Delhi, April 01: The new financial year begins today and several major income tax changes will come into effect.
The new rules will affect salaried individuals and employers. India’s tax framework has undergone a major overhaul with the replacement of the decades-old Income Tax Act of 1961 with the new Income Tax Act 2025.
The updated legislation is designed to simplify the tax system by removing old provisions, streamlining complex rules and making compliance much easier for taxpayers.
One of the most significant structural changes is the replacement of the dual concepts of Financial Year (FY) and Assessment Year (AY) with a single term “Tax Year”. The change aims to remove long-standing confusion, especially for first-time taxpayers, by aligning income generation and tax assessment within a single unified time frame. Here is information on the major income tax updates that will come into effect from April 1, 2026:
HRA Exemption
House Rent Allowance (HRA) is one of the most significant tax-saving factors for salaried individuals. However, from April 1, the compliance requirements have been tightened.
Employees who avail HRA exemption should ensure the following:
Submission of valid rent receipts
Disclosure of PAN of landlords if annual rent exceeds Rs 1 lakh
Digital tracking and verification by employers
In addition, the use of data analytics is increasing by the Income Tax Department to detect discrepancies between HRA claimed and declarations of landlords. Cases of fake rent receipts or circular transactions will be subjected to sharp scrutiny. The higher 50 per cent HRA exemption category, which was earlier applicable only to Mumbai, Kolkata, Delhi and Chennai, has now been extended to Bengaluru, Hyderabad, Pune and Ahmedabad. All other cities will continue to be covered under the 40 per cent HRA cap.
Form 130 to replace Form 16
From April 1, 2026, employers will no longer issue Form 16, which will be replaced by Form 130 under the new Income Tax Act, 2025. Form 130 functions similarly to Form 16, providing a certificate of tax deducted at source (TDS) to salaried employees and pensioners. The new form will have a more detailed structure, including employer and employee details, salary split, deductions, total taxable income, tax payable and TDS or TCS details.
ITR Filing Deadline
With effect from April 1, 2026 for the tax year 2026-27, the standard ITR filing deadlines have been revised after the Union Budget 2026:
July 31, 2026 Deadline: Individuals, HUFs, AOPs and BOIs do not require tax audit (standard for ITR-1 and ITR-2).
August 31, 2026: This deadline is applicable to unaudited business cases including filing of ITR-3 or ITR-4 by professionals and self-employed taxpayers.
October 31, 2026: This deadline will be applicable to corporate taxpayers and any businesses/individuals subject to tax audit.
School and Hostel Allowance
The allowances related to children’s education have seen a significant upward revision in the old system. School allowance has been increased from Rs 100 per month to Rs 3,000 per child, while hostel allowance has been increased from Rs 300 to Rs 9,000 per month.
Meal cards
Meal vouchers or cards issued by employers through platforms like Sodexo or similar providers are a popular tax-efficient benefit. The tax-exempt limit on meal cards issued by employers has now been increased fourfold from Rs 50 to Rs 200 per meal. This benefit, which was applicable under the old tax regime, now covers food and non-alcoholic beverages provided by employers.
Gift vouchers
The annual tax-free limit for corporate gift cards, vouchers and coupons has been increased from Rs. 5,000 to Rs. 15,000 per employee. Importantly, this benefit will be available under both the old and new tax regimes, giving taxpayers more options.
Securities Transaction Tax (STT) hike on derivatives
The government has increased the Securities Transaction Tax (STT) rates on equity derivatives with effect from April 1, 2026. This will impact traders of equity derivatives, slightly increasing transaction costs.
Futures: STT on sale increased to 0.05% (from 0.02%).
Options (premium): STT on sale increased to 0.15% (from 0.10%).
Options (exercise): STT increased to 0.15% (from 0.125%).
These changes, announced in Budget 2026, are aimed at curbing excessive speculative trading in the F&O segment while generating additional revenue.