Tax Shift 2026: 10 Major Income Tax Changes

New Delhi, March 24, 2026: The start of the new financial year on April 1, 2026, marks a historic milestone in India’s fiscal history. This date sees the formal transition from the six-decade-old Income Tax Act of 1961 to the Income Tax Act, 2025. While the government has focused on “continuity with simplification,” several structural changes, revised limits, and new compliance requirements will significantly impact salaried employees, investors, and businesses.

Here are the top 10 key income tax changes coming into effect from April 1, 2026.

1. The Dawn of the Income Tax Act, 2025

The biggest change is the complete replacement of the 1961 Act with the Income Tax Act, 2025. This isn’t just a renumbering exercise; it is a structural overhaul aimed at simplifying language and removing redundant provisions. The goal is to reduce litigation and make the tax code more “user-friendly” for the common taxpayer.

2. Adoption of the “Tax Year” Concept

In a major move to eliminate confusion, the terms “Previous Year” (PY) and “Assessment Year” (AY) are being retired. From April 1, 2026, India will follow a unified “Tax Year” system.

• What it means: The year you earn the income is the same year you refer to for filing. For instance, the period from April 1, 2026, to March 31, 2027, will simply be called Tax Year 2026-27.

3. Effective Tax-Free Income up to ₹12.75 Lakh

While tax slabs remain largely unchanged from the previous year, the enhanced Section 87A rebate and Standard Deduction create a massive relief window for the middle class.

• Under the New Tax Regime, income up to ₹12 lakh is effectively tax-free due to a ₹60,000 rebate.
• For salaried individuals, the ₹75,000 Standard Deduction pushes this “zero-tax” threshold to ₹12.75 lakh.

4. Massive Hike in Children’s Education & Hostel Allowance

After decades of stagnant limits, the new rules provide a long-overdue revision to tax-exempt allowances:

• Education Allowance: Increased from a measly ₹100 per month to ₹3,000 per month per child.
• Hostel Allowance: Increased from ₹300 per month to ₹9,000 per month per child.
• Note: These are applicable only if these components are part of your salary structure and you opt for the relevant regime.

5. 50% HRA Exemption Extended to 4 New Cities

Previously, only the four “metro” cities (Delhi, Mumbai, Kolkata, Chennai) qualified for a 50% HRA (House Rent Allowance) deduction. Starting April 1, 2026, four more cities join this list:

• New Additions: Bengaluru, Pune, Hyderabad, and Ahmedabad.
• Residents in these eight cities can now claim up to 50% of their basic salary as HRA exemption, while other cities remain at 40%.

6. Higher Taxes for F&O Traders (STT Hike)

Investors and traders in the derivatives segment will face higher transaction costs. The Securities Transaction Tax (STT) has been revised upward:

• Futures: Increased from 0.02% to 0.05%.
• Options: Increased from 0.1% to 0.15% (on the premium/sell side).This move is aimed at curbing excessive speculation in the retail F&O segment.

7. Revamped Income Tax Forms (The “100 Series”)

The Central Board of Direct Taxes (CBDT) has notified entirely new forms. Familiar forms have been replaced to align with the new Act:

• Form 16 (Salary TDS certificate) is now Form 130.
• Form 26AS (Tax credit statement) is now Form 168.
• Form 12BB (Investment declaration) is now Form 124.

8. Extended Deadlines for ITR-3 and ITR-4

Small business owners and professionals (non-audit cases) get a breather. The deadline for filing ITR-3 and ITR-4 has been extended by a month:

• New Deadline: August 31 (previously July 31).
• However, the deadline for salaried individuals (ITR-1 and ITR-2) remains July 31.

9. TCS Rationalization for Foreign Remittances

The multi-tier Tax Collected at Source (TCS) structure for the Liberalized Remittance Scheme (LRS) has been simplified:

• A flat 2% TCS will now apply to overseas tour packages and remittances for education or medical purposes, regardless of the amount. This removes the complex 5% and 20% threshold-based triggers used previously.

10. Stricter Rules for Renting from Relatives

To prevent the misuse of HRA claims, the new rules introduce a mandatory disclosure. If your annual rent exceeds ₹1 lakh and you are renting from a relative (parents, spouse, etc.), you must now disclose the nature of the relationship and the landlord’s PAN in the new Form 124.

Summary Table: Key Limits at a Glance

Change Category	Old Limit/Rule	New Rule (From April 1, 2026)
Education Allowance	₹100 / month	₹3,000 / month
Hostel Allowance	₹300 / month	₹9,000 / month
STT on Futures	0.02%	0.05%
TCS (LRS/Tours)	5% to 20%	Flat 2%
ITR-3/4 Deadline	July 31	August 31