The Income-tax Act, 2025 Transition: Do Existing Wills and Trust Deeds Need Redrafting?

The Development

The Income-tax Act, 2025 comes into effect from 1 April 2026, replacing the Income-tax Act, 1961 as the governing statute for direct taxation in India. For most taxpayers, this has been discussed primarily as a compliance and drafting exercise - renumbered sections, simplified language, a reorganised structure. For the private client and family-wealth space specifically, the transition carries a narrower but more consequential question: what happens to succession and estate-

planning instruments - wills, trust deeds, family settlements - that were drafted with express reference to provisions of the 1961 Act?

This is not a hypothetical concern. Trust deeds routinely embed specific statutory citations: exemption provisions for charitable trusts, the taxation regime for specified and non-specified trusts, gift-taxation carve-outs for transfers between relatives, and capital gains computation mechanics tied to cost of acquisition and indexation rules. A instrument drafted to rely on, say, a particular clause governing "relative" for gift-tax purposes, or a specific exemption section for a private discretionary trust, is now referring to a provision that - numerically, and in some cases substantively - no longer exists in that form.

Does the New Act Invalidate Existing Wills and Trusts?

No - and this is the first point worth stating clearly, because it is easy to overstate the disruption. A will or trust deed does not become invalid merely because it cites provisions of the repealed 1961 Act. The core legal instrument - the testamentary disposition, the trust's constitution, the settlor's intent, the beneficiaries' entitlements - is a matter of testamentary and trust law (the Indian Succession Act, 1925; the Indian Trusts Act, 1882; applicable personal law), not tax law. The Income-tax Act, old or new, governs how income and transfers are taxed; it does not govern whether a will or trust is validly constituted.

The more precise risk is narrower and more technical: statutory references, tax

assumptions, and drafting language within these documents may no longer

accurately reflect the current legal framework, even though the document's core validity survives.

Where the Real Exposure Sits

For a practitioner advising private clients through this transition, the analytical work is in identifying exactly which categories of drafting are affected, rather than treating this as a blanket redrafting exercise. Four areas deserve particular scrutiny:

• Trust taxation classification

The 1961 Act's framework for how a trust is taxed - as a "specified trust," a discretionary trust attracting maximum marginal rate, or an association of persons in specified circumstances - turns on definitions and cross-references that the 2025 Act reorganises. A trust deed drafted around achieving a particular tax characterisation under the old numbering needs to be checked against the corresponding (and possibly substantively altered) provision in the new Act, not merely cross-referenced by section number.

• Gift taxation and the definition of "relative"

Transfers into and out of family trusts, and direct intra-family gifts contemplated by estate plans, typically rely on exemptions available for transfers between "relatives" as statutorily defined, or transfers under a will or in contemplation of death. Where a trust deed or family settlement recites the old provision defining these exemptions, the recital should be checked against the new Act's corresponding formulation to confirm the exemption still applies as intended, and has not been narrowed, widened, or restructured in the recodification.

• Capital gains computation on eventual distribution or sale

Estate plans routinely anticipate a future event - sale of an inherited or trust-held asset, distribution of trust corpus to a beneficiary - and are drafted with the then-applicable capital gains and cost-of-acquisition provisions in mind, sometimes explicitly. Where the new Act alters computation mechanics, indexation availability, or holding-period classification, documents that build in specific tax assumptions (for instance, an equalisation clause between beneficiaries premised on a particular post-tax outcome) may no longer produce the result the settlor intended.

• Charitable and philanthropic trusts

Family philanthropy structured through charitable trusts relies heavily on specific exemption and registration provisions. The compliance architecture for charitable trusts - registration, approval, application of income requirements - is an area recodification exercises typically touch materially, even where the underlying policy intent (encouraging registered philanthropy) is preserved. This is arguably the single category of private-client-adjacent document most likely to need active review rather than passive reliance.

What This Is Not: A Call for Panic Redrafting

Equally important, from an advisory standpoint, is resisting the temptation to recommend wholesale re-execution of every family's wills and trust deeds. Two reasons counsel restraint:

• A will's dispositive scheme is independent of the Income-tax Act. Who inherits what, and in what proportion, does not change because the tax statute has been recodified. Re-executing a will purely because of the tax transition, absent any other reason to revisit it, adds cost and re-opens execution formalities (fresh signing, fresh attestation) without addressing a real defect.

• Most trust deeds are drafted with general, purpose-based language, not section-specific citations, precisely because experienced drafters anticipate that tax law changes over a trust's life - which, for a family trust, can span decades. Where a deed refers to "such exemption as may be available under the applicable income-tax law for transfers between relatives" rather than citing a specific section number, the transition requires no textual amendment at all - only a substantive check that the intended tax outcome still holds.

The Practical Advisory Position

For a private client practice, the useful output of this transition is not a generic advisory that "clients should review their estate documents" - that produces client anxiety without client value. The more precise and defensible service is a structured document audit: identifying which specific instruments contain hard-coded statutory references (as opposed to purpose-based language), checking those specific references against the corresponding 2025 Act provisions, and confirming - document by document - whether the originally intended outcome (a particular exemption, a particular tax characterisation, a particular post-tax division between beneficiaries) still holds under the recodified provision, or whether an amendment is genuinely warranted.

This distinguishes a family's actual legal exposure (a handful of specifically-drafted clauses that may no longer say what they were meant to say) from the false impression that an entire estate plan has become unstable. It is also, not incidentally, the kind of granular, document-level diligence that differentiates considered private client advisory from a generic "the tax law has changed" client circular.