19 Income Tax Changes from April 2026 You Must Know

A New Tax Era Begins

April 1, 2026 isn’t just the start of a new financial year. It’s the start of a completely new income tax law. The Income Tax Act, 2025 has replaced the 63-year-old 1961 Act, and with it come 19 changes that affect every Indian taxpayer.

Some are welcome simplifications. Others will hit your wallet. Here’s every change, explained in plain language.

The Big Structural Changes

1. New Income Tax Act Replaces 1961 Act

The Income Tax Act, 2025 replaces the six-decade-old 1961 Act. Sections reduced from 819 to 536. Tax rates and slabs are unchanged — it’s the structure, reporting, and compliance rules that have been modernized.

2. “Tax Year” Replaces FY and AY

No more confusion between Financial Year and Assessment Year. A single term — “Tax Year” — now covers the period when income is earned. Tax Year 2026-27 starts April 1, 2026.

3. Form 16 Is Now Form 130

Your employer will issue Form 130 instead of Form 16 from June 2027 (for Tax Year 2026-27). It has more detailed breakdowns of salary, deductions, and tax computation. Form 15G/15H has become Form 121 for TDS declarations.

Salary and Employment Changes

4. Stricter HRA Rules

Claiming HRA now requires landlord’s PAN and proof of rent payments. No more self-declarations for large amounts. This cracks down on fake rent receipts.

5. More Cities Get 50% HRA Exemption

Good news for some: the 50% HRA exemption (vs 40% for non-metros) now covers 8 cities: Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, and Ahmedabad. Previously only 4 metros qualified.

6. Meal Card Exemption Tripled

Corporate meal cards: tax-free limit increased from ₹50 to ₹200 per meal. Includes free food and non-alcoholic beverages provided by employer.

7. Gift Voucher Exemption Tripled

Tax-free festival/gift vouchers: increased from ₹5,000 to ₹15,000 per year. Applies under both old and new tax regimes.

8. Children’s Education Allowance Hiked 30x

Education allowance: ₹100 → ₹3,000/month per child. Hostel expenditure: ₹300 → ₹9,000/month. These were laughably outdated — now actually meaningful (under old regime).

9. 50% Basic Pay Rule (New Wage Code)

Basic salary must now be at least 50% of CTC. This means lower take-home pay but higher EPF and gratuity. We’ve explained this in detail in our salary structure change guide.

Investment and Capital Gains Changes

10. STT Hiked on F&O Trading

Securities Transaction Tax increased sharply:

• Futures: 0.02% → 0.05% (2.5x increase)
• Options: 0.1% → 0.15% (50% increase)

If you trade derivatives actively, your transaction costs just went up significantly.

11. Sovereign Gold Bonds: Tax Rule Change

Only original subscribers get tax-free redemption on SGBs. If you bought SGBs on the secondary market, you’ll pay capital gains tax on redemption. This is a major change for SGB investors.

12. Share Buyback Taxed as Capital Gains

Buyback proceeds are now taxed as capital gains instead of dividends. Corporate promoters pay 22%, non-corporate 30%. This changes the math for companies doing buybacks.

13. Dividend/MF Income: No Interest Deduction

If you borrowed money to invest, you can no longer deduct interest costs against dividend or mutual fund income. The full amount is taxable regardless of your borrowing costs.

TDS, TCS, and Compliance Changes

14. Single TDS Declaration (Form 121)

One form to declare non-deduction of TDS across all mutual funds, dividends, and bonds. No more separate forms for each institution. Read our complete Form 121 guide.

15. TCS on Foreign Spending Reduced

TCS rates simplified and reduced:

• Overseas tours: Flat 2% (was 5%/20% dual rate)
• LRS for education/medical: 2% (was 5%)
• Alcoholic drinks: Increased to 2% (was 1%)

Studying abroad or medical treatment overseas just got slightly cheaper on the TCS front.

16. Simplified TDS on NRI Property Purchases

NRI buyers can now deduct TDS using their own PAN — no TAN needed. Simplifies the property buying process for non-residents.

PAN, Credit Cards, and Reporting

17. New PAN Application Rules

Aadhaar-only PAN applications are no longer allowed. Category-specific forms required: Form 93 (individuals), Form 94 (companies). PAN is now mandatory for cash deposits over ₹10 lakh/year, vehicle purchases over ₹5 lakh, hotel bills over ₹1 lakh, and property over ₹20 lakh.

18. Credit Card Surveillance

High-value credit card payments are now reported to the tax department:

• Non-cash payments over ₹10 lakh/year
• Cash payments over ₹1 lakh

Your credit card statement (up to 3 months old) can also now be used as address proof for PAN applications. We covered this in our credit card rules article.

19. Extended ITR Filing Deadlines

Non-audit businesses and trusts: deadline moved to August 31 (from July 31). Salaried individuals remain July 31. Audit cases October 31.

Other Notable Changes

• Motor accident compensation interest: Fully tax-exempt, no TDS deducted
• Company vehicle perquisites: Cars up to 1.6L engine: ₹8,000/month taxable; above 1.6L: ₹10,000/month
• UPI/Card 2FA: Mandatory two-factor authentication for all digital payments from April 1

What Should You Do?

• Review your tax regime choice. With the new ₹12 lakh zero-tax threshold under the new regime, many people should switch. Use our Tax Calculator to compare.
• Update your HRA documentation. Get landlord PAN and keep rent receipts/bank transfers ready.
• Check your Form 130 when it arrives (June 2027) — it replaces Form 16 with more detail.
• Submit Form 121 to your bank if your income is below the taxable limit. Guide here.
• Review SGB holdings. If you bought on the secondary market, plan for capital gains tax on redemption.

Disclaimer: This article is for educational purposes only and does not constitute tax advice. Please consult a chartered accountant for advice specific to your situation.