New Era of Taxation: Key Changes as India Transitions to the Income Tax Act, 2025

As of April 1, 2026, India has transitioned to the Income Tax Act, 2025, replacing the historic 1961 Act. While tax rates and slabs remain largely unchanged, the restructuring introduces a new vocabulary and significantly higher exemption limits for several long-stagnant allowances.

Here is a breakdown of the key changes you need to know:

1. The “Tax Year” Concept

The confusing distinction between “Financial Year” (FY) and “Assessment Year” (AY) has been abolished.

• Unified Term: From today, the year in which you earn income is simply called the Tax Year.

• Tax Year 2026-27: Covers income earned from April 1, 2026, to March 31, 2027. Your Form 16 and ITR will now reflect this single term.

2. Major HRA & Allowance Relief

The new rules provide a massive boost to the Old Tax Regime, making it more competitive for those with high expenses:

• Metro City Expansion: Bengaluru, Hyderabad, Pune, and Ahmedabad now join Mumbai, Delhi, Kolkata, and Chennai in the 50% HRA exemption bracket (up from 40%).

• Allowance Hikes:

  • Children’s Education: Increased from ₹100/month to ₹3,000/month per child.

  • Hostel Allowance: Increased from ₹300/month to ₹9,000/month per child.

  • Meal Coupons: Tax-free limit raised from ₹50 to ₹200 per meal.

  • Gifts from Employer: Annual tax-free limit raised from ₹5,000 to ₹15,000.

3. Revised ITR & Filing Deadlines

• Business Relief: The deadline for non-audit business cases (ITR-3 and ITR-4) has been extended by one month to August 31.

• Salaried Filers: The deadline for ITR-1 and ITR-2 remains July 31.

• Revised Returns: You now have 12 months from the end of the tax year (until March 31) to file a revised return, though filings after December 31 will incur a late fee.

4. PAN and Transactional Changes

• Aadhaar-only PAN: You can no longer apply for or update a PAN using only an Aadhaar card. New category-specific forms (e.g., Form 93 for individuals) are mandatory.

• High-Value Tracking: PAN is now mandatory for:

  • Cash deposits of ₹10 lakh+ per year.

  • Immovable property transactions above ₹20 lakh.

  • Vehicle purchases (excluding two-wheelers) over ₹5 lakh.

5. Investment & Savings Impact

• Sovereign Gold Bonds (SGBs): The tax exemption on maturity now applies only to original subscribers. If you bought SGBs from the secondary market, you will now face a 12.5% LTCG tax upon redemption.

• Share Buybacks: These are now taxed as Capital Gains (based on your holding period) instead of the previous “deemed dividend” treatment at slab rates.

• STT Hike: Securities Transaction Tax on F&O has increased: Futures rise to 0.05% and Options to 0.15%.

Summary Table: Allowance Comparison

Note: To benefit from these higher limits, check with your HR department to see if your CTC (Cost to Company) structure needs to be updated to reflect these specific allowances.