From 1 April 2026, India’s direct tax system will undergo a significant transformation with the introduction of the Income-tax Act, 2025 (ITA 2025), which will replace the long-standing Income-tax Act, 1961.
Alongside this structural overhaul, several tax proposals announced in the Union Budget 2026, once enacted through the Finance Act, 2026, will also come into effect from the same date. These reforms introduce conceptual changes, revised compliance timelines, and modifications in certain tax provisions.
Below is an overview of the major income tax changes effective from 1 April 2026.
One of the most notable structural changes under ITA 2025 is the introduction of the “Tax Year.”
Under the earlier law, two separate terms were used:
Previous Year (PY) – the year in which income was earned
Assessment Year (AY) – the year in which that income was assessed
The new legislation simplifies this framework by introducing a single term: “Tax Year.”
This change aims to make the tax system easier to understand and reduce confusion in tax compliance.
Importantly, the individual income tax slab rates under both the old regime and the concessional new regime remain unchanged, ensuring continuity in personal tax liability.
To provide additional time for taxpayers engaged in business or professional activities without mandatory audit, the government has proposed revised return filing deadlines.
| Category of Taxpayer | Due Date |
|---|---|
| Individuals filing simple returns (ITR-1, ITR-2) | 31 July |
| Business/profession cases not requiring audit | 31 August |
| Companies and taxpayers whose accounts require audit | 31 October |
| Special cases (such as shipping businesses under specific provisions) | 30 November |
These changes will apply:
From 1 April 2026 under ITA 2025 (Tax Year 2026-27 onwards), and
From 1 March 2026 under the existing law for Assessment Year 2026-27.
This revision aims to reduce compliance pressure during the peak filing season.
Under the current provisions, taxpayers can revise a return within 9 months from the end of the relevant year or before completion of assessment.
Under ITA 2025, this period is proposed to be extended to 12 months.
If a revised return is filed after 9 months but within 12 months, a fee will apply:
₹1,000 – where total income does not exceed ₹5 lakh
₹5,000 – where total income exceeds ₹5 lakh
This extension gives taxpayers more flexibility to correct errors or omissions.
In response to the rapid growth in derivatives trading, the government has proposed higher Securities Transaction Tax (STT) rates on certain transactions.
| Transaction | Existing Rate | Proposed Rate |
|---|---|---|
| Sale of options in securities | 0.10% | 0.15% |
| Sale of options (when exercised) | 0.125% | 0.15% |
| Sale of futures in securities | 0.02% | 0.05% |
The change is aimed at moderating speculative trading activity, particularly in the futures and options (F&O) segment.
Tax Collected at Source (TCS) rates on certain transactions are proposed to be simplified and standardised, with many transactions moving to a uniform rate of 2%.
| Transaction | Current Rate | Proposed Rate |
|---|---|---|
| Sale of alcoholic liquor | 1% | 2% |
| Sale of tendu leaves | 5% | 2% |
| Sale of scrap | 1% | 2% |
| Sale of coal, lignite, iron ore | 1% | 2% |
| LRS remittance above ₹10 lakh (education/medical) | 5% | 2% |
| Overseas tour package | 5% up to ₹10 lakh / 20% above | 2% uniform |
However, TCS on sale of motor vehicles and certain luxury goods will continue at 1%.
Under the earlier law, the value of employer-provided transport for commuting between home and office was not treated as a taxable perquisite.
The Income-tax Act, 2025 expands this benefit.
Now, the exemption will also cover:
Employer-incurred travel expenses
Reimbursements made for employee commuting
This provides greater flexibility for companies that provide transport allowances or reimburse commuting costs.
Currently, when a company buys back its shares:
The amount received by shareholders is treated as dividend income.
Under the proposed change:
Buyback proceeds will be taxed as capital gains instead of dividend income.
Proposed tax impact:
Promoters: Effective tax incidence around 30% (plus surcharge and cess)
Promoter companies: 22% (plus surcharge and cess)
This change aims to align buyback taxation with capital gains principles.
Earlier, taxpayers could claim a deduction for interest expenses incurred to earn dividend or mutual fund income, subject to a maximum of 20% of such income.
Under ITA 2025, this deduction will be completely withdrawn.
No interest deduction allowed for earning dividend income or mutual fund income.
Interest expenses for earning other interest income will still remain deductible under general provisions.
This change may increase the taxable income of investors who borrow funds to invest in dividend-yielding assets or mutual funds.
The Income-tax Act, 2025 marks one of the most significant overhauls of India’s direct tax framework in decades. By introducing the Tax Year concept, revising compliance timelines, rationalising TCS rates, and modifying several tax provisions, the new legislation aims to simplify tax administration while strengthening compliance.
Taxpayers, investors, and businesses should closely evaluate these changes and plan their tax strategies for Tax Year 2026-27 onwards to ensure smooth compliance under the new regime.
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