Transition of India to the new Income-tax Act, 2025: Various major amendments are being introduced which will affect employers, non-profit organizations, and crypto investors. These amendments will become effective from April 1, 2026.
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Key Proposed Amendments – Schedule XI (Recognized Provident Funds)
The provisions of recognized provident funds contained in Schedule XI of the Income-tax Act provide for necessary alignment with the existing regime under the EPF Act, 1952, and the EPF Scheme, 1952. In this context of the development of the regime of provident fund laws and the insertion of a unified limit of funds under section 17(1)(h) of the Act, it has been proposed to rationalize the provisions.
Major Proposals Include:
- Omission of Paragraph 4( c), Part A
Since the overall limit of employer contributions towards a monetary cap of ₹7.5 lakhs, prescribed in Section 17(1)(h) of the Bill, the present parity-based restriction and the annual limit have become redundant.
- Amendment to Paragraph 4(f), Part A
The recognition under the Income Tax Act shall be restricted only to the provident funds that have obtained exemption under section 17 of the EPF Act. This clarity is also being established.
- Omission of Paragraph 6(a), Part A
The deeming provision imposing a limitation on contributions in excess of 12% of salary is similar to the unified monetary limit and thus proposed to be deleted.
- Omission of Paragraph 1(d), Part C
The concept of “differential limits” for employee shareholders is not accepted in the framework of EPF Schemes and clashes with the concept of section 17(1)(h), and the difference is proposed to be deleted.
- Amendment to Paragraph 1(e), Part C
The existing statutory restriction of 50% investments in Government Securities is to be removed to allow higher investments based on norms laid down by Ministry of Labour and Employment and EPFO.
Effective Date: The amendments introduced under the scheme will come into effect from 1st April 2026. The amendments will be implemented from AY 2026-27.
Overall Impact: The proposed changes appear to eliminate duplication in the text, remove obsolete restrictions, and achieve consistency in the Income Tax Act and the-E introduction of the EPF regulatory framework.
Proposed Amendment relating to Merger of Registered Non-Profit Organizations (Sections 352 & 354A)
Under the existing provisions of section 352(4), a specified person is liable to pay tax on accreted income where it merges with any entity other than a registered non-profit organisation having similar or same objects. However, the current provision does not adequately cover situations where a registered NPO merges with another registered NPO having the same or similar objects as contemplated under section 12AC of the Income-tax Act, 1961.
Key Proposal:
It is, therefore, proposed to insert a new section 354A in the Income-tax Act with a view to align the provisions thereof with section 12AC. Under the proposed section:
Section 352 shall not apply to a scheme of merger of a registered non-profit organisation with another registered non-profit organisation if-: (a) the transferee NPO has the same or similar objects; and (b) the merger fulfils such prescribed conditions as may be notified.
Consequential Amendment to Section 352(4):
It is further proposed that in the table below section 352(4): the entry in Serial No. 8 be varied to provide that tax on accreted income will become due where the specified person: • (a) merges with an entity which is not a registered NPO; • (b) merges with a NPO having similar objects, but no particular condition is satisfied; or • ( c) merges with a NPO having dissimilar objects.
Effective Date: These amendments shall come into force from 1st April 2026 and shall apply for the assessment year 2026-27 and thereafter.
REPORTING OF CRYPTO-ASSET TRANSACTIONS – SECTION 509 PENALTY PROVISION
Section 509 prescribes that it shall be the obligation of the reporting entities to furnish a statement with details of crypto-asset transactions.
In order to ensure that the foregoing requirement of Section 509 of CAAN Bill, 2022, is complied with and to deal with cases of non-reporting or incorrect reporting of the same, the following has been proposed:
- A penalty of Rs.200 per day will be levied for non-furnishing of the statement.
- A penalty of Rs.50,000 will be levied for furnishing incorrect particulars or failure to correct incorrect particulars.
- Section 446 of the CAAN ordinance to incorporate the above penalty
Date of Effect: 1 April 2026
Binding Nature of Guidelines under TDS/TCS – Section 400(2)
However, while section 400(2) gives power to the Board for framing guidelines for resolving difficulties in the application of the provisions of TDS/TCS, the Act has not explicitly given directions that the guidelines are binding.
- In the proposal, an amendment has been made to section 400(2), stating that the guidelines framed shall be binding on income tax authorities as well as on persons responsible for deducting or collecting tax.
Effective from: 1 April 2026
Rationalization of Penalty Proceedings & Interest – Sections 274, 220 & 245MA
The present regime of penalty proceedings getting initiated separately after the assessment is completed has resulted in multiplicity of proceedings and delay in bringing uncertainty to a close for the taxpayer.
The proposed amendments are:
In cases of under-reporting or misreporting of income under section 270A, the penalty shall be levied within the assessment order itself by amending section 274. Interest under section 220(2) shall be chargeable only after disposal of appeal by CIT(A) or ITAT (or DRP, as applicable). Consequential amendments are proposed in section 245MA relating to the DRC.
The objective is to reduce litigation, achieve procedural efficiency, and provide certainty to taxpayers while achieving consistency in levy of penalties.
Applicability:
- Amendments to be incorporated in the Income-tax Act, 2025 w.e.f. 1 April 2026
- Effective from 1 April 2017, for assessments/reassessments initiated on or after the specified dates
Deduction of Interest from Dividend & Mutual Fund Income – Section 93
Dividend income and income from unit mutual funds fall under the category of ‘Income from Other Sources’. Interest expenditure is allowed as a deduction, subject to a limit.
- It is proposed to modify the existing provision of section 93(2), whereby no deduction will be allowed for any interest expenditure incurred for earning income by way of dividends or income from unit mutual funds.
Effective from: 1 April 2026 Applicable from: AY 2026-27 onwards
Conclusion
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