New Delhi: With the Income-tax Act, 2025 coming into effect from April 1, 2026, many companies initially expected a smooth transition due to largely unchanged tax rates. However, tax experts warn that the real challenges are now emerging—not from the law itself, but from gaps in implementation and system readiness.

Chartered accountant Nishant Shankar has highlighted that businesses may face compliance risks due to outdated processes, incorrect system mappings, and continued reliance on provisions from the Income-tax Act, 1961.

Legacy systems creating confusion

One of the key concerns is the continued use of outdated references in corporate systems. Many organisations have yet to fully update enterprise resource planning (ERP) systems, internal manuals, and standard operating procedures to reflect the new law.

As a result, internal documentation, tax opinions, and intercompany agreements still refer to sections under the 1961 Act. This creates inconsistencies when companies file returns under the updated framework.

For example, a company may correctly deduct tax at source (TDS) on consultancy payments but still classify it under an old section code such as 194J. When returns are filed under the new Act, this mismatch between deduction and reporting can trigger discrepancies.

Experts caution that even minor inconsistencies could invite scrutiny or notices from tax authorities, despite correct tax payments.

Capital gains classification risks

Another area of concern is the treatment of capital gains. While the broad principles remain similar, structural changes in the new Act have introduced scope for misclassification.

Companies relying on older templates may incorrectly categorise gains. For instance, a transaction previously treated as long-term capital gains (LTCG) with indexation benefits may not qualify under the revised framework due to changes in holding period definitions or asset classification.

There is also a risk in the treatment of carried-forward losses. Improper system mapping could lead to incorrect set-offs, such as adjusting long-term capital losses against short-term capital gains—something not permitted under tax rules.

Such errors, even if unintentional, could result in penalties, reassessments, or additional compliance burdens.

TDS systems yet to adapt

Tax deducted at source (TDS) compliance remains another critical challenge, as it is largely system-driven. Many ERP systems are programmed based on section-specific logic, and incomplete updates can lead to incorrect reporting.

Routine payments such as rent, professional fees, and contractor charges may be processed correctly in terms of tax deduction. However, if reported under outdated section codes, it can create reconciliation issues between company records and tax portal data.

Experts warn that during the current financial year, companies must exercise extra caution to avoid repeated notices, corrections, and disputes with vendors arising from such mismatches.

Operational readiness becomes key

While the new tax law aims to simplify and modernise India’s taxation framework, the transition phase is testing the operational preparedness of businesses.

The focus is now shifting from understanding tax provisions to ensuring that systems, documentation, and teams are fully aligned with the new structure.

According to experts, companies must proactively audit their internal processes, update system mappings, and retrain finance teams to minimise compliance risks.

Conclusion

The rollout of the Income-tax Act, 2025 marks a significant reform in India’s tax landscape. However, its success for businesses will depend less on policy clarity and more on execution.

As companies navigate this transition, even small gaps in systems or reporting could lead to larger compliance challenges. The coming months are likely to be crucial in determining how effectively organisations adapt to the new tax regime.