Income Tax Changes Take Effect April 1: Key Implications for Personal Finances

Income Tax Act, 2025: Key Changes to Direct Tax Framework

Effective Date: April 1, 2026 Applicable from: Tax Year 2026-27

The Income-tax Act, 2025 will replace the six-decade-old I-T Act, 1961, introducing structural, conceptual, and procedural changes across the direct tax framework. The new legislation aims to simplify the tax system, improve compliance, and reduce legal disputes.

Tax Year and Slab Rate Framework

Read also: Correcting Credit Score Errors: A Guide to Ensuring Accurate CIBIL Reports and Optimal Loan Eligibility

• The terms "financial year" and "assessment year" will be replaced with a "tax year" for greater uniformity.
• The existing slab rate framework for individuals under the old and new tax regimes continues without any changes.

Revision of Return Filing Deadlines

• July 31: Individuals filing simple returns (ITR-1 and ITR-2)
• August 31: Taxpayers with business or professional income not requiring audit, and partners of such firms
• October 31: Companies, assessees whose accounts are required to be audited, and partners of audited firms (including applicable spouses)
• November 30: Assessees to whom special provisions (e.g., section 172 cases) apply

Extended Time for Filing Revised Returns

Read also: Missing a Single EMI Payment Can Adversely Impact Credit Profile

• The time limit for filing a revised return will be extended from nine months to 12 months from the end of the tax year.
• Fees for late filing:
  • Rs 1,000 if the taxpayer's income is up to Rs 5 lakh
  • Rs 5,000 if the income exceeds Rs 5 lakh

Increase in Securities Transaction Tax (STT) Rates

• STT on sale of options in securities: 0.15% (increased from 0.10%)
• STT on options exercised: 0.15% (increased from 0.125%)
• STT on sale of futures in securities: 0.05% (increased from 0.02%)

Rationalisation of Tax Collected at Source (TCS) Rates

• Remittances under Liberalised Remittance Scheme (LRS):
  • 2% TCS for education or medical treatment (reduced from 5%)
  • 20% TCS for other purposes
• Overseas tour packages: Uniform 2% TCS rate

Taxation of Share Buybacks

• Share buybacks will be taxed as capital gains, effective April 1, 2026

Other Key Changes

• Sovereign gold bonds: Tax exemption only applies to bonds purchased at the original issue price.
• Motor accident compensation interest: Completely exempt from income tax, effective April 1, 2026
• Home-to-office travel: Transport facilities and reimbursements are no longer taxable perquisites, effective April 1, 2026
• PAN-based TDS deduction: Allowed from April 1, 2026