The new income tax law will come into effect from April 1, 2026, replacing the current law that has been in place for the past six decades. The Income Tax Law of 2025 will come into effect from Wednesday, replacing the Income Tax Law of 1961. The new law aims to present the same tax policy in a more simplified, logical, accessible and easy-to-read form, while also enhancing transparency and rationalizing exemptions for salaried taxpayers.
It is worth noting that the tax brackets and rates will remain unchanged. However, the new law will significantly change the way income, deductions, and disclosures are reported and verified, with a greater emphasis on accurate and detailed reporting.
Take a look at the changes that will be implemented under the new Income Tax Law:
One “tax year” is introduced
The new Income Tax Act, 2025 will remove the confusion between “previous year” and “assessment year”. Instead, only one term called “tax year” will be used, making the system easier to understand.
Higher benefit of HRA for more cities
Under the new law, the House Rent Allowance (HRA) rules have been expanded to add more cities. Earlier, only metro cities like Mumbai, Delhi, Kolkata and Chennai were allowed to exempt up to 50% of basic salary. With the implementation of the new law, cities like Bengaluru, Hyderabad, Pune and Ahmedabad have been added to this 50% category. This means that more people living in big cities can claim higher tax relief on rent.
Read also: From 1 April, HRA rules require disclosure of rent paid to the father
But there are stricter rules while claiming HRA
While HRA benefits have increased, taxpayers will now need to provide more details, such as owner information, to claim the exemption. The government will keep a close eye on fake rent receipts. This aims to improve transparency.
Significant increase in education allowance for children
Under the new law, the tax-free allowance for children’s education has been significantly increased from $100 per child per month $3000 per child per month, gives more financial assistance to families.
The allowance was also increased and decreased
At the same time, the hostel allowance was sharply increased from $300 per child per month $9000 per child per month. These benefits will continue to apply to up to two children as was the case under the old tax system.
Read also: ₹50,000 rent must deduct 2% TDS by March 31 to avoid audit and penalties”> Income tax changes 2026: Tenants pay more $50,000 rent must deduct 2% TDS by March 31 to avoid audit and penalties
Maximum tax exemption on meals
The new law gives greater benefit to the wage-earner category, as the exemption on meals provided by the employer has been increased, from $50 per meal for $200 per meal. Depending on the use, this may result in an annual tax benefit of approx $1.05 lakh. This applies to both old and new tax systems.
Increased exemption from gifts from an employer
The tax exemption limit for gifts received from employers has been raised $5000 annually for $15000 annually. This benefit will again be available under both tax systems.
Form 16 has been replaced by Form 130
Under the new law, Form 16 will be replaced by the new Form 130 created by the system, which is expected to make tax reporting more accurate and standardized.
More detailed financial reports are required
Taxpayers will now have to provide more detailed financial information. The use of PAN will also be expanded, increasing overall compliance requirements.
The deadlines for filing ITR have been revised
The deadlines for filing ITRs have been slightly modified under the new rules. While salaried individuals who file ITR-1 and ITR-2 will still have July 31 as the deadline, taxpayers in non-audit categories, such as those filing ITR-3 and ITR-4, will now have an extended deadline of August 31. This change provides additional time for self-employed individuals and professionals to complete their applications.
More time to review tax returns
Taxpayers will now have additional time to review their returns. The previous deadline was December 31 but the new deadline is March 31. However, applying after December 31 will incur an additional fee. The deadline for late returns remains unchanged.
High STT on F&O trades
Another major change to income tax is the Budget announcement to increase the Securities Transaction Tax (STT) on futures and options (F&O) trading. The STT ratio on futures contracts will rise to 0.05 percent from 0.02 percent, while the STT ratio on options premiums and exercise of options will rise to 0.15 percent from the current rate of 0.1 percent and 0.125 percent, respectively.
Low TCS on overseas travel and remittances
TCS has been reduced significantly under the new rules, with the price of outbound packages reduced from 20% to 2%. Likewise, the TST on transfers made under the Liberal Remittance Scheme (LRS) for medical and educational purposes was reduced from 5% to 2%. This step aims to reduce the financial burden on the middle class.
(With inputs from ANI and PTI)
