Taxation

India's new Income-tax Act: what foreign groups and cross-border businesses need to change

India's Income-tax Act, 2025 took effect on 1 April 2026. Why foreign groups should review contracts, withholding, transfer pricing and policies now.

Published 28 September 2026Read 3 minBy TrueAxis

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On 1 April 2026 India replaced the Income-tax Act of 1961 with the Income-tax Act, 2025. For most businesses, rates and core principles are unchanged. That has led many foreign groups to treat the new law as a renumbering exercise for local accountants. It is more than that. Every contract, policy, system and process that refers to Indian tax law now refers to a law that no longer applies to new periods, and the gaps tend to surface at the worst moment: a withholding dispute, a treaty claim or an acquisition.

What has actually changed

The 2025 Act is a consolidation. It reduces the law from 819 sections to 536, removes obsolete provisions and rewrites much of the language in plainer terms. The accompanying Income-tax Rules, 2026, notified on 20 March 2026, cut the rules from 511 to 333 and the prescribed forms from 399 to 190. Three changes matter most to cross-border businesses:

One tax year: the separate concepts of previous year and assessment year are replaced by a single tax year running from 1 April to 31 March.
New section numbers everywhere: withholding, permanent establishment, transfer pricing, residence, treaty access and anti-avoidance provisions all sit under new numbers and, in places, restructured wording.
Transition rules: proceedings, assessments and appeals for periods before 1 April 2026 continue under the 1961 Act, so groups will run two codes in parallel for several years.

Where foreign groups are exposed

Contracts and intercompany agreements

Service agreements, licences, loan agreements and cost-sharing arrangements often refer to specific sections of the 1961 Act: the withholding provision for fees for technical services, the definition of royalty, the transfer pricing provisions. Those references now point to a repealed law for future periods. Most will be read sensibly, but tax clauses are exactly where counterparties look for ambiguity when money is at stake. Gross-up clauses and tax indemnities deserve particular attention.

Withholding and treaty claims

Payments from India to overseas group companies and vendors depend on correctly identifying the provision, rate and documentation. ERP tax codes, vendor master data and payment workflows that reference old sections need updating, as do the processes for collecting tax residency certificates and treaty declarations. Errors here create cost on both sides: under-withholding exposes the Indian payer, and over-withholding traps cash in refund claims.

Transfer pricing documentation

Transfer pricing policies, benchmarking reports and master-file narratives describe the Indian entity's position by reference to the law. Documentation prepared for 2026–27 onwards should cite the new provisions, and policies should be checked against any changes to safe harbour rules and thresholds introduced alongside the new Act.

Group policies and board materials

Global tax policies, risk registers, tax control frameworks and board reporting templates that describe Indian obligations will be out of date. It is a small task individually and an awkward one in aggregate, particularly when the group's auditors or a potential acquirer read them.

Residence and individual mobility

Rules on the residence of individuals matter to groups that move people in and out of India: secondees, founders and senior executives who split their time. The thresholds and tests deserve a fresh look under the new law before the next assignment starts, alongside the separate rules on place of effective management for foreign companies run from India.

A practical review in five steps

Inventory: list every contract, policy, system configuration and recurring process that refers to Indian income-tax provisions.
Map: match each old reference to its new equivalent and flag those where the wording, not just the number, has changed.
Prioritise: start with payments abroad, treaty claims and intercompany agreements, where errors cost real money.
Update: amend contracts at renewal or through a short omnibus amendment; update ERP tax codes and documentation templates now.
Run two codes: keep a clear record of which periods fall under which Act until all pre-2026 matters are closed.

The bottom line

India's new Income-tax Act is good news in the long run: shorter, clearer and easier to apply. In the short run it creates a housekeeping burden that falls hardest on groups whose Indian operations are documented in head-office contracts and systems written for the old law. A structured review now is far cheaper than discovering the gaps during an assessment, a treaty claim or due diligence.