Effective from 01 April 2026
Sweeping changes to income tax laws, PAN requirements and financial regulations will impact how individuals file taxes, manage finances & conduct transactions.
Several key reforms have been introduced for the financial year 2026-27, including:
The Income Tax Act, 2025 replaces the 65-year-old Income Tax Act, 1961.
Major Simplification
The new law reduces the number of sections from 819 to 536, making it easier to understand with simpler and more logical language.
Old Act | New Act |
Income Tax Act, 1961 | Income Tax Act, 2025 |
819 Sections | 536 Sections |
Complex Structure | Simplified Structure |
The previous system of Financial Year (FY) and Assessment Year (AY) has been replaced with a single concept called Tax Year (TY).
Key Change:
The year in which income is earned and assessed will now be referred to as the same year.
Example:
This change is expected to reduce confusion for taxpayers.
Minimum Basic Salary Requirement
For salaried employees, the basic salary must now be at least 50% of total compensation.
PF Deduction
A higher base salary component results in increased EPF deductions, thereby enhancing long-term retirement benefits.
This may impact salary structuring and allowances.
Final settlements for employees leaving a company must now be completed within 2 days, instead of taking several weeks or months.
This reform aims to improve employee experience and compliance.
| Particulars | Old Act, 1961 | New Act, 2025 | Allowed |
|---|---|---|---|
| House Rent Allowance (HRA) | 50% exemption allowed in 4 cities only: Delhi, Mumbai, Kolkata, Chennai | • 50% exemption allowed in 8 cities only: Delhi, Mumbai, Kolkata, Chennai, Pune, Bengaluru, Hyderabad, and Ahmedabad • Mandatory Relationship Disclosure in Form 12BB for rent paid to parents/spouse | Only old tax regime |
| Children’s Education | ₹100/month per child (upto 2 children) | ₹3,000/month per child (upto 2 children) | Only old tax regime |
| Hostel Expenditure | ₹300/month per child (upto 2 children) | ₹9,000/month per child (upto 2 children) | Only old tax regime |
| Meal Vouchers | ₹50/meal (tax free) | ₹200/meal (tax-free) | Both |
| Car Perks | • Car (upto 1.6 ltr cc): ₹1,800 + 900 (driver)/month • Car (above 1.6 ltr cc): ₹2,400 + 900 (driver)/month | • Car (upto 1.6 ltr cc): ₹5,000 + 3,000 (driver)/month • Car (above 1.6 ltr cc): ₹7,000 + 3,000 (driver)/month | Only old tax regime |
| Corporate Gifts | ₹5,000/year threshold | ₹15,000/year threshold | Both |
| Medical Loans to Employee | Tax exempt upto ₹20,000/- | Tax exempt upto ₹2,00,000/- | Both |
Major Policy Shift
Amounts received from share buybacks will now be taxed as Capital Gains instead of Deemed Dividends.
Impact:
Companies and individuals must recalculate tax liability based on applicable tax rates
Effective from 01 April 2026
PAN will be mandatory for the following transactions:
Transaction Type | New Threshold |
Cash Transactions | ₹10 lakh annually |
Property Deals | ₹20 lakh |
Hotel Bills | ₹1 lakh total bill |
Vehicle Purchase | ₹5 lakh and above |
Notes:
Updated Income Tax Return forms and PAN/TAN application forms will be introduced from 01 April 2026.
Taxpayers should review the revised forms before filing returns.
As per Rule 136 of Income Tax Rules, 2026, the option to choose or withdraw from the new tax regime must be exercised in the income tax return filed under Section 263(1) for the relevant Tax Year.
Understand the structure of the new Income Tax Act, 2025 and Tax Year concept.
Ensure salary components meet the new 50% minimum basic salary rule.
Monitor high-value transactions requiring PAN.
Review changes in TDS/TCS rates, Forms and share buyback taxation.
The reforms effective from 01 April 2026 aim to simplify tax compliance, improve transparency and modernize India’s tax system. Individuals, salaried employees, investors and businesses should prepare in advance to ensure smooth compliance.