CFO's Desk

Tab 2 — IT Act 1961 vs IT Act 2025: Business Guide

The IT Act 1961 governed income up to FY 2025-26. The IT Act 2025 applies from Tax Year 2026-27 (income earned from April 1, 2026). Both Acts coexist during transition. Tax rates, slabs, and deductions remain unchanged — only the structure is new.

The Big Picture

The new Act does not change tax rates, slabs, deductions, or exemptions. The only thing that changed is the structure — simpler numbering, logical grouping, and removal of redundant provisions. Think of it as the same recipe presented in a cleaner cookbook.

From April 1, 2026, the IT Act 2025 came into force, replacing the IT Act 1961. For businesses, CAs, payroll teams, and finance professionals, this transition is not optional.

Structural Comparison

The following table:

1. TDS — Most Impactful for Day-to-Day Operations

Under the old IT Act 1961, TDS provisions ran from Section 192 to Section 194T — more than 60 separate sections, each with its own thresholds, rates, and sub-clauses. The IT Act 2025 consolidates all of this into two sections: Section 392 for salary TDS and Section 393 for all other payments.

The following table:

2. Presumptive Taxation — Simplified for SMEs

The fragmented system of Sections 44AD, 44ADA, and 44AE has been merged into a unified Section 58. Rates remain unchanged:

• Business (cash receipts): 8% of turnover
• Business (digital receipts): 6% of turnover
• Professionals: 50% of gross receipts

Businesses with turnover under ₹10 crore and cash receipts below 5% continue to be exempt from maintaining books and undergoing tax audit under the presumptive scheme.

3. Capital Gains — Reorganised, Not Revised

Capital gains provisions move to Sections 67–91 under the new Act. Holding periods remain unchanged — 12 months for listed equity, 24 months for immovable property. One substantive change: share buyback proceeds are now taxed as capital gains instead of dividends.

4. Pending Cases — No Disruption

Pending assessments, appeals, and proceedings initiated under IT Act 1961 will continue under the old Act until conclusion. The new Act applies only to income earned from April 1, 2026 onwards.

Your Transition Checklist

1. Update accounting software with new TDS section references
2. Revise payroll system — Section 192 → Section 392 (salary TDS)
3. Update TDS payment challans — use new numeric codes, not old alphanumeric
4. Refresh vendor payment workflows with new section numbers
5. Ensure audit reports and tax returns reference new section numbers for Tax Year 2026-27
6. Q4 FY 2025-26 TDS returns must still use old Act sections — do not mix

Tab 3 — GST Quick Reference FY 2025-26

Everything an SME needs to know about GST in one place — registration thresholds, composition scheme, e-invoicing, e-way bill, ineligible ITC, and annual returns.

1. GST Registration Thresholds

The following table:

2. Composition Scheme — At a Glance

Who can opt in: Small businesses operating within a single state and not making inter-state supplies.

Turnover Eligibility

• Manufacturers & Traders (Goods): Up to ₹1.5 Crore (₹75 Lakh for special category states)
• Service providers / Mixed: Up to ₹50 Lakh

Tax Rates

The following table:

Key Restrictions

• Cannot charge GST separately on invoices — issue Bill of Supply only
• Cannot claim Input Tax Credit
• Cannot make inter-state outward supplies
• Cannot sell through e-commerce platforms

Returns for Composition Dealers

• CMP-08 — Quarterly tax payment statement
• GSTR-4 — Annual return (due 30th April of following year)

3. E-Invoicing — Who Must Comply?

Mandatory for any business with Aggregate Annual Turnover (AATO) exceeding ₹5 Crore in any financial year from 2017-18 onwards. E-invoices are generated via the Invoice Registration Portal (IRP), which assigns a unique IRN to each invoice.

Turnover above ₹5 Crore (AATO): E-Invoice Mandatory

Exempted from e-invoicing: Banks, NBFCs, Goods Transport Agencies (GTA), insurance companies, passenger transport services.

4. Annual Returns — Quick Guide

The following table:

5. E-Way Bill — Quick Reference

An electronically generated document required when transporting goods above the specified value. Generated on the e-Way Bill portal, it enables real-time tracking and GST compliance.

When is it Mandatory?

