THEBUSINESSBYTES
BUREAU
NEW
DELHI, MARCH 31, 2026
India is poised to
begin the new fiscal year 2026-27 with a transformative shift in its direct
taxation framework as the Income Tax Act, 2025 comes into effect from April 1,
2026. Replacing the six-decade-old legislation of 1961, the revamped law is
designed to streamline compliance, simplify terminology and introduce
structural changes aimed at making the tax system more transparent and
taxpayer-friendly.
A landmark feature of
the new regime is the introduction of a unified “tax year”, replacing the
long-standing distinction between Financial Year (FY) and Assessment Year (AY).
The move is expected to significantly reduce confusion in filing returns while
aligning India’s tax terminology with global practices.
Under the updated
framework, salaried taxpayers will continue to file their income tax returns by
July 31, while professionals, self-employed individuals and other non-audit
cases will now benefit from an extended deadline of August 31, providing
additional flexibility for compliance.
Further simplifying
procedures, taxpayers can now submit a single declaration to prevent Tax
Deducted at Source (TDS) across multiple income streams. Property buyers
purchasing assets from Non-Resident Indians (NRIs) can deduct TDS using their
PAN, eliminating the earlier need to obtain a TAN, thereby reducing procedural
complexity.
The reform package
also introduces important changes affecting investors and financial markets.
The Securities Transaction Tax (STT) on derivatives, including futures and
options, has been increased, potentially raising trading costs in the
derivatives segment.
In a significant
structural change, taxation of share buybacks has shifted from the earlier
deemed dividend mechanism to the capital gains framework, impacting both
promoters and retail investors.
The government has
also revised the tax treatment of Sovereign Gold Bonds (SGBs), restricting tax
exemption on redemption only to bonds purchased during original issuance.
Besides, interest
expenses will no longer be allowed as deductions against dividend or mutual
fund income where such investments are financed through borrowings.
Employee-centric
provisions have been strengthened under the new law. The exemption threshold
for meal benefits has been enhanced, while the annual limit for tax-free gifts
has also been increased.
Families opting for
the old tax regime will see improved allowances for children’s education and
hostel expenses, offering incremental financial relief.
Meanwhile, compliance
norms for claiming House Rent Allowance (HRA) have been tightened. Taxpayers
may now be required to disclose landlord details, including PAN, in specified
cases. The list of cities eligible for higher HRA exemption has also been
expanded, with Bengaluru, Hyderabad, Pune and Ahmedabad joining the existing
metro category.
In a move benefiting international
travellers and students, the Tax Collected at Source (TCS) on foreign tour
packages has been reduced to a flat 2 per cent. TCS rates on remittances for
overseas education and medical treatment have also been lowered, easing the
financial burden on families planning global expenditures.
Compensation interest
received through the Motor Accident Claims Tribunal has been made fully
tax-exempt, offering relief to beneficiaries.
Taxpayers will also have an extended window to revise their returns until March 31, though additional charges will apply for revisions made after December.
The government has notified ITR-1 to ITR-7 forms for Assessment Year 2026-27, enabling individuals, pensioners and other categories of taxpayers to prepare their filings in advance. Notably, ITR-1 (Sahaj) can now accommodate income from up to two house properties, compared to the earlier limit of one, making compliance easier for a wider base of taxpayers.
