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New income-tax law coming into force (April 1, 2026)

Historical article, originally labelled 1 February 2026 on AVA’s previous website. Preserved as an archive; it has not been updated or verified against current law. Contact AVA for guidance relevant to your circumstances.

New Income-Tax Law Coming Into Force (April 1, 2026)

Created on Feb 01 2026

1. New Income-Tax Law

Income Tax Act, 2025 — a comprehensive replacement of the old 1961 Act — is set to be implemented from April 1, 2026. It is intended to simplify tax language and provisions, reduce litigation and dispute points, and modernize the structure of direct tax law in India. The Finance Minister confirmed that while tax rates and slabs remain unchanged, the law greatly simplifies procedural and substantive provisions.

Key changes in the draft rules include:

• Revised forms and renumbered schedules to align with the new Act.
• Higher perquisite valuation for employee company car use — likely increasing taxable value for salaried taxpayers.

2. Focus on Compliance Ease & Technology

The Budget 2026 emphasizes taxpayer-friendly measures:

• Expanded pre-filled returns leveraging data analytics and AI to reduce manual entries.
• Strengthened faceless assessment and appeal systems for transparency and lower human interface.

These changes aim to lower compliance burden while improving accuracy and reducing discretionary interactions with tax officials.

3. Widespread Adoption of New Tax Regime; No Sunset of Old Regime

As of early February 2026:

• Around 88% of individual taxpayers have opted for the new income tax regime, reflecting its broad appeal due to lower effective liabilities.
• The government has clarified there will not be a sunset clause for the old regime — taxpayers retain the option to choose between regimes.

This reinforces India’s dual regime system, giving flexibility based on individual circumstances.

4. NRI-Focused Income Tax Changes

Recent budget measures include:

• Easier property sale rules and compliance mechanisms for NRIs.
• Clarified foreign asset disclosure requirements.
• Exemptions and relief for NRIs visiting India to avoid double taxation.

These are part of a broader strategy to strengthen diaspora financial engagement and compliance.

5. Stronger Tax Framework for Digital & Foreign Entities

The government has also moved to:

• Adjust definitions such as Significant Economic Presence to better capture digital business activities in India.
• Mandate localized electronic record-keeping for digital professionals.
• Integrate Central Bank Digital Currency (CBDC) planning into the income-tax system.

This is aimed at improving transparency and fair taxation of foreign digital businesses.

6. Judicial/Tribunal Ruling on Tax Deductions

The ITAT upheld the validity of Section 80GGC deduction for a taxpayer claiming donation deductions despite an investigation into the donee-party, confirming that proper documentation can secure deductions even if the recipient entity is under scrutiny.

This ruling provides clarity and reassurance to taxpayers claiming deductions under political donation provisions.

Existing Slabs & Continuity (No Major Rate Changes)

Key particulars from recent budgets:

• Income up to ₹12 lakh is generally tax-free under the new regime after standard deductions/rebate.
• Tax slabs remain stable for individuals, with seven marginal rates (0%, 5%, 10%, 15%, 20%, 25%, 30%).
• Extended ITR revision deadline from Dec 31 to March 31 (subject to a nominal fee) for greater flexibility.
• Lowered TCS rates on overseas tour packages and LRS remittances to ease cash flows for families and investors.

What This Means for You

For Salaried Individuals

• No change in basic tax slabs — income up to ₹12 lakh remains effectively exempt under the new regime.
• Standard deduction of ₹75,000 continues to benefit taxable income.
• Revised valuation of perquisites (like company cars) may increase taxable salary income in some cases.

For NRIs

• Simplified compliance for property transactions and foreign asset disclosures.
• Better clarity on tax treatment to prevent overlapping or double taxation issues.

For Digital/Foreign Businesses

• Tax framework tightening around digital presence and digital records.

Compliance and Planning

• Taxpayers should monitor final notifications of rules and forms under the new Income Tax Act.
• Early awareness of draft rule proposals can help prepare for increased taxable perquisites and revised protocols