Connect with us 
Income Tax Act 2026 is now in force, bringing one of the biggest reforms in India’s tax system in over 60 years. The new law replaces the old Income Tax Act, 1961 with a simpler, more structured framework designed to make tax compliance easier for individuals and businesses.
From the introduction of a single “Tax Year” to zero tax on income up to ₹12 lakh, updated HRA rules, extended ITR deadlines, and stricter crypto taxation — several important changes have come into effect from April 1, 2026.
In this complete guide, we break down all key changes, new rules, tax slabs, and what every Indian taxpayer needs to know in simple terms.
⚡ At a Glance — What Changed on April 1, 2026
- Income Tax Act 1961 replaced by Income Tax Act 2025 (simpler — 536 sections vs. 819 earlier)
- “Financial Year” & “Assessment Year” replaced by single unified “Tax Year”
- Zero tax on income up to ₹12 lakh (new regime) via Section 87A rebate of ₹60,000
- HRA 50% exemption extended to 8 cities — Hyderabad, Pune, Bengaluru & Ahmedabad newly added
- ITR-3 & ITR-4 deadline extended to August 31 (previously July 31)
- Crypto / VDA taxation formally codified with strict 60% penalty for non-disclosure
- TCS simplified to uniform 2% across most categories; MAT reduced from 15% to 14%
- Children’s education allowance raised from ₹100/month to ₹3,000/month per child
- Revised return window extended to 12 months (was 9 months)
Why April 1, 2026 Is a Landmark Day in India’s Tax History
India’s income tax law had been running on the same foundation since 1961. Over six decades, it grew into a maze of 819 sections, 47 chapters, and hundreds of court-made interpretations. For a salaried employee in Delhi or a small business owner in India, simply understanding “which section applies to me” had become a full-time job.
That changes now. From April 1, 2026, the Income Tax Act, 2025 officially replaces the Income Tax Act, 1961, along with entirely new Income Tax Rules, 2026, notified by the Central Board of Direct Taxes (CBDT) on March 20, 2026. The new law is written in plain language, trimmed to 536 sections across 23 chapters, and structured in a logical sequence that mirrors how most people think about their taxes.
Importantly — and this is the most common misconception — your actual tax rates, slabs, and most deductions remain exactly the same. The Act does not increase or decrease your tax liability on its own. What it does is make the entire system easier to read, understand, and comply with.
⚠️ Important for FY 2025-26 Filers:
Returns for Assessment Year 2026-27 (income earned April 2025 – March 2026), due by July 31, 2026, will still be filed under the old Income Tax Act, 1961. The new Act applies to Tax Year 2026-27 (April 2026 onwards). Your first ITR under the new framework will be filed in 2027.
1. Goodbye “Assessment Year” — Hello “Tax Year”
For decades, one of the biggest sources of confusion among Indian taxpayers was the dual-calendar system. You earned income in the “Previous Year” (say April 2024–March 2025) but filed a return and got assessed in the “Assessment Year” (2025-26). Two different years, two different labels, one income — confusing by design.
The new Income Tax Act 2025 eliminates this confusion by introducing a single, unified concept: the “Tax Year.” Tax Year 2026-27 simply means income earned from April 1, 2026 to March 31, 2027. You earn in that year, you report in that year. This single change alone will reduce errors in ITR forms, software inputs, and tax notices.
2. Income Tax Slabs 2026 & the ₹12 Lakh Zero-Tax Threshold
No new tax slabs have been introduced for FY 2026-27. The slabs announced in Budget 2025, which took effect from April 1, 2025, continue unchanged.
New Tax Regime (Default) — Tax Year 2026-27
| Taxable Income (₹) | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
🔑 Section 87A Rebate — Zero Tax Up to ₹12 Lakh
Even though slabs apply from ₹4 lakh onwards, the Section 87A rebate of up to ₹60,000 wipes out your entire tax liability if your total taxable income is ₹12 lakh or less (new regime). For salaried individuals with a ₹75,000 standard deduction, the effective zero-tax limit becomes ₹12.75 lakh. This applies only to resident individuals — not NRIs, HUFs, or companies.
The old tax regime continues to exist. Taxpayers who have significant deductions — home loan interest, HRA, Section 80C investments — may still find the old regime more beneficial. The new regime is now the default; you must actively opt for the old regime when filing your ITR.
3. HRA Exemption Expanded to 8 Cities — Big Win for Bengaluru & Pune Residents
Under the old rules, only four cities — Delhi, Mumbai, Chennai, and Kolkata — qualified for the 50% House Rent Allowance (HRA) exemption. All other cities, including Bengaluru and Hyderabad, were capped at 40% even though rents had long surpassed those of the original metros.
