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Income Tax|March 202612 min readGuide

Income Tax Act 2025: Key Changes for Businesses

A CFO's-eye view of the Income-tax Act, 2025 — corporate rate regimes, MAT restructuring, buyback taxation, Section 194T on partner payments, and the Section 393 TDS table that together reshape business compliance from 1 April 2026.

Key takeaways

The Income-tax Act, 2025 takes effect from 1 April 2026 for TY 2026–27 onwards. AY 2026–27 (FY 2025–26) remains governed by the 1961 Act — businesses operate in a parallel-law year through the entire FY 2026–27 assessment cycle.

Concessional corporate regimes continue: Section 115BAA's 22% base rate (effective ~25.17% with surcharge and cess) and Section 115BAB's 15% new-manufacturing rate (effective ~17.16%) carry forward under the new Act.

MAT is restructured, not removed. The rate moves from 15% to 14%; MAT and AMT are separated under the new Section 206; MAT credit set-off is restricted and aligned to the new regime.

Buyback proceeds are taxed in the shareholder's hands as deemed dividend under Section 2(22)(f) from 1 October 2024 (Finance (No. 2) Act, 2024) — Section 115QA's company-level levy is gone. The consideration is deemed NIL for capital gains, creating a notional capital loss of the entire buyback amount.

Section 194T mandates 10% TDS on partner payments (salary, remuneration, interest, commission, bonus) by firms and LLPs where aggregate payments to a partner exceed ₹20,000 in a financial year, effective 1 April 2025.

Why This Matters for Businesses Corporate Tax Rates: Concessional Regimes Continue MAT and AMT: Restructured, Not Removed Buyback Taxation: The Burden Shifts to Shareholders Section 194T: Partner Payments Enter the TDS Net TDS / TCS Under Section 393: One Table Replaces 65 Sections Other Business-Level Impacts Worth Noting Board-Level Checklist for the Transition

01Why This Matters for Businesses

The Income-tax Act, 2025 replaces the six-decade-old 1961 Act and takes effect from 1 April 2026. For businesses, the immediate operating reality is less dramatic than the headline: concessional rate regimes continue, deduction architecture largely persists, and the structural changes are concentrated in a handful of high-impact areas. The work sits in reconciling what carries forward, what shifts, and what must be configured fresh.

This guide is a CFO-level orientation — it complements our longer refresher on the full ITA 2025 transition. The five areas below are the ones that drive board-room conversations: rate regimes, MAT, buyback, partner-payment TDS, and the Section 393 TDS framework.

Parallel-law year — a concurrent reality

AY 2026–27 returns (for FY 2025–26) are assessed under the 1961 Act; TY 2026–27 returns are the first under ITA 2025. For most of FY 2026–27, finance teams will close one Act and open another in parallel — the most common planning error is running TY 2026–27 templates over AY 2026–27 data.

02Corporate Tax Rates: Concessional Regimes Continue

Three rate tracks remain the anchors of domestic company taxation. The policy intent is clear: keep the concessional regimes intact, nudge remaining companies to shift out of the old regime, and restrict legacy benefits (brought-forward losses, MAT credit) through the transition.

Domestic company rate regimes (headline rates — surcharge and cess extra)

Regime	Base rate	Effective rate*	Who it fits
Section 115BAA	22%	~25.17%	Domestic companies giving up specified deductions/incentives; no turnover limit
Section 115BAB	15%	~17.16%	New domestic manufacturing companies (incorporated post 1 Oct 2019) meeting the setup-date conditions
Old / default regime	25% / 30%	Adds surcharge & cess	Companies with turnover ≤ ₹400 crore get 25%; others 30%

*Effective rate assumes surcharge of 10% and health & education cess of 4%. Higher-income surcharge slabs can take the effective rate higher for companies on the default regime.

The 115BAA decision is irreversible

Once a company opts into Section 115BAA, it cannot switch back. The decision trades off (a) the flat 22% rate against (b) specified deductions, Chapter VI-A incentives (other than 80JJAA and 80M), and the ability to carry forward certain losses. Model three years forward before you file Form 10-IC.

