Income tax rules 2026: 19 key changes from April 1 investors and salaried employees must know

From April 1, 2026, India’s six-decade-old Income-tax Act, 1961, will be replaced by the new Income-tax Act, 2025, marking a major reform in the country’s tax system.

Separately, the Union Budget 2026, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, introduced a different set of measures affecting taxation, including the treatment of share buybacks, dividends, TCS, and capital gains.

In this article, we take a closer look at the key income tax changes coming into effect from April 1, 2026, breaking down what’s new, what has been revised, and how these changes could impact your finances, investments, and tax planning for the year ahead.

19 key income tax changes from April 1, 2026

From April 1, 2026, India’s six-decade-old Income-tax Act, 1961, will be replaced by the new Income-tax Act, 2025. While tax rates and income slabs remain unchanged, the new law modernises how individuals, companies, and investors calculate taxes, report income, and comply with TDS/TCS rules.

The new law introduces a single term called “Tax Year,” replacing the older dual system of Financial Year (FY) and Assessment Year (AY). Income earned from April 1 onwards will be reported under the tax year.

HRA benefits are still available, but stricter rules are now in place. Employees must provide their landlord’s PAN and proof of rent payments. In certain cases, it is mandatory to disclose the landlord’s details, including PAN and the rent paid, when claiming HRA

Corporate meal cards costing up to ₹200 per meal are tax-free under the old tax regime. This includes free food and non-alcoholic beverages provided to employees. Previously, the exemption was only ₹50 per meal.

The tax-free annual exemption for corporate gift cards, vouchers, or coupons has increased from ₹5,000 to ₹15,000 per employee. This applies under both old and new tax regimes.

Children's education allowance has increased from ₹100 per month per child to ₹3,000 per month, while hostel expenditure allowance has increased from ₹300 per month to ₹9,000 per month under the old tax regime.

Under the new Income-tax Act, 2025, the taxable value of company-provided vehicles has been revised. For cars with engines up to 1.6 litres, the perquisite value is ₹8,000 per month, while larger vehicles with engines above 1.6 litres will have a perquisite valuation of ₹10,000 per month. If the employer provides a driver along with the vehicle, the taxable value of the driver’s services has also been increased to ₹3,000 per month.

Aadhaar-only PAN applications are no longer allowed, and applicants must use category-specific forms, Form 93 for individuals, 94 for companies, 95 for foreign individuals, and 96 for foreign entities.

Proceeds from share buybacks will now be taxed as capital gains, replacing the previous “deemed dividend” treatment. Promoter shareholders pay differential buyback tax: 22% for corporate promoters and 30% for non-corporate promoters.

STT on equity derivatives has increased: futures rise from 0.02% to 0.05% and options from 0.1% to 0.15%. This impacts active traders in futures and options (F&O).

Tax exemption on redemption of SGBs now applies only to bonds purchased at the original issue. Secondary market redemptions will attract capital gains tax.

Income from dividends and mutual funds will be computed without allowing any deduction for interest expenditure, irrespective of borrowing.

Investors can now submit a single declaration for non-deduction of tax across all mutual fund units, dividends, and bonds.

Buyers purchasing immovable property from NRIs can now deduct TDS using their own PAN, removing the need for a TAN and easing compliance.

TCS rates have been rationalised:

• Overseas tour packages reduced from dual 5%,20% rates to a flat 2%.

• LRS remittances for education and medical purposes reduced from 5% to 2%.

• Alcoholic drinks increased from 1% to 2%.

Interest from motor accident claims tribunal awards is fully tax-exempt, with no TDS deducted, so you receive the entire amount

For non-audit taxpayers, including businesses and trusts, the ITR deadline is extended to August 31. Salaried individuals continue to file by July 31, while audit deadlines remain October 31.