Tax for you: Major tax changes taking effect from 1 April 2026 under new Income tax Act, 2025

With the start of the financial year 2026–27, India’s direct tax system will see significant changes as the Income-tax Act, 2025 (ITA 2025) comes into force from 1 April 2026, replacing the six-decade-old Income-tax Act, 1961. The new law introduces structural, procedural and conceptual changes across the tax framework, while proposals announced in the Union Budget 2026 are also expected to take effect from the same date.

According to CA Dr Suresh Surana, the new legislation aims to simplify compliance, rationalise procedures and align the tax framework with current economic realities. Several key changes will directly affect individuals, businesses, investors and companies from the new tax year.

Single “Tax Year”

One of the most notable changes is the introduction of a single “Tax Year”, replacing the earlier distinction between the “previous year” and “assessment year”. The move is intended to simplify the tax structure and make compliance easier for taxpayers.

However, there is no change in individual tax slab rates. The existing slab structure under both the old regime and the concessional new regime will continue, ensuring continuity in personal tax liability.

Revised due dates for filing income tax returns

The new law revises return filing deadlines to provide additional time to certain categories of taxpayers.

31 July – Individuals filing simple returns (ITR-1, ITR-2)

31 August – Business or profession cases not requiring audit and partners of such firms

31 October – Companies, audited entities, and partners of audited firms

30 November – Special cases under specific provisions

These revised dates will apply from Tax Year 2026-27 onwards.

More time to file revised return

The time limit for filing a revised return will be extended from 9 months to 12 months from the end of the tax year.
However, a fee will apply if the revised return is filed after nine months:

₹1,000 if income up to ₹5 lakh

₹5,000 if income above ₹5 lakh

The change is intended to give taxpayers more time to correct errors in returns.

Higher Securities Transaction Tax (STT)

The government has proposed an increase in Securities Transaction Tax (STT) on derivatives trading, citing the rapid growth in futures and options activity.

Proposed rates from 1 April 2026:

Options sale: 0.10% → 0.15%

Options exercised: 0.125% → 0.15%

Futures sale: 0.02% → 0.05%

The move is aimed at discouraging excessive speculation in the derivatives segment.

New tax treatment for share buybacks

Buyback proceeds will now be taxed as capital gains instead of dividend income.
Promoters may face higher effective tax rates, with proposed tax incidence around 30% for individuals and 22% for promoter companies, plus surcharge and cess.

Rationalisation of TCS rates

Tax Collected at Source (TCS) rates on several transactions will be simplified, with many categories moving to a uniform 2% rate.

Examples:

Alcohol sale: 1% → 2%

Scrap: 1% → 2%

Minerals (coal, lignite, iron ore): 1% → 2%

Overseas tour package: uniform 2%

LRS remittance above ₹10 lakh for education/medical: 5% → 2%

TCS on luxury goods and motor vehicles will continue at 1%.

Relief for home-to-office travel

Under the new Act, employer-provided transport or reimbursement for commuting between home and office will not be treated as a taxable perquisite. The provision now covers both employer-provided vehicles and employer-paid travel expenses, widening the earlier exemption.

Interest deduction on dividend and mutual fund income removed

The new law removes the earlier provision that allowed deduction of interest expense up to 20% of dividend or mutual fund income.
Under the new rule, no interest deduction will be allowed against such income, which could increase taxable income for investors relying on borrowed funds.

Experts say taxpayers should review their financial planning before April 2026, as the new Act changes several long-standing provisions in the tax system.