03MAT and AMT: Restructured, Not Removed

Minimum Alternate Tax has been one of the most misunderstood changes in the ITA 2025 transition. The Act does not abolish MAT — it restructures the mechanism under the new Section 206.

–The MAT rate drops from 15% to 14% (plus surcharge and cess).

–MAT and AMT are now separated. AMT continues to apply only to non-corporates claiming specified deductions. LLPs earning only capital gains income (with no deductions) are outside the AMT net.

–MAT is proposed to operate as final tax from 1 April 2026 — further accumulation of MAT credit beyond that date is restricted.

–Set-off of brought-forward MAT credit is allowed only where the company is in the new regime, and is capped at one-fourth of the tax liability under the new regime.

MAT credit clean-up is a TY 2026–27 exercise

Companies sitting on large MAT credit balances must plan utilisation inside the transition window. Credit that cannot be absorbed under the restricted set-off formula effectively becomes stranded. Run a 3-year MAT credit waterfall before the first TY 2026–27 quarterly provision.

For companies already in Section 115BAA or 115BAB, MAT does not apply — this remains one of the strongest reasons to complete the migration to the concessional regime before MAT rules tighten further.

04Buyback Taxation: The Burden Shifts to Shareholders

The biggest distribution-side change did not begin with ITA 2025 — it began with the Finance (No. 2) Act, 2024. From 1 October 2024 onwards, Section 115QA's 23.296% company-level buyback tax was withdrawn; buyback proceeds are now taxed in the shareholder's hands as deemed dividend under Section 2(22)(f).

Mechanics from 1 October 2024

01The entire consideration received by the shareholder is treated as deemed dividend — taxable under 'Income from Other Sources' at the shareholder's applicable slab rate.

02For capital gains computation, the consideration is deemed NIL (per the proviso to Section 46A). This creates a notional capital loss equal to the cost of acquisition.

03The notional loss can be set off against other capital gains in the year, subject to Sections 70 and 74; any unabsorbed loss carries forward for eight assessment years.

04Shareholders cannot claim any deduction against the deemed dividend, and losses cannot be set off against it.

Board-level implications

–Promoter shareholders now face a direct tax outflow that used to be absorbed at the company level. Pre-committing buyback programmes without post-tax modelling can trigger shareholder pushback.

–Capital returns via dividend vs buyback should be modelled side by side — in many cases dividends offer cleaner post-tax economics after the change.

–Surcharge and cess apply at the shareholder's applicable rate — promoter/HNI shareholders often face the highest effective rate.

What ITA 2025 adds

ITA 2025 refines the buyback framework from 1 April 2026 to eliminate arbitrage between deemed-dividend and capital-gains treatments and to close specific promoter/non-promoter gaps. Keep treasury committee decks aligned with the current year's buyback regulations rather than pre-October-2024 precedents.

05Section 194T: Partner Payments Enter the TDS Net

Partnership firms and LLPs faced their first ever partner-payment TDS from 1 April 2025 under Section 194T (introduced via the Finance (No. 2) Act, 2024). The rule is simple in structure, wide in reach, and easy to miss.

Section 194T at a glance

Element	Position
Who must deduct	Every partnership firm and LLP making payments to partners
Covered payments	Salary, remuneration, commission, bonus, interest — in any capacity
Rate	10% (no surcharge or cess on resident partners)
Threshold	Aggregate payments exceeding ₹20,000 in a financial year to a single partner
Timing	At the earlier of credit to the partner's account (including capital / current account) or actual payment
Exclusions	Repayment of capital account balance; drawings not in the nature of salary/interest/remuneration

Current account credits are a common trap

Many firms credit monthly remuneration or interest to the partner's current account and settle in cash later. Under Section 194T, the TDS liability is triggered on credit — not on payment. Accounting workflows that 'credit now, pay later' must be redesigned to deduct TDS at the credit step.

Non-deduction has two costs: (1) 30% disallowance of the expense under the expenditure-disallowance provisions (Section 40(a)(ia) in the 1961 Act and its counterpart in ITA 2025), and (2) interest and penalty under the TDS regime. At a 10% TDS rate, the disallowance cost is meaningfully higher than the tax itself — a 30% disallowance on partner remuneration meaningfully reshapes firm profitability.

