There are just a few hours left for the fiscal year 2026 to end, and the new fiscal year 2027 is set to begin tomorrow—April 1. With the beginning of the new financial year, a new income tax law is also coming into force, in which many important changes have been made. This law will replace the ‘Income Tax Act, 1961’ and will now be known as the ‘Income Tax Act, 2025’. The main objective of the Income Tax Act, 2025 is to simplify the income tax structure of India and make it more investment friendly. Additionally, it also aims to amend tax-related rules related to ITR filing and foreign expenses. Let’s take a look at the specific changes that are coming…
A unified ‘Tax Year’
Earlier, when taxpayers filed income tax returns (ITR), they had to face two different deadlines: ‘Financial Year’ and ‘Assessment Year’. However, this distinction has been abolished from 1 April; Now both of them have been merged into a single unit, which will be known as ‘Tax Year’. The aim of this initiative is to remove confusion.
ITR filing deadlines
Some special changes have been made regarding filing of ITR for salaried employees. The last date for filing ITR-1 and ITR-2 will remain the same as July 31—which was earlier also. On the contrary, the last date for submission of ITR-3 and ITR-4 has been extended to August 31. This extension will provide additional time to self-employed individuals and professionals to file their returns.
Increased costs for F&O traders
Trading in derivatives has now become more expensive due to the increase in Securities Transaction Tax (STT). Under the ‘Futures and Options’ (F&O) segment, the Securities Transaction Tax (STT) rate has been increased from 0.02% to 0.05%. Additionally, the tax on option premium and exercise fee on options will also increase to 0.15% from the current rates—0.1% and 0.125%.
Strict rules for HRA claims
The benefit of House Rent Allowance (HRA) will continue to be available as before; However, compliance requirements have now become more stringent. Now employees will have to submit PAN details of their landlord along with concrete proof of rent payment. In some cases, it will be necessary to provide complete details of the landlord—including their PAN number and rent amount—while claiming HRA.
Tax-free limit increased on meal card
The limit of tax exemption on food cards given by companies has been increased to ₹ 200 per meal from the earlier ₹ 50 per meal. This benefit applies to food and non-alcohol drinks provided by companies, and is available under the old tax regime.
Discounts on gifts and vouchers
The annual tax-free limit on gift cards, vouchers and coupons issued by companies has been increased from ₹5,000 to ₹15,000 per employee. This benefit will be applicable under both the old and new tax systems.
Increased discount on education allowance
Under the old tax system, the allowance for children has been increased significantly. Education allowance has been increased from ₹100 per child to ₹3,000 per month, while hostel allowance has been increased from ₹300 to ₹9,000 per month.
Separate tax on share buyback
Earlier, it was taxable as ‘deemed dividend’ at the applicable slab rate; However, it will now be taxed as ‘capital gains’. This means that now you may have to pay more tax. For individual promoters, this tax will be around 30%, while for corporate promoters, the tax liability will be around 22%. Retail investors may be subject to ‘Short-Term Capital Gains’ (STCG) or ‘Long-Term Capital Gains’ (LTCG) tax, depending on the period of holding the shares.
Changes in SGBs
Tax exemption on redemption of ‘Sovereign Gold Bonds’ (SGBs) will now be available only if the bonds are purchased directly under the RBI scheme. On bonds purchased from the secondary market, ‘Capital Gains Tax’ will be applicable at the time of redemption.
Rules for income from dividends and mutual funds
Dividends and income from mutual funds will now be calculated without deducting any interest expense, even if the investment is made with borrowed money. Additionally, investors can now submit a single declaration to avoid TDS on different sources of income—including mutual funds, dividends and bonds, making the process even easier.
TDS rules for NRIs
In property transactions involving Non-Resident Indians (NRIs), buyers can now deduct TDS using their own PAN. The previous requirement of obtaining TAN has been removed, making the process easier.
relief on foreign travel
Tax Collected at Source (TCS) on foreign travel has been reduced. Earlier, the rate was 5% on amounts up to ₹10 lakh and 20% on amounts above that limit; But, now a flat rate of 2% will be applicable on the total expenditure. In case of education and medical expenses, earlier the amount above ₹10 lakh was taxed at 5%; Now it has been reduced to 2%.
accident compensation
The interest received on compensation awarded by the Motor Accident Claims Tribunal will now be completely tax-free. No tax deduction will be applicable on this interest, ensuring that claimants receive the full amount without any tax liability.
Changes in PAN rules
Applying for PAN card only on the basis of Aadhaar card is no longer valid; Applicants will now have to submit additional supporting documents along with it. Additionally, PAN has been made mandatory for cash deposits totaling ₹10 lakh or more in a financial year, purchase of vehicles worth more than ₹5 lakh, payments for hotel stays or events of more than ₹1 lakh, and real estate transactions of more than ₹20 lakh.
