Old vs New Income Tax Act: Navigating Tax Filing Obligations in 2026

Financial Report: India's Income Tax System Transition

Key Highlights:

• The new Income Tax Act, 2025 will be rolled out from April 1, 2026, marking a significant shift in India's income tax system.
• For taxpayers, the immediate concern is how to file ITR this year during the transition, with the current law continuing to apply for the FY 2025-26 filing cycle.

Transition Framework:

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• The transition follows a year-wise approach, with income earned in FY 2025-26 governed by the Income Tax Act, 1961 and filed in AY 2026-27.
• The new Income Tax Act, 2025 will apply only to income earned from FY 2026-27 onwards, ensuring no overlap between the two laws.

Key Changes from FY 2026-27:

• The Central Board of Direct Taxes (CBDT) notified the Income Tax Rules, 2026, introducing a revised framework for allowances and perquisites for salaried employees.
• Key changes include:
  • Higher HRA exemption limits with more cities qualifying for the 50 percent bracket.
  • Increased children's education allowance (Rs 3,000/month) and hostel allowance (Rs 9,000/month).
  • Revised method for valuing perquisites like company cars, which could increase taxable income in some cases.
  • Higher limits for tax-free benefits, including gifts (Rs 15,000 annually) and meal vouchers (Rs 200 per meal).
  • Stricter disclosure requirements and documentation norms, especially for HRA and deductions.

Tax Framework Reforms:

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• The terms "financial year" and "assessment year" will be replaced with a "tax year" to bring greater uniformity and make the tax framework easier to understand.