From April 1, 2026, the Income Tax Rules 2026 expand the 50% HRA exemption list to eight cities:
| City | HRA Exemption | Status |
|---|---|---|
| Delhi | 50% of Basic Salary | Existing |
| Mumbai | 50% of Basic Salary | Existing |
| Chennai | 50% of Basic Salary | Existing |
| Kolkata | 50% of Basic Salary | Existing |
| Bengaluru | 50% of Basic Salary | New ✔ |
| Hyderabad | 50% of Basic Salary | New ✔ |
| Pune | 50% of Basic Salary | New ✔ |
| Ahmedabad | 50% of Basic Salary | New ✔ |
| All Other Cities | 40% of Basic Salary | Unchanged |
New compliance requirement: Taxpayers must now disclose their relationship with their landlord when claiming HRA. This is a transparency measure to prevent false or inflated HRA claims.
4. Long-Overdue Hike in Allowances & Perquisite Limits
Several salary allowances had not been revised since the 1990s. The Income Tax Rules, 2026 correct this with significant upward revisions:
- Children’s Education Allowance: Raised from ₹100/month per child (set in 1998!) to ₹3,000/month per child — a 30x increase.
- Meal Vouchers / Food Coupons: Tax-free limit raised to ₹200 per meal per working day.
- Company Car Perquisite Value: ₹8,000/month for cars up to 1.6 litres; ₹10,000/month for larger engines. Driver perk: ₹3,000/month additional.
- Hostel Allowance: Exemption limits for children’s hostel accommodation enhanced to reflect current costs.
5. ITR Filing Deadlines — What Has Changed in 2026?
| ITR Form | Who Files? | Old Deadline | New Deadline |
|---|---|---|---|
| ITR-1 & ITR-2 | Salaried / Capital gains | July 31 | July 31 (Unchanged) |
| ITR-3 & ITR-4 | Business / Self-employed | July 31 | August 31 ✔ NEW |
| Audit Cases | Requires tax audit | October 31 | October 31 (Unchanged) |
| Revised Return | Correcting a filed return | 9 months | 12 months (March 31) ✔ NEW |
✅ Revised Return Window Extended
The extension to 12 months is especially helpful in the first year of the new Act, when section numbers, forms, and terminologies have changed. If you make a mistake in your initial filing, you now have until March 31 of the following year to correct it.
6. PAN Card Rules Tightened — New Forms & High-Value Thresholds
Aadhaar-only PAN applications are no longer permitted from April 1, 2026. New category-specific forms have been introduced:
- Form 93: Individual applicants
- Form 94: Indian companies
- Form 95: Foreign individuals
- Form 96: Foreign entities
PAN is now mandatory for high-value transactions: cash deposits of ₹10 lakh or more per year, vehicle purchases over ₹5 lakh, hotel or event payments exceeding ₹1 lakh, and immovable property purchases over ₹20 lakh.
7. Crypto Tax India 2026 — Virtual Digital Assets (VDA) Formally Codified
If you invest in Bitcoin, Ethereum, NFTs, or any other Virtual Digital Asset (VDA), this section is critical. The Income Tax Act 2025 creates a dedicated Schedule VDA for the taxation of all digital assets. The 30% flat tax rate on gains from crypto and the prohibition on offsetting VDA losses against other income both remain unchanged. What is new is the formal codification — and significantly stricter penalties for non-disclosure.
🚨 Crypto Non-Disclosure Warning
Undisclosed VDA holdings detected by the Income Tax Department can attract a tax levy of 60% on the undisclosed gains — far more severe than the standard 30%. Mandatory separate reporting under Schedule VDA is now the law, not a guideline. A 1% TDS continues to apply on VDA transfers above the threshold.- subject to the final rules and notification.
The new Act also formally recognizes the Digital Rupee (CBDC) issued by the Reserve Bank of India as a valid prescribed mode of electronic payment for tax deduction purposes.
8. Key Changes for Investors & Traders
Share Buybacks — Now Taxed as Capital Gains
Proceeds from share buybacks will now be taxed as capital gains in the hands of shareholders, replacing the earlier “deemed dividend” treatment. Promoter shareholders face differential rates: 22% for corporate promoters and 30% for non-corporate promoters.
Securities Transaction Tax (STT) Hike for F&O Traders
Active traders in futures and options must note a significant increase in STT: futures STT rises from 0.02% to 0.05%, and options STT increases from 0.1% to 0.15%. This directly raises the cost of F&O trading.
Sovereign Gold Bonds (SGBs)
Tax exemption on SGB redemptions will now apply only to bonds purchased at the original issue price. Secondary market SGB purchases will attract capital gains tax on redemption.
