As the Income-tax Act, 2025 has now come into effect from April 1, 2026, many companies are settling into what they assumed would be a fairly smooth transition. After all, the government has largely kept tax rates unchanged, which initially gave businesses a sense of continuity.
But tax expert . According to him, the problem is not the law itself, but the way organisations are handling the shift in their systems and processes.
“With the Act, 2025 becoming effective from April 1, 2026 many companies and even professionals assume that the transition will be smooth since tax rates remain largely unchanged. However, risks may even come from gaps in execution,” Shanker wrote on LinkedIn.
One of the first issues highlighted is the continued use of references from the old Income-tax Act, 1961. Even now, many companies have not fully updated their internal systems, agreements, and reporting structures.
ERP systems, tax manuals, and internal SOPs often still rely on old section numbers, which can create confusion when new returns are filed.
Shanker explains the problem with a practical example, “Many internal documents, intercompany agreements, tax opinions, ERP mappings and even SOPs will continue to refer to old provisions of the 1961 Act.”
He adds that even if tax is correctly deducted, mismatches can still occur. For instance, a company may deduct TDS at 10% on consultancy fees, but its system may still tag it under an old section like 194J of the 1961 Act.
When filings are done under the new framework, the system may show inconsistencies between deduction records and reporting codes.
“When the quarterly TDS returns are filed under the new Act, the system might reflect a mismatch between section reporting and tax deduction,” he says.
Even small mismatches like this could lead to unnecessary scrutiny or notices during assessments, despite full compliance on tax payment.
Another area of concern is capital gains treatment and set-off rules. While the broad principles remain similar under the new law, the restructuring of provisions has created scope for misinterpretation.
Companies relying on old templates and classification methods may end up making errors in reporting.
Shanker points to a common scenario in investment exits, “Based on internal templates built on the old Act, the finance team might classify the gain as LTCG and apply indexation. However, under the new structure, the holding period interpretation or asset classification may differ.”
This means that what was earlier treated as long-term capital gains may not necessarily qualify in the same way now.
Another risk lies in the adjustment of losses carried forward. Companies may incorrectly set off long-term capital losses against short-term capital gains due to system mapping issues.
“A Company may have b/f long term capital losses but due to mismatch in mapping, it might set off these losses against STCG, something not permitted,” Shanker warns.
Such errors may not be intentional, but they could still lead to corrections, penalties, or reassessments later.
The third major concern is TDS compliance, which is heavily system-driven in most organisations. ERP systems are usually programmed with section-based logic, and if these are not updated, errors can easily creep in.
Companies making routine payments such as rent, professional fees, and contractual charges may continue deducting tax correctly, but the system may still report them under outdated section codes.
Shanker explains the operational challenge, “TDS compliance is system driven, and most ERPs are coded with section logic.”
When returns are filed, this mismatch between accounting records, TDS filings, and tax portal data can lead to reconciliation issues. Even if there is no revenue loss to the government, companies may still face repeated notices or have to correct filings.
He adds a warning for the current period, “In the current ‘tax year’, one will have to be more careful to avoid repeated notices, corrections, vendor disputes.”
This also increases administrative burden, especially for finance teams already dealing with transition pressure.
The bigger question for businesses
While much of the discussion around the new tax law has focused on simplification, the real challenge appears to be operational readiness. While the Income-tax Act, 2025 is expected to simplify and modernise tax rules, the transition phase may test how well organisations adapt their systems and processes.
Shanker leaves businesses with a simple but important question, “Are the existing systems, documentation and teams ready or will errors surface only when notices arrive?”
What companies need to watch closely
Now that the Income-tax Act, 2025 is already in force, companies are entering a phase where small system gaps can quickly turn into compliance issues. Experts believe that this transition is not just about understanding new rules, but about fully rebuilding internal processes around them.
For many organisations, the coming months will be less about tax theory and more about practical execution — and how quickly they can fix what is still running on old logic.
And as Shanker warns, even small mismatches could lead to larger compliance headaches later.