New Direct Tax Code to replace Income Tax Act from April 1, 2026; major changes in digital taxation, crypto

The New Tax Act or the Direct Tax Code, which will replace the Income Tax Act, 1961, will come into force on April 1, 2026, according to sources close to the development.

In Budget 2025-26, the government announced a new income tax bill to overhaul the Income Tax Act, 1961, and make it more simple and easy to understand.

The bill, which is likely to be tabled in the Lok Sabha on Thursday, is believed to contain 23 chapters, 16 schedules and 536 clauses, according to sources. In the new bill, the current terminology of ‘Assessment Year’ has been changed to ‘Tax Year’. The bill has also incorporated detailed definitions related to digital transactions and crypto assets, the sources say.

Government sources have pointed out that even though the new Act will come into force from April 1 next year, a transition period will be provided and the old act will continue to remain in force for some time.

The overlap period will take care of the final closure of the cases in which returns were been filed under the old act, but issues related to assessment, scrutiny, or litigation cropped up later.