On April 1, 2026, India replaced the Income-tax Act, 1961 — a law that had been amended, patched, and re-amended for over six decades — with the new Income-tax Act, 2025.
Most of the structure remains the same. But several changes are meaningful enough to affect your salary structure, investment decisions, and how you file. This post covers the ones that actually matter for salaried professionals and individual investors, written in plain language without legal boilerplate.
First: The Language Has Changed
The Act has been restructured for clarity. A few terminology shifts that will come up repeatedly:
- "Previous Year" + "Assessment Year" are replaced by a single term: "Tax Year". Your Tax Year 2025–26 is what used to be AY 2026–27. The concept is the same; the vocabulary is simpler.
- Sections have been renumbered. If you've been filing ITR yourself, your tax software will handle this — but don't be alarmed if the section numbers in your Form 16 look different from prior years.
1. Zero Tax Up to ₹12.75 Lakh (New Regime)
The most significant change for most salaried employees.
Under the new tax regime, the rebate under Section 87A has been increased from ₹25,000 to ₹60,000. Combined with the ₹75,000 standard deduction, a salaried individual with gross income up to ₹12.75 lakh pays zero income tax under the new regime.
The slab structure under the new regime for FY 2025–26:
| Taxable Income | Tax Rate |
|---|---|
| Up to ₹4L | Nil |
| ₹4L – ₹8L | 5% |
| ₹8L – ₹12L | 10% |
| ₹12L – ₹16L | 15% |
| ₹16L – ₹20L | 20% |
| ₹20L – ₹24L | 25% |
| Above ₹24L | 30% |
For most salaried employees earning up to ₹15–16L with limited deductions, the new regime is now better. If you have a large home loan interest, HRA, or significant 80C investments, run both calculations before choosing.
2. The Old Regime Still Exists — But Is Less Attractive
The old regime (with deductions for 80C, HRA, LTA, home loan interest, etc.) continues. The break-even point where the old regime remains better has shifted upward. Broadly:
- If your total deductions exceed ₹4–5L, the old regime may still save more tax
- For most salaried employees without a home loan or high rent, the new regime wins
Your employer will ask you to declare your choice at the start of the year. You can switch regimes at filing time if you're not running a business.
3. HRA — Stricter Documentation Rules
If you're claiming HRA under the old regime, two changes apply:
Mandatory landlord PAN for rent above ₹1L/year (₹8,333/month) — this has been enforced more strictly. If your landlord refuses to share PAN, you cannot claim HRA.
Metro city list expanded. The 50% HRA exemption (vs 40% for non-metros) now applies to: Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, and Ahmedabad. If you're in Pune or Ahmedabad, this is a meaningful improvement.
4. Buyback Proceeds Now Taxed as Capital Gains
Previously, companies paying buyback proceeds were subject to a distribution tax at the company level, and the proceeds were tax-free in the hands of shareholders.
That has changed. Buyback proceeds are now taxed as capital gains in the hands of the investor — short-term or long-term depending on your holding period. The company no longer pays the distribution tax.
If you hold shares in companies that do buybacks regularly (many large-caps and cash-rich midcaps do), your effective tax outgo on buyback gains will now be higher at the individual level. Factor this into how you evaluate buyback offers vs. dividends vs. holding.
5. STT Rates Have Been Hiked
Securities Transaction Tax (STT) applies to equity trades, futures, and options. The rates have been revised upward. While the change is modest per trade, active traders — particularly those in F&O — will see a measurable impact on their overall cost structure.
If you're an investor (not a trader), the impact on your annual tax bill from STT alone is small. The bigger implication is on short-term tactical moves: the cost of buying and selling more frequently just went up.
6. SGBs — Secondary Market Purchases Are Now Taxable at Redemption
Sovereign Gold Bonds issued by the RBI remain tax-free on redemption only for primary issue holders — those who subscribed at the original RBI auction.
If you bought SGBs on the secondary market (stock exchange), the gain on RBI redemption is now taxable as capital gains. Long-term (held 3+ years) or short-term depending on your purchase date.
This changes the math on buying SGBs on the exchange at a discount. The post-tax yield needs to be recalculated. For most secondary buyers, the effective return advantage narrows significantly.
7. Updated Return Filing Deadline — Now 2 Years
The window to file an updated return (ITR-U) has been extended from 2 years to 4 years from the end of the relevant tax year. This gives taxpayers more time to correct errors, declare missed income, or revise returns.
The catch: filing an updated return requires payment of additional tax (25–50% of incremental tax depending on when you file). It's not a free correction window — but it's a meaningful safety net if you discover an error years later.
8. TCS on Foreign Remittances — Threshold Raised
Under the Liberalised Remittance Scheme (LRS), TCS (Tax Collected at Source) applies to international remittances. The threshold below which no TCS applies has been revised.
For education and medical remittances, TCS remains low or nil. For other purposes (travel, investments abroad, gifts), the applicable threshold and rates — check with your bank at the time of transfer, as these vary by purpose.
9. Capital Gains Tax — What Remained the Same (Important)
Several investors are confused about what changed in the 2024 Budget vs. the new Act. To be clear:
The capital gains tax changes (12.5% LTCG on equity above ₹1.25L, 20% STCG on equity, debt funds taxed at slab) were introduced in Budget 2024 and are already in effect from July 2024. The new Act codifies these — it didn't introduce them.
So if you've been investing since mid-2024 under the new rates, nothing has changed on this front. See our separate article on mutual fund taxation for a full breakdown.
10. Presumptive Taxation — Threshold Raised for Small Businesses
If you run a small business or are a freelancer and use the presumptive taxation scheme (Section 44AD / 44ADA), the eligible turnover limit has been revised upward. This allows more small business owners and professionals to avoid detailed bookkeeping and file simpler returns.
For salaried individuals with side income (consulting, freelance), this is worth noting — if your side income qualifies under 44ADA, your compliance burden drops significantly.
11. Faceless Assessments — Expanded
The Act strengthens the faceless assessment framework. Most income tax notices, assessments, and appeals will now be handled electronically without the taxpayer needing to appear in person. This reduces harassment risk and increases transparency.
If you receive a notice, respond through the e-filing portal (incometax.gov.in). Do not engage with anyone claiming to represent the tax department offline.
12. The Act Is Simpler to Read — But Don't Let That Mislead You
The new Act has removed outdated provisions, consolidated related sections, and rewritten many clauses in clearer language. It's shorter and easier to parse than its predecessor.
But simpler language doesn't mean simpler compliance. The obligations — filing deadlines, TDS, advance tax, capital gains reporting — are unchanged. The penalty structure remains strict. Don't assume that because the Act reads more clearly, you can afford to be casual about your tax planning.
The One Thing to Do This Month
If you haven't already:
- Ask your employer's HR or payroll team which tax regime you've been defaulted into for FY 2026–27
- Run a quick comparison — old vs. new — based on your actual deductions
- If you have buyback gains, SGB secondary purchases, or significant F&O activity, factor in the changes above before your next advance tax payment (September 15 deadline)
Tax planning done once a year, in March, is usually too late. The decisions that reduce your tax bill — regime choice, investment timing, loss harvesting — are made throughout the year.
This article is for educational purposes only and does not constitute tax or investment advice. Please consult a qualified tax professional for advice specific to your situation. Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing.