The Income-tax Act, 2025 replaced the 1961 Act on 1 April 2026. What actually changes for my startup and for me?
Mostly the labels, not the money. From 1 April 2026 the Income-tax Act, 2025 replaced the 1961 Act, and the 'previous year' and 'assessment year' pair became a single 'tax year' (tax year 2026-27 runs from April 2026 to March 2027). Rates, slabs and most deductions carried over, but section numbers and forms changed: the old 80C deduction now sits in section 123, Form 16 is now Form 130, and every ESOP scheme, shareholder agreement or contract that cites a 1961 section needs its references updated. Income earned up to 31 March 2026 is still filed under the old Act, so for a while you deal with both. Two things did change for founders: a share buyback is taxed as capital gains from 1 April 2026, and the startup tax holiday stays open to companies incorporated before 1 April 2030. Ask your CA to map your filings and payroll to the new numbers before your next TDS return.
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A founder-facing walk through the switch from the Income-tax Act, 1961 to the 2025 Act on 1 April 2026: the single tax year, the renumbered sections and forms, what carried over unchanged and what Budget 2026 did change, including buybacks.
The 2025 Act is largely a restatement: rates, deductions and core principles carry over, while sections, rules and form names are renumbered (Form 16 becomes Form 130).
The 'previous year' and 'assessment year' pair is replaced by one tax year; returns for FY 2025-26 are still filed under the 1961 Act and the first return under the new Act is due in 2027.
Every ESOP scheme, agreement and TDS system that cites a 1961 section needs its references updated.
From 1 April 2026 a share buyback is taxed as capital gains for the shareholder, with promoters paying more.
The official source for DPIIT recognition, the free registration that unlocks tax benefits, self-certification, and scheme eligibility for Indian startups. Straight from the government, not a middleman.
Once you have negotiated the pool size, this is the guide that stops the pool from becoming a tax trap for the very employees it rewards. It walks the full Indian lifecycle (no tax at grant or vesting, perquisite tax at exercise on the FMV-minus-exercise-price spread, capital gains at sale) and explains the deferral that lets employees of startups holding both DPIIT recognition and the 80-IAC certificate push the exercise-stage perquisite tax out, plus the Category I merchant banker FMV valuation you actually need.
ESOPs are taxed twice in India: as a salary perquisite at exercise (on the FMV minus exercise price spread) and again as capital gains at sale, with FMV at exercise becoming the cost base.
A low exercise price widens the taxable spread at exercise, so the exercise price is a deliberate design lever, not an afterthought.
Startups holding both DPIIT recognition and the 80-IAC certificate let employees defer the exercise-stage perquisite tax, which is the single biggest lever for making the pool actually valuable to employees.