No Dividend Interest Deduction
From April 1, 2026, taxpayers can no longer deduct interest expenses against dividend income. Previously, up to 20% of dividend income could be reduced by interest costs. This deduction is now fully removed.
9. Key Changes for Businesses & Companies
- MAT Reduced to 14%: Minimum Alternate Tax reduced from 15% to 14%. No new MAT credit can be accumulated from Tax Year 2026-27. Existing credits remain usable within the statutory period.
- TCS Simplified to 2%: Multiple TCS rates rationalized to a uniform of 2%. Overseas education remittances above ₹10 lakh: reduced from 5% to 2%. Overseas tour packages: flat 2% TCS.
- NRI TDS Simplified: Buyers purchasing immovable property from NRIs can now deduct TDS using their own PAN, removing the need to obtain a TAN.
10. The Transition: Old & New Act Running in Parallel
The Income Tax Act 1961 continues to govern all income earned before April 1, 2026, as well as pending assessments, appeals, rectifications, and revision proceedings for earlier years. The Income Tax Act 2025 governs all new Tax Years from April 1, 2026, onwards.
For most individual taxpayers: file your AY 2026-27 return (for income April 2025–March 2026) under the old law by July 31, 2026 as usual. Your first return under the new Income Tax Act 2025 will be filed in 2027 for Tax Year 2026-27.
Conclusion: A New Chapter for Indian Taxation
The Income Tax Act 2025, effective April 1, 2026, is the most significant overhaul of India’s direct tax legislation in over six decades. While your actual tax liability may not change dramatically, the changes in compliance procedures, allowance limits, HRA cities, ITR deadlines, crypto reporting, and the unified Tax Year concept have real, practical implications for every taxpayer.
At Mercurius, we are committed to making this transition smooth and compliant for you. Our team has prepared for every aspect of the new Act — so that you don’t have to. Whether it’s a quick query about the Tax Year concept or comprehensive corporate tax restructuring advice, we are here to help.
📞 Ready to get your taxes right under the new rules?
Contact Mercurius for expert, personalized tax advisory, tax consultancy, and ITR filing services.
How can Mercurius help you?
Navigate the New Income Tax Rules with Confidence
The Income Tax Act 2025 may be simpler in language, but navigating the transition — with new section numbers, revised forms, updated allowances, and stricter compliance on crypto and HRA — requires professional guidance.
At Mercurius, our expert team of Chartered Accountants and tax advisors brings 17+ years of experience, backed by 400+ professionals and 2,000+ successful filings every year. We are fully equipped to help you navigate all changes effective April 1, 2026 with confidence.
Here’s how we can help:
📋 ITR Filing (New & Old Regime)
Accurate filing under the right regime — we calculate which is better for you and file on time.
🏠 HRA & Salary Structuring
Optimise your HRA claim under new rules, including landlord disclosure and city-specific limits.
₿ Crypto / VDA Tax Compliance
Correct Schedule VDA reporting, gain/loss computation, and TDS compliance on digital assets.
🏢 Business Tax & MAT Advisory
MAT computation, TCS compliance, buyback tax planning, and deferred tax review for companies.
🌍 NRI Tax Services
NRI TDS on property, DTAA benefits, FEMA compliance, and new PAN application under revised forms.
📞 Get in Touch
Book a free consultation with the best tax consultant in India today or contact our team to get started.
Connect with us +91966 777 9615
Frequently Asked Questions (FAQs)
Q: Is the Income Tax Act 2025 and 2026 the same thing?
Yes. The legislation is formally called the Income Tax Act, 2025 (passed in 2025) but came into effect on April 1, 2026. The supporting rules are called the Income Tax Rules, 2026.
Q: Do I need to file differently in July 2026?
For the ITR due in July 2026 (for FY 2025-26 / AY 2026-27), you will file under the old Income Tax Act, 1961 using existing forms. The new Act applies from Tax Year 2026-27 onwards.
Q: Are tax slabs changed in the new Income Tax Act 2026?
No. Tax slabs under both regimes remain unchanged for FY 2026-27. The Section 87A rebate of ₹60,000 continues, keeping income up to ₹12 lakh effectively tax-free under the new regime.
Q: I live in Bengaluru. How does the HRA change affect me?
Bengaluru employees can now claim 50% of basic salary as HRA exemption (previously 40%). This is a meaningful saving, especially in high-rent areas like Koramangala and Indiranagar. You will also need to disclose your relationship with your landlord.
Q: Is Section 80C deduction still available?
Yes. Section 80C (PPF, ELSS, life insurance, tuition fees) up to ₹1.5 lakh remains available under the old tax regime. It is not available under the new tax regime.