The following table:

Validity — Distance Based

The following table:

Exempted Goods (No E-Way Bill Needed)

• Perishable food items, jewellery, certain agricultural products
• Alcoholic liquor, petroleum products (crude oil, petrol, diesel, ATF, natural gas)
• Currency, goods under Schedule III of CGST Act
• Goods under customs clearance bonds

Common Mistakes to Avoid

• Forgetting to cancel within 24 hours if dispatch is cancelled — beyond 24 hours, cancellation is not possible
• Generating e-way bill for a document older than 180 days — will be rejected

6. Ineligible ITC — Section 17(5) Blocked Credits

Not every GST rupee paid qualifies for Input Tax Credit. Section 17(5) of the CGST Act specifies a Negative List — goods and services on which ITC is strictly denied regardless of business use.

The following table:

FY 2025-26 Update

Budget 2025 amended Section 17(5)(d) — the term 'plant or machinery' has been replaced with 'plant and machinery' to align with Section 17(5)(c). ITC related to tax paid under Section 74 (fraud or misstatement) is now restricted to demands only up to FY 2023-24.

How to Check Your Ineligible ITC

Access GSTR-2B on the GST portal — the auto-drafted ITC statement shows purchases during a tax period on which ITC is not available. Ineligible ITC must be reported and reversed in Table 4(B) of GSTR-3B.

Tab 4 — Compliance Checklists

Section 1 tells you when. These checklists tell you what and how well. Use these as your internal process standards — not just compliance exercises.

Checklist 1 — Books of Accounts: Maintenance Standards

Good books are not built in March. They are built every single day.

Who Must Mandatorily Maintain Books?

• Under the Income Tax Act: If turnover or gross receipts exceed ₹25 Lakhs, or income exceeds ₹2.5 Lakhs in any 3 preceding years — mandatory.
• Under the Companies Act: Every company, regardless of turnover.

What Must Your Books Contain?

• All money received and spent — with nature of transaction
• All sales and purchases of goods and services
• All assets and liabilities
• Items of cost (for manufacturing companies)
• Stock records — opening, closing, inward and outward movement
• Fixed Asset Register — with additions, disposals, and depreciation
• Debtor and creditor ledgers — party-wise, with ageing
• Bank book and cash book — reconciled monthly
• GST records — inward/outward supplies, ITC availed, output tax

Method & Location

• Maintain on accrual basis and double entry system — mandatory under Companies Act
• Must be kept at registered office or board-approved location notified to ROC within 7 days
• If in electronic mode — must remain accessible in India at all times
• Digital records must be backed up regularly — loss of records is not an excuse

How Long Must You Keep Records?

The following table:

Quality Standards — The CFO's Process

Daily / Transaction Level:

• Every payment supported by a voucher — no voucher, no entry
• Expenses clearly classified — capital vs revenue, personal vs business
• GST entries split correctly — CGST, SGST, IGST, and ITC eligibility flagged
• TDS deducted at the time of credit or payment — whichever is earlier

Monthly:

• Bank reconciliation completed — every account, every month
• Petty cash reconciled and replenished with proper vouchers
• Debtors and creditors ledger reviewed — flag overdue amounts
• MSME vendor balances tracked — 45-day payment rule under Section 43B(h)
• Salary register reconciled with PF, ESI, and PT workings

Quarterly:

• Advance tax computed on actual income — not last year's estimate
• Depreciation calculated and posted — don't wait till year end
• Provisions reviewed — gratuity, leave encashment, bad debts

Year End:

• Physical stock count done and reconciled with books
• All inter-company / related party transactions documented
• Capital and revenue expenditure properly classified
• Prepaid expenses and outstanding liabilities accounted for
• Fixed assets physically verified and records updated

Common Mistakes That Cost Businesses Dearly

• Mixing personal and business expenses — especially in proprietorships
• No supporting vouchers for cash payments
• GST ITC claimed without checking GSTR-2B
• Depreciation missed or wrong method applied
• Books closed in July/August instead of March — makes audit painful and expensive
• Digital records not backed up — a crashed hard drive is not a legal excuse

Checklist 2 — ROC / Company Law Compliance

Filing AOC-4 and MGT-7 is the visible tip. The real compliance runs all year. Applicable to Private Limited Companies, Public Limited Companies, OPCs, and LLPs.

