With the Income Tax Act, 2025 effective from 1 April 2026, taxpayers now need to be particularly careful while making online tax payments. A payment relating to Tax Year 2026-27 onwards is governed by the Income Tax Act, 2025, whereas payments relating to earlier periods continue to be made under the Income Tax Act, 1961.

For example, Self-Assessment Tax relating to AY 2026-27 continues to fall under the Income Tax Act, 1961 because it relates to income earned during FY 2025-26. In contrast, Advance Tax for Tax Year 2026-27 is payable under the Income Tax Act, 2025. The Income Tax Department has specifically clarified this distinction in its transition FAQs.

Why Does This Matter to Businesses?

During this transition period, two tax frameworks effectively need to be handled simultaneously for different periods. Selecting the incorrect Act, tax year or payment category while generating a challan can result in the payment not being reflected against the intended liability and may subsequently require correction or reconciliation.

Finance and accounts teams should therefore determine the period to which the tax liability relates before making the payment, rather than selecting the applicable law merely based on the date on which the payment is being made.

A simple internal check before approving every Income Tax challan—Applicable Act → Relevant Tax/Assessment Year → Nature of Payment → Amount → PAN—can help businesses avoid unnecessary reconciliation issues during the transition to the new Income Tax Act.

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