to.

Employees who hold options feel the Act mainly through payroll. Tax on an ESOP is charged as salary income when options are exercised, on the difference between the market value of the share on that date and the exercise price. Selling the share later creates a second, separate gain or loss, taxed as a capital gain. This two-step structure is the same idea as before.

What changes for an employee is the paperwork. The form that shows salary and TDS, and the sections the employer cites when it deducts tax, use the new numbers. An employee who joined a startup before April 2026 can therefore hold documents with both sets of references: an old grant letter that cites the 1961 Act, and a new payslip that follows the 2025 Act. The tax outcome should not differ because of the label.

Three misunderstandings come up often. The first is that a new Act means new tax rates. The Act itself was presented as a rewrite, and rate changes come through the annual Finance Act, so a change in a rate is a separate event from the change in the law's numbering.

The second is that every old benefit lapsed on 1 April 2026. For startups, summaries say the holiday carried over, with a window for incorporation that runs to 2030. The third is that an old section number in a document is automatically wrong. For years up to March 2026 it is correct. Where a document covers both periods, it should cite both.

Be careful with headlines that say the new Act "scraps" or "extends" a startup benefit. Often the benefit simply moved to a new section number, or an older announcement is being repeated. Ask three things: is it a real change in who qualifies, a change in the amount or period, or only a renumbering? Only the first two affect a startup's tax bill.

This guide is general information, not legal or tax advice. Confirm the details with a chartered accountant or tax lawyer before acting.