At Incorporation — One Time

• First Board Meeting within 30 days of incorporation — record minutes
• Open statutory registers — members, directors, shares — from day one
• Issue share certificates to subscribers within 60 days
• File INC-20A (commencement of business) within 180 days — failing this blocks operations
• Appoint statutory auditor within 30 days of incorporation

Board Meetings — Ongoing

• Private limited companies: At least 4 board meetings annually, with maximum gap of 120 days between meetings.
• Small companies and OPCs: At least one board meeting in each half of the calendar year, with minimum gap of 90 days.

For Every Board Meeting:

• Issue notice to all directors at least 7 days in advance with agenda
• Ensure quorum — at least 2 directors or 1/3rd of total directors, whichever is higher
• Prepare and maintain minutes within 30 days of conclusion — signed by Chairperson
• Pass necessary resolutions and document clearly in minutes
• Directors to disclose interests in any agenda item — record in minutes

Statutory Registers — Maintain and Update

Every private limited company must maintain the following registers, updated regularly:

• Register of Members — shareholder details, share allotments, transfers
• Register of Directors & KMP — director details, DIN, address, other directorships
• Register of Charges — loans secured against company assets
• Register of Contracts — related party transactions, director interests
• Register of Share Transfers — every transfer with dates
• Minutes Books — board meetings, committee meetings, AGM

Annual General Meeting (AGM)

• Hold AGM within 6 months from end of financial year — by 30th September
• Issue notice to shareholders at least 21 days in advance
• Lay before AGM: audited financial statements, directors report, auditors report
• Appoint or re-appoint auditor at AGM
• Record minutes within 30 days of AGM

Event-Based Compliances — File When It Happens

These are most commonly missed because they are not calendar-based — they trigger on specific corporate events:

The following table:

Penalty Quick Reference — ROC

The following table:

Checklist 3 — Year-End Closing: The CFO's Action List

Start in February. Finish in March. Not in July.

Books & Accounting:

• Close all ledgers — ensure every transaction for the year is recorded
• Reconcile bank statements for all accounts — every single month
• Clear all suspense account entries — nothing should sit unclassified
• Reconcile inter-company balances if multiple entities exist
• Ensure cut-off is correct — March expenses not pushed to April

Stock & Assets:

• Physical stock count as on 31st March — document variances
• Update Fixed Asset Register — additions, disposals, write-offs
• Verify assets physically — laptops, vehicles, equipment
• Calculate and post depreciation for the full year

Income Tax:

• Download Form 26AS and AIS — reconcile with books before filing
• Verify all TDS deducted is deposited and returns filed
• Decide old vs new IT regime — run numbers before filing
• Check if tax audit is applicable — ₹1 Crore (business) / ₹50 Lakhs (professionals)
• Prepare Form 3CA/3CB and 3CD for tax audit cases

GST:

• Reconcile GSTR-1, GSTR-3B, and GSTR-2B for all 12 months
• Claim or reverse pending ITC — unreconciled credits lapse after deadline
• File GSTR-9 (mandatory if turnover above ₹2 Crore)
• File GSTR-9C (mandatory if turnover above ₹5 Crore, self-certified)
• Verify e-invoicing compliance for the full year — no gaps in IRN generation

Payroll & Labour:

• Reconcile PF and ESI challans with employee contribution registers
• Verify new joiners and exits are correctly updated on EPFO/ESIC portals
• Compute and provision for gratuity — employees completing 5 years of service
• Prepare Form 16 data — must be issued to employees by 15th June

MSME Payments:

• Pay all outstanding MSME vendor dues before 31st March
• Amounts unpaid beyond 45 days are disallowed under Section 43B(h)
• Check all vendor Udyam registrations — update your records

Corporate Governance:

• Ensure all 4 board meetings held and minutes completed
• Statutory registers up to date — members, directors, charges
• All event-based ROC filings done — no pending forms
• Board resolution passed for financial statements before filing
• Auditor appointed/re-appointed at AGM

Tab 5 — Budget 2025: Top 10 Updates for SMEs

What the Finance Minister announced — and what it actually means for your business. Plain English. No jargon.

🚀 Update 1: MSME Classification Limits Revised

What changed: Investment limits increased by 2.5x and turnover limits doubled, effective April 1, 2025.

What it means for your business: More businesses now qualify as MSMEs — unlocking priority sector lending, government schemes, and credit guarantees. If your turnover has grown, check whether your category has changed and update your Udyam Registration accordingly.

