Key Income Tax Changes Taking Effect from 1 April 2026

News:

MAS Team | 31 March 2026

India's tax landscape is undergoing its most significant transformation in over six decades. Here is a detailed look at every major change that taxpayers, salaried employees, and investors need to be aware of as the new financial year begins.

A New Law for a New Era

The cornerstone change of this financial year is the retirement of the Income Tax Act of 1961, replaced by the Income Tax Act, 2025. While tax rates and income slabs remain untouched, the new law modernises the entire framework through which individuals, businesses, and investors calculate taxes, report income, and meet their TDS and TCS obligations.

Alongside this, the new law does away with the long-standing dual calendar of Financial Year and Assessment Year, replacing both with a single unified term — "Tax Year." Income earned from April 1 onwards will simply be reported under the applicable tax year, removing a source of perennial confusion for many filers.

Changes for Salaried Employees and Their Benefits

House Rent Allowance remains available, but comes with tighter compliance requirements. Employees claiming HRA must now furnish their landlord's PAN card details along with documented proof of rent payments. In several scenarios, full disclosure of the landlord's identity and the rent amount is compulsory. On the positive side, the list of cities qualifying for the higher 50% HRA exemption has been expanded. Mumbai, Delhi, Kolkata, and Chennai are now joined by Bengaluru, Hyderabad, Pune, and Ahmedabad — bringing eight cities under the metro bracket.
Corporate meal cards have received a significant upgrade. The tax-free threshold per meal has jumped fourfold, from 50 to 200, covering free food and non-alcoholic beverages offered by employers. This applies under the old tax regime.
Gift vouchers and festival coupons provided by employers are now tax-free up to 15,000 per year, trebling the earlier limit of 5,000. Notably, this benefit applies under both the old and new tax regimes.
Children's allowances have seen a dramatic revision. The education allowance has risen from 100 to 3,000 per child per month, while the hostel expenditure allowance has climbed from 300 to 9,000 per month — meaningful relief for parents under the old tax regime.
Company car perquisites are being revalued upwards. Vehicles with engines up to 1.6 litres now carry a monthly taxable value of 8,000, while those above 1.6 litres attract 10,000 per month. Where an employer also provides a driver, an additional 3,000 per month becomes taxable. These revised figures apply for both personal and official vehicle use, under both old and new tax regimes.

PAN Card and Compliance Overhaul

The rules around PAN applications have been tightened. Submitting Aadhaar alone is no longer sufficient — applicants must now use designated category-specific forms: Form 93 for individuals, Form 94 for companies, Form 95 for foreign individuals, and Form 96 for foreign entities.

PAN is now mandatory for a wider range of high-value transactions, including cash deposits of 10 lakh or more in a year, vehicle purchases exceeding 5 lakh, hotel or event payments above 1 lakh, and immovable property transactions over 20 lakh.

On the credit card front, high-value card payments — over 10 lakh through non-cash methods or 1 lakh in cash — will be reported directly to the tax department. PAN is now compulsory for all new credit card applications, and credit card statements up to three months old are now accepted as valid proof of address for PAN applications.

Investors and Traders: Key Updates

Share buybacks will no longer be treated as deemed dividends for tax purposes. Going forward, proceeds from buybacks will be taxed as capital gains. Corporate promoters will face a differential buyback tax of 22%, while non-corporate promoters will pay 30%.
Securities Transaction Tax (STT) on equity derivatives has been raised. The rate on futures increases from 0.02% to 0.05%, and on options from 0.1% to 0.15% — a change that will directly affect active traders in the futures and options segment.
Sovereign Gold Bonds lose their blanket tax-free status. The capital gains exemption on SGB redemptions will now apply only to bonds purchased directly from the Reserve Bank of India at the original issue. Bonds acquired through the secondary market will attract capital gains tax when redeemed.
Dividend and mutual fund income will be computed without permitting any deduction for interest expenditure, regardless of whether the investment was financed through borrowing.
As a simplification measure, investors can now submit a single declaration to prevent tax deduction across all their mutual fund units, dividends, and bond holdings — avoiding the need to file separate declarations for each instrument.
TDS, TCS, and Property Transactions

Property buyers purchasing from non-resident Indians will find compliance considerably easier. They can now deduct TDS using their own PAN, eliminating the earlier requirement to obtain a separate Tax Deduction Account Number (TAN). TCS rates have been rationalised across several categories. Overseas tour packages will now attract a flat 2% TCS, replacing the previous dual structure of 5% and 20%. For education and medical remittances under the Liberalised Remittance Scheme, the rate drops from 5% to 2%. In contrast, TCS on alcoholic beverages has been doubled from 1% to 2%. In a taxpayer-friendly move, interest earned from motor accident claims tribunal awards is now fully exempt from tax. No TDS will be deducted on such payouts, meaning claimants will receive their compensation in full.

Filing Deadlines and Portal Continuity

For non-audit taxpayers including businesses and trusts, the deadline to file income tax returns has been extended to August 31. Salaried individuals will continue to file by July 31, while audit cases retain the October 31 deadline.

The Income Tax Department has confirmed that its e-filing portal will support filings under both the old and new Acts. All pending assessments, appeals, and proceedings from earlier years will continue to be governed by the 1961 Act until fully resolved. Taxpayers filing returns for Assessment Year 2026-27 — which falls under the old Act — will use the old Act's prescribed forms when they file in July 2026.

Dear Investor,
In case of any grievance / complaint :

Please contact Compliance Officer Pankaj Raheja at [email protected] and Phone No. - 91-22-35131664.
You may also approach CEO Debashis Basu at email- id [email protected] and Phone No. - 91-22-35131664.