Key Income Tax Changes from April 1, 2026 under Income-tax Act, 2025

Starting April 1, 2026, India will implement a significant tax reform by replacing the Income-tax Act of 1961 with the new Income-tax Act, 2025. This marks a major overhaul of the country’s income tax framework.

In addition, the Union Budget 2026, presented by FM Nirmala Sitharaman on February 1, 2025, introduced several tax-related measures impacting areas such as share buybacks, dividends, Tax Collected at Source (TCS), and capital gains.

This article provides a detailed overview of the key income tax changes effective from April 1, 2026, highlighting new provisions, revisions, and their potential effects on your finances, investments, and tax planning for the upcoming financial year.

20 key income tax changes from April 1, 2026

1) The Income Tax Act 1961 is replaced by the Income Tax Act of 2025.

Starting April 1, 2026, India will replace its six-decade-old Income-tax Act of 1961 with the new Income-tax Act, 2025. Although tax rates and income slabs will remain the same, the new legislation modernizes the processes for individuals, companies, and investors in calculating taxes, reporting income, and complying with TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) regulations.

2) Introduction of a Unified “Tax Year”

The new law introduces a unified concept called the “Tax Year,” replacing the previous dual system of Financial Year (FY) and Assessment Year (AY). Under this change, income earned from April 1 onwards will be reported within the same tax year.

3) Income Tax Form 130 replaces Form 16

Form 130, which is the required TDS certificate for salary, pension, and specified senior citizen interest income under section 395, replaces the place of Form 16 under the Income Tax Act 2025. It offers a thorough record of income paid, taxes withheld, and taxes deposited with the government and is issued yearly by the employer or designated bank.

Part A (basic details), Part B (summary of payments and TDS), and Part C (annexures describing wage computation or pension and interest income for senior persons) comprise the certificate.

It is deemed invalid if it is not generated via the TRACES site and issued by June 15th of the applicable tax year. Corrections necessitate updated filings, and issuance is dependent on the submission of TDS statements.

4) Stricter Compliance for House Rent Allowance (HRA) Claims

HRA benefits continue to be available under the new law, but with stricter compliance requirements. Employees must now provide their landlord’s PAN and proof of rent payments. In specific cases, it is mandatory to disclose the landlord’s details—including PAN and the amount of rent paid—when claiming HRA exemptions

5) HRA metro city expansion

The updated list of “metro cities” eligible for the 50% HRA exemption now includes Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, and Ahmedabad.

6) The exemption for meal cards was expanded

Under the new tax provisions, corporate meal cards covering up to ₹200 per meal are tax-free. This exemption includes free food and non-alcoholic beverages provided to employees. Previously, the tax exemption limit was only ₹50 per meal.

7) Festival and gift cards

The tax-free annual exemption for corporate gift cards, vouchers, or coupons has been increased from ₹5,000 to ₹15,000 per employee. This enhanced exemption applies under both the old and new tax regimes.

8) Enhanced Children’s Allowances

Under the old tax regime, the children’s education allowance has increased significantly from ₹100 per month per child to ₹3,000 per month. Similarly, the hostel expenditure allowance has risen from ₹300 per month to ₹9,000 per month.

9) Company vehicle perquisites

Under the new Income-tax Act, 2025, the taxable value for company-provided vehicles has been updated. For cars with engines up to 1.6 litres, the perquisite value is set at ₹8,000 per month, while vehicles with engines above 1.6 litres have a perquisite valuation of ₹10,000 per month. Additionally, if the employer provides a driver along with the vehicle, the taxable value of the driver’s services has been increased to ₹3,000 per month. These valuations apply to both personal and professional use of the vehicle and are applicable under both the old and new tax regimes.

10) PAN Rules and High-Value Transactions Tightened

Under the new rules, PAN applications using Aadhaar alone are no longer permitted. Applicants must now use category-specific forms: Form 93 for individuals, Form 94 for companies, Form 95 for foreign individuals, and Form 96 for foreign entities.

Additionally, PAN is mandatory for below high-value transactions:

11) Share buybacks taxed as capital gains

Proceeds from share buybacks will now be taxed as capital gains, replacing the earlier “deemed dividend” treatment. For promoter shareholders, a differential buyback tax applies: 22% for corporate promoters and 30% for non-corporate promoters.

12) Securities Transaction Tax (STT) hike

The Securities Transaction Tax (STT) on equity derivatives has been increased: the rate for futures has risen from 0.02% to 0.05%, and for options from 0.1% to 0.15%. This change primarily affects active traders in futures and options (F&O) segments.

13) Sovereign Gold Bonds (SGBs)

Tax exemption on the redemption of Sovereign Gold Bonds (SGBs) now applies only to bonds purchased at the original issue. Redemptions of SGBs bought in the secondary market will be subject to capital gains tax.

14) Dividend and mutual fund income

Under the new provisions, income from dividends and mutual funds will be calculated without permitting any deduction for interest expenditure, regardless of whether borrowing has occurred.

15) Single declaration for non-deduction

Investors are now allowed to submit a single declaration to request non-deduction of tax across all their mutual fund units, dividends, and bonds.

16) Simplified TDS on property purchase

Buyers purchasing immovable property from Non-Resident Indians (NRIs) can now deduct TDS using their own PAN, eliminating the requirement for a TAN and simplifying compliance.

17) TCS rationalisation

TCS rates have been rationalized as follows:

• Overseas tour packages: reduced from dual rates of 5% and 20% to a flat 2%.
• LRS remittances for education and medical purposes: lowered from 5% to 2%.
• Alcoholic drinks: increased from 1% to 2%.

18) Motor accident compensation

Interest earned from motor accident claims tribunal awards is now fully tax-exempt, with no TDS deducted, allowing recipients to receive the entire amount without any tax withholding.

19) Extended ITR filing deadlines

The deadlines for filing Income Tax Returns (ITR) have been extended, providing taxpayers with additional time to complete and submit their returns.

For non-audit taxpayers, including businesses and trusts, the Income Tax Return (ITR) filing deadline has been extended to August 31. Salaried individuals must continue to file by July 31, while the deadline for audit cases remains October 31.

20) Reporting of High-Value Credit Card Transactions

High-value credit card payments exceeding ₹10 lakh through non-cash methods or ₹1 lakh in cash will be reported to the tax department starting on April 1, 2026. For PAN applications, credit card statements up to three months old may be used as proof of address. All new credit card applications now require a PAN.

The Income Tax Department has made it clear that compliance with both the old and new Income Tax Acts will be supported via its e-filing facility. Until they are completely settled, all assessments, appeals, and processes for prior years will continue under the previous Act. When filing in July 2026, taxpayers filing returns for AY 2026–2027, which is covered by the previous Act, will utilize the forms specified under the previous Act.