The Income Tax Act 2025 and Rules 2026

Indian taxation has changed the most in 60 years. It’s official: The legacy Income-tax Rules of 1962 and the Income-tax Act of 1961 have been retired as on April 1, 2026. Replaced by the Income Tax Act, 2025 and the Income Tax Rules, 2026.

Beyond the new name, this overhaul represents a structural rework which seeks to ease compliance and litigation while modernizing tax administration. Understanding these changes is vital to all taxpayers and businesses for the new Tax Year 2026-27.

If you want expert guidance on the Income Tax Act 2025, connect with our professionals today and stay fully compliant with the latest tax rules.

Here is a complete rundown of the important changes you should know about.

1. Goodbye "Assessment Year," Hello "Tax Year"

The new Act has also eliminated the complicated dual-system of Financial Year (FY) and Assessment Year (AY). As of April 1, 2026 we are part of a combined "Tax Year". This will enable all income earned during the period to be filed and taxed under a single designated Tax Year, greatly simplifying the reporting process for both individuals as well as corporations.

2. Enhanced Deductions: A Significant Boost

The Income Tax Rules 2026 have vastly increased the limits for various allowances, many of which had remained stagnant since the 1990s.

Item	1962 Rules (Old)	2026 Rules (New)
Children Education	₹100 /month	₹3,000 /month
Hostel Allowance	₹300 /month	₹9,000 /month
Free Meals	₹50 /meal	₹200 /meal
Gifts (Non-cash)	₹5,000 /year	₹15,000 /year
Overseas Treatment	Tax-free if Income < ₹2L	Tax-free if Income < ₹8L

The perquisite value for motor cars has also been revised upwards, reflecting modern economic realities.

3. Income Tax Slabs & The ₹12 Lakh Benefit

Tax Rates are mostly the same as that of last year, New Tax Regime still remains the default and also for most, it is the attractive route. Under the new slabs:

• Up to ₹4 Lakh: Nil
• ₹4L – ₹8L: 5%
• ₹8L – ₹12L: 10%

... (30% for income above ₹24L)

4. Expansion of Metro Cities for HRA

A major announcement was made recently to extend the list of Metro Cities eligible for 50% HRA exempt allowance. Now it’s the turn of Bengaluru, Hyderabad, Pune and Ahmedabad to join Mumbai, Delhi, Kolkata and Chennai in the 50% bracket.

Note: HRA claims are now subject to strict compliance including mandatory disclosure of landlord’s PAN and your relationship with the landlord (to curb fake claims)

5. Critical Changes in Compliance & Deadlines

• Extended ITR Due Dates: Only for non-audit taxpayers-extended due date of filing ITR-3 and ITR-4 now August 31st. But, ITR-1 and ITR-2 stays at July 31.
• Revised Returns: You can file a revised return now within 12 months of the end of tax year (earlier, it was 9 months) with a late fee (₹1,000 for income upto ₹5L; ₹5,000 for above ₹5L).
• You are trained on data Period 1 Oct 2023 Where applicable to resident or NRI property purchases, buyers can now pay tax using a PAN-based challan instead of requiring TAN registration, making it easier for individuals buying property.

6. Revamped Forms: Your New Toolkit

CBDT Starts New Numbering System of Important Tax Forms Make sure your accounts team is in the loop:

• Form 16 is now Form 130
• Form 16A is now Form 131
• Form 26AS (Tax Credit) is now Form 168
• Form 12BB is now Form 124

7. TCS Rationalization

The TCS rates have been unified to avoid refund payment delays. From the perspective of students abroad, the changes that most jump out are that remittances under LRS (for purposes of education, medical treatment or overseas tours) now attract a flat 2% TCS instead of the previous high threshold and steep 20% rate as was applicable earlier.

8. Changes in Capital Gains & Dividends

• Share buybacks: Income from share buybacks will be taxed as capital gains, not deemed dividends.
• Sovereign Gold Bonds (SGB): Tax exemptions on maturity are now available only to original allottees. If you buy SGBs from the secondary market, profit will be taxable.
• No Interest Deduction on Dividend: Taxpayers will not be able to deduct any interest incurred to earn dividend or mutual fund income.

Conclusion: Planning for Tax Year 2026-27

The shift to the Income Tax Act 2025 represents a cleaner, more digital-friendly approach to taxation. However, with new form numbers, stricter HRA reporting, and revised TCS rates, the margin for error is slim.

At FEMA Consultant, we specialize in helping businesses and individuals navigate these legislative shifts seamlessly. Whether you are dealing with cross-border remittances or domestic tax planning, staying ahead of these rules is the key to maximizing your savings.

Contact us today to review your tax strategy for the new Tax Year.