Series II- Few important changes with respect to the Income Tax Act 2025 (ITA 2025) in comparison to Income Tax Act 1961 (ITA 1961)
Summary: The Income Tax Act, 2025 introduces wide-ranging structural and procedural reforms effective from FY 2026-27, significantly reducing statutory complexity while modernising compliance requirements. The new law contains 536 sections compared to 819 under the 1961 Act and restructures rules, forms, TDS provisions, and reporting mechanisms. Major changes include enhancement of startup tax holiday eligibility turnover from ₹100 crore to ₹300 crore under Section 140, revised salary and HRA exemptions, higher education and hostel allowances, and expanded disclosure requirements for salaried employees. Form 16 is replaced by Form 130 with additional annexures, while Forms 15G and 15H are consolidated into Form 121 for senior citizens. Non-residents seeking DTAA benefits must now mandatorily file Form 41 irrespective of Tax Residency Certificate contents. The Act also introduces offline utilities for Forms 145 and 146 relating to foreign remittances and non-resident payments, aiming to simplify filing, improve transparency, and standardise digital tax compliance procedures.
Also Read: Important Changes Under Income Tax Act 2025 and 1961: Series I
Number of Sections, Income Tax Rules (ITR) and Forms at a glance-
ITA 2025 has 536 sections Vs 819 sections under ITA 1961
ITA 2025 has 16 schedules Vs 14 Schedules under ITA 1961
ITR 2026 runs to 333 rules Vs 511 rules under ITR 1962
ITR 2026 has 399 separate forms Vs 190 forms under ITR 1962
Startup tax holiday eligibility limit increased to Rs 300 Cr:
Section 140 of ITA 2025 and Section 80-IAC of ITA 1961
Introduction:
The Finance Bill 2026, passed by the Lok Sabha and effective April 1, 2026, increases the startup tax holiday (Section 80-IAC/Section 140 of ITA 2025) turnover eligibility limit from ₹100 crore to ₹300 crore. This measure aims to boost startup compliance and widen eligibility for tax exemptions as part of the new ITA 2025 framework.
Key Takeaways regarding Startup Benefits:
Turnover Limit Increase: Eligible startups with a turnover up to ₹300 crore (previously ₹100 crore) can now qualify for tax holiday benefits.
Sec 140(16)(b) “eligible start-up” means a company or a limited liability partnership engaged in eligible business which fulfils the following conditions:—
(i) it is incorporated on or after the 1st April, 2016 but before the 1st April, 2030;
(ii) the total turnover of its business does not exceed [three] hundred crore rupees in the tax year relevant to the tax year for which deduction under sub-section (1) is claimed; and
(iii) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as may be notified by the Central Government;
Legislative Shift:
This change is part of the broader adoption of the Income Tax Act, 2025, which replaces the 1961 Act, as noted in documents from the Income Tax Department.
Effective Date:
The higher threshold applies to income earned during FY 2026-27 (Tax Year 2026-27).
Changes for salaried employees and senior citizens from 1st April 2026
Section 392(5)(b) of ITA 2025 Vs Section 10(13A) of of ITA 1961
Rule 205 of ITR 2026 Vs Rule 2A of ITR 1962
Section 395 of ITA 2025 Vs Section 203 of ITA 1961
Section 392 of ITA 2025 Vs Section 192 of ITA 1961
Section 393(6) of ITA 2025 and Rule 211 of ITR 2026 Vs Section 197A(1) and ( 1A) of ITA 1961
1. Higher allowances for education, HRA and more:
- If an employer provides free food vouchers, up to ₹200 per meal will be tax free. This means ₹4,400 per month for 22 working days, or up to ₹8,800 if two meals per day are provided.
- Education allowance for up to two children will be increased from ₹100 per month to ₹3,000 per month.
- Hostel allowance for up to two children will be increased to ₹9,000 per month.
- Cities such as Bengaluru, Hyderabad, Pune and Ahmedabad will now be treated at par with metro cities like Mumbai, Kolkata, Delhi and Chennai. Employees in these cities will get 50% HRA exemption. Cities like Noida, Gurugram and Navi Mumbai will remain in the 40% category.
- Employees claiming HRA and other deductions must now provide detailed disclosures through a separate form, including landlord details. PAN of the landlord is mandatory if annual rent exceeds ₹1 lakh.
- Employees to furnish and disclose the relationship with landlord in Form 124 replacing earlier Form 12BB.
2. New forms for TDS Certificates:
For salaried taxpayers, the most visible change will be in salary structure, TDS calculations, and documentation.
- The traditional Form 16 will be replaced by Form 130, a more detailed statement capturing salary income, tax deducted, and deductions claimed.
- In addition, a new Form 123 will record perquisites and fringe benefits.
- Form 16 used to have Two Parts- Part A and Part B Vs Form 130 has Three Parts – A, B and C with 2 Annexures.
