A landmark shift in India's tax regime will take effect on April 1, 2026, when the decades-old Income-tax Act of 1961 is formally replaced by the Income-tax Act, 2025.
As the new tax regime comes into force on April 1, 2026, we break down the key updates, revisions and additions, and assess how they may influence your financial decisions, investment strategy and tax planning going forward.
Transition To A New Framework: Focus On Simplification And Compliance
India's long-standing Income-tax Act of 1961 will be replaced by a new legislative framework from April 1, 2026, marking a significant transition in the country's tax framework.
Despite no alteration in tax rates or income brackets, the Income-tax Act, 2025, is designed to simplify compliance. It seeks to improve how taxpayers calculate liabilities, report earnings, and adhere to TDS and TCS norms.
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End Of FY–AY Distinction
The Income-tax Act, 2025, eliminates the dual framework of Financial Year and Assessment Year, introducing a consolidated “Tax Year” instead. Going forward, income earned from April 1 will be reported within that very tax year, aligning earnings and reporting periods more closely.
Form 130 To Replace Form 16: Structured Reporting With Mandatory Deadlines
Form 130 has been introduced as the new standard TDS certificate, replacing Form 16 for reporting income from salaries, pensions and certain interest earnings of senior citizens.
Form 130 offers a comprehensive breakdown of income, tax deductions and deposits, and will be issued annually by employers or specified banks. It comprises three components, including detailed annexures for income calculations. The certificate must be generated through the TRACES portal and issued by June 15 of the applicable year. Non-compliance renders it invalid, while any amendments will necessitate revised filings based on submitted TDS statements.
Tighter Rules For HRA Claims: Greater Disclosure Obligations
The new tax framework continues to allow HRA exemptions, but introduces more rigorous checks to curb misuse. Taxpayers must submit their landlord's PAN and supporting evidence of rent payments. For some claims, full disclosure of the landlord's details and rental amounts paid will be compulsory.
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Expanded List Of Metro Cities For HRA
Under the updated rules, the list of cities eligible for the 50% HRA exemption has been expanded to include Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad.
Meal Card Tax Relief Enhanced
Tax relief on corporate meal cards has been expanded under the new provisions. The exemption now covers meals valued at up to Rs 200 each, compared with the previous Rs 50 limit. This also applies to free meals and non-alcoholic drinks offered to employees.
Children's Allowances Substantially Increased
Allowances related to children's education and hostel costs have been significantly enhanced under the updated framework. The education allowance now stands at Rs 3,000 per child per month, up from Rs 100, while the hostel allowance has been increased to Rs 9,000 from the earlier Rs 300.
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