When a 64-year-old statute is completely restructured into a new code, the summary headline is always "simplification." And the new Income Tax Code 2025 — effective April 1, 2026 — is genuinely simpler to read in many respects. But our reading of the 536-clause document against the existing 1961 Act identified several provisions where the "re-drafting" produced substantive changes — including some that are less favourable to taxpayers than the current law. These are not accidents; they are likely deliberate policy choices embedded in the restructuring.
Substantive Changes in New IT Code 2025 (Selected)
Deemed Dividend — Expanded Definition
The new Code's equivalent of Section 2(22)(e) — deemed dividend on loans to shareholders — has a broader definition that may capture shareholder loans previously excluded on technical grounds. Companies with outstanding director loan balances should review immediately.
Set-Off of Capital Losses
The new Code reorganises capital loss set-off rules with slightly different ordering — loss from equity instruments must now be set off against equity gains before being carried forward. Previous planning that relied on flexible ordering needs to be revisited.
Settlement Commission Abolished
The Income Tax Settlement Commission (ITSC) is not reproduced in the new Code — cases before ITSC at the time of transition are to be transferred to the regular appellate mechanism. Taxpayers with pending ITSC applications need to understand the transition impact immediately.
Charitable Trust Conditions Tightened
Clauses governing exemption for charitable trusts under the equivalents of Sections 11–13 include new compliance conditions not present in the old Act. Trusts that currently qualify under 12AB must revalidate under the new framework's criteria by December 2026.
The Settlement Commission abolition is the single most impactful procedural change in the new Code for high-value taxpayers with complex pending disputes. The ITSC offered a confidential, expedited resolution path not available anywhere else in the system. It will not be replaced.
— Sami Tax Policy Desk, February 2026
The charitable trust provisions deserve particular attention from NGOs, private family trusts, and educational institutions. The new Code imposes additional "corpus application" requirements — stipulating that trusts which spend from corpus must replenish corpus within a defined period or risk losing exemption for the shortfall year. This is more stringent than the current 85% application test and will require changes to cash flow management for many trusts.
Do This Before April 1, 2026
- Review all pending ITSC applications with our litigation team — understand whether a withdrawal and refiling in the alternative dispute resolution channel makes sense before the transition.
- For companies with director loans or shareholder advances: model the deemed dividend exposure under the new Code's definition and consider pre-transitions to clean accounts.
- For charitable trusts: commission a detailed Section 11–13 vs.
- New Code Chapter equivalence review before December 2025.
- We are offering a New IT Code Transition Audit as a fixed-scope engagement — covering all substantive changes that affect your specific tax profile and producing a prioritised action plan.
- For complex cases, starting this in Q2 FY 2025-26 is essential.