Income Tax Changes from 1st April 2026: What Every Taxpayer Must Know

India's tax landscape has undergone one of its most sweeping overhauls in over six decades. From 1st April 2026, the Income Tax Act, 2025 has replaced the Income Tax Act, 1961, bringing with it a new set of rules, revised compliance requirements, and updated rates. Whether you are a salaried employee, a business owner, or an investor, these changes affect how you report income, file returns, and plan your taxes for Tax Year 2026-27.

A New Law for a New Era

The Income Tax Act, 2025, which came into force on 1st April 2026, is a landmark reform in India's direct tax framework. It replaces the 64-year-old Income Tax Act, 1961 — which had grown to 819 sections across 47 chapters — with a leaner, more readable statute of 536 sections. The goal is straightforward: simplify taxation, ease compliance, and reduce legal disputes by removing redundant provisions and rewriting complex language in plain terms.

Alongside the Act, the Income Tax Rules 2026 have also come into effect, replacing the decades-old Income Tax Rules, 1962. Notified by the CBDT on 20th March 2026, these rules align with the new Act and introduce updated deduction limits, revised PAN requirements, and redesigned reporting forms.

"Tax Year" Replaces Financial Year and Assessment Year

One of the most structurally significant changes under the new Act is the abolition of the dual system of Financial Year (FY) and Assessment Year (AY). In their place, the Act introduces a single, unified concept: the "Tax Year". Income earned from 1st April 2026 onwards will now be reported under the Tax Year in which it is earned — no more confusion between FY 2026-27 and AY 2027-28.

Higher Allowance Limits Under Income Tax Rules 2026

One area where taxpayers — especially salaried employees — will notice immediate relief is in allowance and perquisite limits, which have been revised to reflect today's cost of living:

Tax Slabs for Tax Year 2026-27: No Change

Despite the sweeping structural reforms, the income tax slabs under the new tax regime remain unchanged for Tax Year 2026-27. The applicable slab rates are:

Taxpayers opting for the new regime continue to benefit from a tax rebate of up to ₹60,000 under Section 156 (equivalent to erstwhile Section 87A), effectively making income up to ₹12 lakh tax-free.

Key HRA Changes: More Cities, Stricter Compliance

Two important changes affect House Rent Allowance (HRA) claimants under the old tax regime:

First, the list of "metro cities" eligible for the 50% HRA exemption has been expanded to include eight cities: Mumbai, Delhi, Kolkata, Chennai, and the four newly added — Bengaluru, Hyderabad, Pune, and Ahmedabad. This is a long-overdue recognition of rising urban rental costs.

Second, compliance requirements have been tightened. Employees must now provide their landlord's PAN, proof of rent payments, and disclose their relationship with the landlord when claiming HRA exemption. These changes are aimed at eliminating fraudulent HRA claims.

New Income Tax Forms: Know the Revised Numbers

The CBDT has overhauled income tax forms under the Income Tax Rules 2026. Issuing documents under old form numbers for Tax Year 2026-27 will render them technically non-compliant. The key renaming changes are:

• Form 16 → Form 130 — TDS certificate for salary, pension, and senior citizen interest income
• Form 16A → Form 131 — TDS certificate for non-salary payments
• Form 12BB → Form 124 — Investment declaration by employee
• Form 26AS → Form 168 — Annual information statement

Form 130 is issued under Rule 215(1) of the Income Tax Rules 2026 and must be generated and downloaded from the official web portal specified by the Director General of Income Tax (Systems). Employers must update their payroll systems immediately.

Revised ITR Filing Due Dates

A significant relief for business owners and professionals is the extension of the due date for filing ITR-3 and ITR-4 (non-audit cases) from 31st July to 31st August. This extended deadline applies even for FY 2025-26 (AY 2026-27) — returns filed under the old Act.

• ITR-1 and ITR-2 — Due date remains 31st July
• ITR-3 and ITR-4 (non-audit) — Extended to 31st August
• Tax Audit — Due date remains 31st October
• Revised Return — Extended to 31st March (12 months from end of Tax Year)

Taxpayers filing revised returns after 31st December will be required to pay a late fee — ₹1,000 if income is up to ₹5 lakh, and ₹5,000 if income exceeds ₹5 lakh. An identical late fee applies to belated filings under Section 428 of the new Act.

TCS Rationalisation: Simplified Flat Rates

The Finance Act, 2026 has rationalised Tax Collected at Source (TCS) rates, aiming to reduce compliance burden and refund delays:

The overarching theme is a uniform 2% rate across most TCS categories, removing the complexity of differential thresholds.

TDS Change: No More TAN for Property Purchase from NRI

Under Section 393 of the Income Tax Act, 2025 (equivalent to Section 194-IA of the 1961 Act), buyers purchasing immovable property from a resident or an NRI can now deduct TDS using a PAN-based challan — eliminating the earlier requirement to obtain a separate TAN registration. This significantly reduces the compliance burden on homebuyers.

Capital Gains on Buybacks and Sovereign Gold Bonds

Two notable changes in capital gains taxation take effect from 1st April 2026:

Share Buybacks: Until 31st March 2026, amounts received from a company's share buyback were treated as deemed dividends and taxed at applicable slab rates. From 1st April 2026, such receipts will be taxed as capital gains — at an effective rate of 30% for individual promoters and 22% for promoter companies.

Sovereign Gold Bonds (SGBs): The capital gains exemption on maturity redemption of SGBs will now apply only to investors who subscribed during the initial issue. Investors who purchased SGBs from the secondary market will no longer enjoy this exemption and will instead have gains taxed as regular capital gains.

Interest Deduction on Dividends Discontinued

Previously, taxpayers could claim a deduction for interest expenses incurred to earn dividend income or income from mutual fund units. This deduction has been discontinued from 1st April 2026. Investors who fund their equity or mutual fund portfolios through borrowings should factor this change into their tax planning.

Helpful Tool from the Income Tax Department

For taxpayers and professionals navigating the transition, the Income Tax Department has released a utility tool that maps every section of the Income Tax Act, 1961 to its corresponding provision in the Income Tax Act, 2025. This cross-reference tool is available on the official income tax portal and will be invaluable for advisors, auditors, and taxpayers handling matters spanning both Acts.