The following table:

💰 Update 2: New Tax Regime — Zero Tax Up to ₹12 Lakhs

What changed: The tax rebate under Section 87A has been increased to ₹60,000, ensuring zero tax liability for individuals with net taxable income up to ₹12 Lakhs under the new regime.

What it means for your business: For business owners and proprietors — the new regime is now far more attractive up to ₹12 Lakhs. Beyond that, run the numbers comparing old vs new, especially if you have significant deductions under 80C, 80D, or home loan interest.

🏠 Update 3: TDS on Rent Threshold Revised — Section 194I

What changed: The annual threshold for TDS on rent under Section 194I has been increased from ₹2.4 Lakhs to ₹6 Lakhs per year (₹50,000 per month), effective FY 2025-26.

What it means for your business: If your business pays office rent below ₹50,000 per month, TDS deduction is no longer required. Significant compliance relief for businesses with smaller office spaces. Above ₹50,000 per month — TDS continues at 10% for land/building and 2% for plant/machinery.

🔄 Update 4: Updated Return (ITR-U) Window Extended to 4 Years

What changed: The deadline for filing updated Income Tax Returns has been extended from 2 years to 4 years, allowing taxpayers more time to rectify errors and disclose omitted income voluntarily.

What it means for your business: Missed declaring income or made a genuine error? You now have up to 4 years to file an updated return and correct it — avoiding scrutiny and litigation. Significant compliance relief for SMEs with complex transactions across multiple years.

🏢 Update 5: MSME Payment Rule — Section 43B(h) in Full Force

What changed: Section 43B(h) mandates that payments to MSME vendors must be made within 45 days of receiving goods or services (15 days if no written agreement). Amounts unpaid beyond this window cannot be claimed as a deduction in that financial year — only in the year of actual payment.

What it means for your business: This is not new but its full impact is being felt in FY 2025-26. Two concerns:

• If you are the buyer — track all MSME vendor dues carefully. Delayed payment = disallowed deduction = higher tax
• If you are the MSME supplier — you have legal backing to demand timely payment. Enforce it

Check if your vendors are registered on the Udyam portal — that determines applicability.

📊 Update 6: TDS/TCS Rationalisation — Multiple Thresholds Revised

What changed: The government streamlined TDS and TCS provisions to reduce compliance burden — including revised thresholds across sections and removal of TCS on purchase of goods from April 1, 2025.

What it means for your business: Review your vendor payment and accounts payable workflows against the revised thresholds.

The following table:

🚀 Update 7: Startup Tax Holiday Extended to 2030

What changed: Tax benefits under Section 80-IAC for eligible startups extended by 5 years — startups incorporated between April 1, 2016 and April 1, 2030 are eligible for 100% tax deduction on profits for 3 consecutive years out of 10.

What it means for your business: If any of your clients are early-stage startups, they now have a longer window to qualify. DPIIT recognition is required — plan for it at the incorporation stage itself.

💳 Update 8: MUDRA Loans — Enhanced Credit Access

What changed: Additional funds allocated under the MUDRA scheme; term loans up to ₹2 Crore now available for first-time entrepreneurs including women and SC/ST entrepreneurs.

What it means for your business: For SME clients needing working capital without collateral — explore MUDRA Tarun Plus loans before approaching banks for secured credit.

📋 Update 9: GST — ISD and Track & Trace Changes

What changed: Input Service Distributors (ISD) can now distribute ITC on inter-state supplies. New penalties introduced for Track and Trace Mechanism violations.

What it means for your business: Businesses with multiple branches or GSTINs under one PAN can now distribute ITC more efficiently via ISD. If you operate in sectors with Track and Trace requirements (pharma, tobacco), ensure systems are updated — penalties are now statutory.

🏛️ Update 10: IT Act 2025 — The Biggest Structural Change

What changed: The Income Tax Act 1961 has been replaced by IT Act 2025, effective April 1, 2026. Tax rates remain unchanged but section numbers, form names, and challan codes have all changed.

What it means for your business: This is not optional. Your accounting software, payroll systems, and compliance workflows must be updated immediately.

• Stop using old section numbers (194C, 194J, 194I, etc.) for payments from April 1, 2026 — triggers validation errors
• Salary TDS: old Section 192 is now Section 392
• All other TDS: old Sections 193–194T are now consolidated under Section 393
• Q4 FY 2025-26 TDS returns still use old Act sections — do not mix

See full comparison in Tab 2 — IT Act 1961 vs IT Act 2025