What Changed in Income Tax from 1 April 2026?
The most significant year for Indian taxpayers in recent memory — 1 April 2026 marks the start of Tax Year 2026-27 and the full rollout of the Income Tax Act 2025, which replaces the six-decade-old Income Tax Act 1961. Beyond the structural overhaul, there are specific practical changes in exemptions, TDS thresholds, deductions and compliance procedures that directly affect your tax liability and filings.
Change 1: New Tax Regime Slabs Revised (Section 202)
The new tax regime under Income Tax Act 2025 (Section 202) has revised slabs compared to FY 2025-26. The basic exemption limit has been raised from ₹3 lakh to ₹4 lakh:
| Income Slab | FY 2025-26 Rate | FY 2026-27 Rate (New Act) |
|---|---|---|
| Up to ₹3L / ₹4L | NIL (up to ₹3L) | NIL (up to ₹4L) ? |
| ₹3L–₹7L / ₹4L–₹8L | 5% | 5% |
| ₹7L–₹10L / ₹8L–₹12L | 10% | 10% |
| ₹10L–₹12L / ₹12L–₹16L | 15% | 15% |
| ₹12L–₹15L / ₹16L–₹20L | 20% | 20% |
| Above ₹15L / ₹20L–₹24L | 30% | 25% (new slab added) |
| Above ₹24L | — | 30% |
Change 2: HRA Exemption Extended to 8 Cities
One of the most taxpayer-friendly changes in the new rules: the 50% HRA exemption (previously only for Delhi, Mumbai, Kolkata, Chennai) is now extended to four more metros:
- ? Bangalore
- ? Pune
- ? Hyderabad
- ? Ahmedabad
This means if you live in any of these 8 cities and pay rent, you can now claim 50% of your basic salary as HRA exemption (previously it was 40% for non-metro cities). This is a significant tax saving for millions of salaried employees in these cities.
Change 3: TDS Thresholds Significantly Increased
| TDS Type | Old Threshold | New Threshold (Act 2025) |
|---|---|---|
| Interest income (Senior Citizens) | ₹50,000/year | ₹1,00,000/year |
| Rental income (Individual tenants) | ₹2,40,000/year | ₹6,00,000/year |
Senior citizens earning interest from FDs and savings accounts will no longer have TDS deducted unless interest exceeds ₹1 lakh. Similarly, tenants paying rent below ₹50,000/month no longer need to deduct TDS.
Change 4: All TDS Sections Merged into Section 393
Under the old Act, TDS rules were scattered across 20+ sections (192 for salary, 194A for interest, 194H for commission, etc.). This was confusing. The Income Tax Act 2025 consolidates all TDS provisions under a single Section 393. Now, instead of hunting through multiple sections, everything is in one place.
Change 5: Tax Year Replaces Previous Year + Assessment Year
The old system had two concepts that confused many taxpayers:
- Previous Year — the year you earned income (e.g., April 2025 – March 2026)
- Assessment Year — the next year when you file and pay tax (e.g., AY 2026-27)
Under Income Tax Act 2025, both are replaced by Tax Year — a single unified concept. Tax Year 2026-27 = April 2026 to March 2027, the period in which both income is earned and assessed. This makes communication and compliance much simpler.
Change 6: Forms 15G and 15H Merged into Form 121
Previously, individuals below 60 submitted Form 15G and senior citizens submitted Form 15H to prevent TDS on interest. Under the new Income Tax Rules 2026, both forms are merged into a single Form 121. The format is the same but the form number changes — just use Form 121 regardless of your age for FY 2026-27 onwards.
Change 7: Crypto and Virtual Digital Assets Explicitly Defined
The Income Tax Act 2025 provides a clearer and broader definition of Virtual Digital Assets (VDAs) including cryptocurrencies, NFTs and other fintech assets. The 30% flat tax rate on VDA gains is retained, with no deduction allowed except cost of acquisition. This brings greater regulatory certainty for crypto investors.
What Stays the Same?
Despite all the structural changes, many things remain exactly the same:
- New tax regime remains the default — you can still opt for old regime
- Section 80C deduction limit stays at ₹1.5 lakh (now Section 123)
- Section 80D health insurance deduction unchanged (now Section 126)
- Home loan interest deduction of ₹2 lakh retained (now Section 22)
- Capital gains tax rates unchanged: STCG 20%, LTCG 12.5% above ₹1.25L
- Standard deduction of ₹75,000 for salaried employees continues
- ITR filing portal (incometax.gov.in) remains the same