The Income-tax Act, 1961

What it does

The Act charged tax on the total income of a person in a year, defined the heads of income, set out the deductions and exemptions, and provided for the computation, collection, assessment and recovery of the tax. It also contained the machinery of appeals, penalties and prosecution, and the rules on advance tax, tax deducted at source and returns of income.

It has been replaced. The Income-tax Act, 2025 (No. 30 of 2025) says in section 1(3) that, save as otherwise provided, it comes into force on 1 April 2026, and section 536(1) repeals the 1961 Act. The page is therefore about a repealed instrument that still governs earlier years and pending proceedings as the repealing law provides. The 1961 Act therefore remains the starting point for any position taken on a tax year before that date.

Who it binds

Persons liable to tax on income arising or deemed to arise in India, and on their worldwide income if resident: individuals, Hindu undivided families, companies, firms, trusts and others the Act defined as persons. It bound the payers who must deduct tax at source, the authorities who assess, and the appellate forums. Its reach followed residence and the source of income, and the same transaction could be taxed differently according to the status of the person who made it.

What has changed, and when

The Act took effect for the year beginning 1 April 1962 and was amended by a Finance Act in almost every year, and by other Acts, over the following decades. The text read for any tax year is the text as amended and in force for that year. The Income-tax Act, 2025, enacted in 2025 and in force from 1 April 2026, restates the law in a new structure and renumbers its provisions. The Income-tax Rules, 2026 are a related instrument on this site.

A consequence is that references move. The site's note on an NRI or OCI selling property in India shows how: for a sale in the tax year that began on 1 April 2026, the buyer's duty to withhold tax sits in section 393(2) of the 2025 Act, and not in section 195 of the 1961 Act, and the rate on a non-resident's long-term gain is under section 197 of the 2025 Act.

What turns on it in practice

The taxation and fiscal practice area advises on direct tax disputes before the departmental and appellate forums, and in those the 1961 Act continues to matter because the disputes are about earlier years. An assessment for a year before 1 April 2026, an appeal against it, a penalty, a reassessment and a prosecution for an old default are brought under the 1961 Act, and the case law decided under its sections is the authority for them.

The 2025 Act governs the transactions of the tax year 2026-27 onward. A transaction that straddles the date, such as a sale agreed in one year and completed in the next, a capital gain that arises in a year after the agreement, or a payment made in the new year in respect of income of the old, has to be placed in a year before the Act is chosen. A cross-border or restructuring advice that quotes a section number should state which Act the number belongs to.

For a taxpayer with open assessments, the working file should record, for each year, which Act applies, which limitation provisions apply, and which authority holds the matter. A document drafted from an old template that cites a 1961 section for a 2026-27 transaction is a source of error at the point of filing.