3. Senior citizens:
For senior citizens, the reforms focus on simplification and consolidation of processes.
A key update is the introduction of Form 121, which merges the existing Forms 15G and 15H into a single unified declaration for interest income. The system will automatically identify whether the filer is a senior citizen and apply the relevant provisions, reducing procedural complexity. The deductor is required to allot a UIN to each declaration.
Form 10 F now being replaced with Form 41 and is it now compulsory to issue the same
Section 159(8) of ITA 2025 Vs Section 90 and 90A of ITA 1961
Rule 75 of ITR 2026 Vs Rule 21AB of ITR 1962
Upto FY 2025-26 (Income-tax Rules, 1962):
Form 10F Requirements: Previously, under Rule 21AB, if the Tax Residency Certificate (TRC) contained all required details (name, address, TIN, status, and period of validity), a separate Form 10F was not mandatory, although many banks and auditors insisted on it.
Electronic Filing: Since July 2022, electronic filing of Form 10F became mandatory if it was required to be filed.
From FY 2026-27 (Income-tax Rules, 2026):
Mandatory Form 41: As per the Income-tax Rules, 2026, Form 41 is mandatory in all caseswhere a non-resident seeks to claim Double Taxation Avoidance Agreement (DTAA) benefits, even if the TRC holds all relevant details. The form content to include TIN (tax identification number), country of residence and address of the foreign company.
If the foreign company has an Indian representative or agent, than its mandatory to disclose Indian communication address and a contact number.
FAQ 3 Clarification: The FAQs on Form 41 confirm that this form is mandatory for non-residents to claim treaty benefits, ensuring that all necessary data points are captured centrally for proper tax treatment.
Changes in Form 41:
The new form includes:
- Mandatory attachment of the TRC, ITDREIN of the AD. Though currently, quoting of ITDREIN of the AD is not compulsory but soon, the form would get enabled for the mandatory disclosure of the same.
- The TRC should contain status of non-resident individual or the company, nationality, country of incorporation, TIN, period of tax residency and address in that resident country.
- Optional PAN (if not available, registration is possible via a new category).
- Requirement for an electronic signature (DSC or EVC).
- Consequences of Non-Compliance: Without a valid, electronically filed Form 41, DTAA benefits will be denied, leading to higher tax deduction at source (TDS) at domestic rates.
Offline utilities for Form 145 and 146 (old forms 15CA and 15CB) Section 393(2) of ITA 2025 Vs Section 195(6) of ITA 1961 Rule 220 of ITR 2026 Vs Rule 37BB of ITR 1962
1. The Income Tax Department has released the latest version of the Common Offline Utility for statutory Forms 145 and 146 on the e-Filing portal, in line with the provisions of the Income Tax Act, 2025.
2. The utility facilitates furnishing of information and certification for payments made to non-residents, including foreign companies.
3. The newly released Form Utility (Version 1.0), dated 15 April 2026, is now available for download under the “Income Tax Forms” section of the official portal.
4. With this latest update, taxpayers can download the utility, complete the forms offline, validate the information, and submit them through the portal at their convenience.
Common offline utility for Form 145 and 146
Form 145 : Information to be furnished for payments to a non-resident not being a company, or to a foreign company
Form 145 has four sections:
1. Part A – To be filled up if the remittance is taxable under Act and the remittance or the aggregate of such remittances, as the case may be, does not exceed ₹ 5,00,000 during the tax year.
2. Part B – To be filled up if the remittance is taxable under the Act (“IT Act”) and the remittance or the aggregate of such remittances, as the case may be, exceeds ₹ 5,00,000 during the tax year and certificate u/s 395 (1)/ 395(2) of the Act has been obtained from the Assessing Officer.
3. Part C – To be filled up if the remittance is taxable under Act (“IT Act”) and the remittance or the aggregate of such remittances, as the case may be, exceeds ₹ 5,00,000 during the tax year and a certificate in Form No. 146 from an accountant as defined in the Section 515(3)(b) of the Act, has been obtained.
4. Part D – To be filled up if the remittance is not taxable under the Act other than payments referred to in Rule 220(3) by the person referred to in Rule 220(2).
Form 146 : Certificate of an accountant for payments to a non-resident, not being a company or to a foreign company.
Form 146 can be withdrawn within 7 days of the date of submission. If it is consumed by the taxpayer while filing
Form 145 (Part C), it cannot be withdrawn unless the corresponding form 145 is first withdrawn by the taxpayer.
(Series 1 Important changes under ITA 2025 vs ITA 1961
https://taxguru.in/income-tax/important-income-tax-act-2025-1961.html)
Source: Online feeds, online content available, income tax act, articles, posts.While every care has been taken to ensure the accuracy/ authenticity of the above, the readers are advised to recheck/reconfirm the same from the original sources/ relevant departments. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. By the use of the said information, you agree that the company is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
Author Bio
