Key changes which will come into force from 1 April 2026 in Income Tax
With effect from 1 April 2026, the Income Tax Act, 2025 (“ITA 2025”) will come into force, replacing the Income-tax Act, 1961 (“ITA 1961”). The new legislation introduces structural, conceptual and procedural changes across the direct tax framework. Further, the tax proposals announced in the Union Budget 2026, once enacted through the Finance Act 2026, are also scheduled to take effect from 1 April 2026, and will operate in conjunction with the new legislative framework.
Some of the key changes which will come into force from 1 April 2026 are as follows: > Introduction of “Tax Year” and Continuity of Individual Slab Rates: The Income-tax Act, 2025 introduces the concept of a single “Tax Year”, replacing the earlier distinction between the “previous year” and “assessment year” under the Income-tax Act, 1961.
Further, the existing slab rate framework for individuals under the old and new (concessional) tax regime continues without any changes, thereby ensuring continuity in the personal tax burden. > Revision of Due Dates for Filing Return of Income In order to provide additional time to taxpayers engaged in business or profession whose books of account are not subject to audit, as well as to partners of firms (and their spouses where section 10 applies) and certain trusts not requiring audit, it is proposed to rationalise the due dates for filing returns of income.
Accordingly, the due date for filing the return of income for such non-audit business/profession cases and relevant partners is proposed to be extended from 31 July to 31 August. However, the due date for individuals filing simple returns (e.g., ITR-1 and ITR-2) will continue to remain 31 July.
The revised due date framework is broadly as follows:
- 30 November– Assessees to whom special provisions (e.g., section 172 cases) apply i.e. Assessee, including partner of a firm or the spouse of such partner (where section 10 applies to such spouse)
- 31 October– Companies, assessees whose accounts are required to be audited, and partners of audited firms (including applicable spouses).
- 31 August– Assessees having income from business or profession not requiring audit, and partners of non-audit firms (including applicable spouses).
- 31 July– All other assessees.
These amendments are proposed to take effect:
From 1 April 2026 under the Income-tax Act, 2025 (applicable from Tax Year 2026-27 onwards);
and From 1 March 2026 under the Income-tax Act, 1961 (applicable for Assessment Year 2026-27, i.e., Previous Year 2025-26).
Extension of Time Limit for Filing Revised Return Section 263 of the Income-tax Act, 2025 allows taxpayers to revise an original or belated return to correct any omission or incorrect statement. Currently, such revised return must be filed within nine months from the end of the relevant tax year or before completion of assessment, whichever is earlier. It is proposed to extend this time limit to twelve months from the end of the relevant tax year, as the existing timelines for filing belated and revised returns currently coincide, leaving limited opportunity to revise returns filed towards the end of the prescribed period.
A fee is also proposed for revised returns filed after nine months but within twelve months.
Fee for delayed revised return: In accordance with section 428(b) read with section 263(5), a fee of Rs. 1,000 is payable where a revised return is filed after nine months from the end of the relevant tax year and total income does not exceed Rs. 5 lakh, and Rs. 5,000 where total income exceeds Rs. 5 lakh.
-Increase in Rates of Securities Transaction Tax (STT) The Securities Transaction Tax (STT) framework, introduced under the Finance (No. 2) Act, 2004, is proposed to be revised with effect from 1 April 2026 in view of the substantial growth in derivatives trading and concerns regarding increased speculative activity in the futures and options segment.
Rationalisation of TCS Rates on Specified Transactions:
It is proposed to rationalise the rates of Tax Collected at Source (TCS) on certain specified transactions with a view to simplifying the levy and aligning it with evolving economic and compliance considerations. The proposed revisions are summarised below:
It is pertinent to note that while most of the TCS rates have been rationalised @ 2%, TCS on Sale Motor Vehicle or any other luxury goods retained at 1%
Perquisite Exclusion for Home-to-Office Travel As per section 17 of the Income-tax Act, 1961, the value of any vehicle provided by the employer for an employee’s journey between residence and the place of work (and the return journey) was excluded from the scope of taxable perquisites.
The Income-tax Act, 2025 expands and clarifies this position. Section 17(2)(e) provides that the exclusion from perquisites will extend not only to situations where the employer directly provides a vehicle, but also to any expenditure incurred or reimbursed by the employer for the employee’s commuting travel between home and office. Accordingly, the scope of the exemption is broadened to cover employer-borne commuting costs, thereby ensuring that such expenditure is not treated as a taxable perquisite in the hands of employees. As such, while the exemption for home-to-office travel continues under the ITA 2025, the provision widens its applicability by covering both employer-provided vehicles and employer-incurred commuting expenses, thereby providing greater clarity and flexibility in structuring employee transportation arrangements.
Taxation of Share Buybacks Currently, consideration received by a shareholder on buyback of shares by a company is treated as dividend income under section 2(40)(f) and taxed accordingly. Correspondingly, the cost of acquisition of the shares extinguished on buyback is recognised as a capital loss under section 69. It is proposed to rationalise the tax treatment of buyback transactions by providing that the consideration received on buyback shall be chargeable to tax under the head “Capital gains”, instead of being treated as dividend income.
Further, in case of promoters, a higher effective tax liability is proposed resulting in a tax incidence of 30% (inclusive of applicable additional tax). In the case of promoter companies, the tax rate is proposed to be 22%. The said tax rates would be increased by applicable surcharge and cess. Once legislated, these amendments are proposed to take effect from 1 April 2026 and will apply from Tax Year 2026-27 onwards.
Disallowance of Interest Deduction Against Dividend and Mutual Fund Income Section 57 of the IT Act 1961 permitted a deduction in respect of interest expenditure incurred for earning dividend or income from units of mutual funds, subject to a ceiling of 20% of such income.
The Income-tax Act, 2025 proposes a significant change in this regard. Section 93(2) seeks to completely disallow any deduction of interest expenditure incurred for earning dividend income or income from mutual funds. As a result, the earlier benefit of partial deduction is withdrawn, which may lead to higher taxable income for investors deriving such passive income.
However, it is pertinent to note that interest expenditure incurred for earning other forms of interest income (not being dividend or mutual fund income) would continue to be allowable, subject to the general provisions governing computation of income.
Thus, while the ITA 2025 tightens the deduction framework for passive investment income by removing the 20% deduction cap available under the earlier law, the allowability of interest expenditure remains intact in cases where such expenditure is incurred for earning other taxable interest income.
Disclaimer
The information provided in this blog is intended solely for general awareness and informational purposes. It is based on the proposed provisions of the Income-tax Act, 2025 and the tax proposals announced in the Union Budget 2026, which are subject to enactment, amendments, and official notifications by the Government of India.