06TDS / TCS Under Section 393: One Table Replaces 65 Sections

In the 1961 Act, TDS lived across Sections 192 to 206C with dense amendments. ITA 2025 consolidates these into a single Section 393 table — each row is a deduction/collection provision identified by a serial number, with columns for nature of payment, threshold, rate, and applicability.

For finance teams the migration is primarily a systems task: section-code mappings in payroll, accounts payable, and ERP modules must be remapped to the Section 393 serial numbers. Form numbers also change — Form 16 becomes Form 130, Form 16A becomes Form 131, and TDS/TCS quarterly statement codes are revised (24Q→138, 26Q→140, 27EQ→143, 27Q→144).

One-time remapping, ongoing discipline

Do the section-code remapping as a one-time project before your first TY 2026–27 payroll cycle. Freeze the mapping in an owner-reviewed master file, and version-control every update so downstream teams (vendor payments, audit trail, certificate issuance) pull from a single source of truth.

For the full TDS/TCS consolidation walkthrough — including quarterly statement deadlines, Form 141 (challan-cum-statement) timings, and the 30% disallowance mechanics — see our complete ITA 2025 refresher guide.

07Other Business-Level Impacts Worth Noting

ITR-4 now requires balance sheet data

Presumptive taxpayers filing ITR-4 under ITA 2025 are required to furnish balance sheet data — not just the presumptive income computation. Businesses relying on Sections 44AD/44ADA (mapped to their ITA 2025 equivalents) must keep a clean set of books through the year rather than rebuilding them at return time.

Presumptive turnover threshold continuity

The ₹3 crore (Section 44AD) and ₹75 lakh (Section 44ADA) thresholds — where at least 95% of receipts are in banking channels — continue under the ITA 2025 framework. Businesses operating in the enhanced-threshold zone need to keep banking receipt evidence well-documented because the threshold breach triggers retrospective audit requirements.

Revised return window extended

ITA 2025 extends the revised-return filing window, giving taxpayers additional time to correct bona fide errors. For businesses with complex transfer pricing or multi-entity consolidation, this is a material relief — but it does not replace the need for a clean first filing.

08Board-Level Checklist for the Transition

Strategy and governance

01Confirm current regime (115BAA / 115BAB / old default) and run a 3-year post-tax model comparing each option under ITA 2025.

02Run a MAT credit waterfall to identify stranded credit and plan utilisation before the transition window closes.

03Model dividend vs buyback scenarios for the next capital return decision, reflecting the shareholder-level deemed dividend treatment.

04Brief the board on partner-payment TDS exposure (if a connected LLP or firm exists in the group) and confirm workflow changes.

Systems and process

01Create a Section 393 section-code master and remap payroll, AP, and ERP modules.

02Update payroll output templates: Form 16 → Form 130; Form 16A → Form 131.

03Configure Section 194T withholding for all partner credits (not just payments).

04Update quarterly TDS/TCS statement codes (24Q→138, 26Q→140, 27EQ→143, 27Q→144) and the Form 141 (challan-cum-statement) process.

05Refresh ITR-4 data capture if any group entity uses presumptive taxation.

Communication

–Issue a shareholder communication explaining the buyback tax shift and its impact on future capital return events.

–Issue a partner communication (for firm/LLP partners) explaining Section 194T deduction, threshold, and the credit-based trigger.

–Update engagement letters and management representation letters to reference the ITA 2025 architecture.

Where to go deeper

For the complete TDS/TCS consolidation, advance-tax calendar, capital-gains reset, and implementation checklist, read the full ITA 2025 refresher. This guide deliberately stays business-decision-level to avoid duplication.

CA Siddharth A Shah

CA Siddharth A Shah & Associates, Vadodara

This article is for informational purposes only and does not constitute professional advice. Tax laws are subject to change. Readers should consult a qualified Chartered Accountant for advice specific to their situation. Published March 2026.

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