From 1 April 2026, the Income-tax Act 2025 will replace the Income-tax Act 1961, introducing a unified Tax Year, revised return deadlines, extended revised-return timelines, changes in STT and TCS rates, updated buyback taxation, and new rules for perquisites and interest deductions.
Starting from 1 April 2026, the Income-tax Act, 2025 (“ITA 2025”) will come into effect, replacing the Income-tax Act, 1961 (“ITA 1961”). This new legislation brings significant structural, conceptual, and procedural modifications to the direct tax framework.
Additionally, tax proposals presented in the Union Budget 2026, once enacted through the Finance Act 2026, are set to also take effect from 1 April 2026 and will function alongside this new legislative framework.
Key Changes that will be implemented as of 1 April 2026:
- Introduction of “Tax Year” and Continuity of Individual Slab Rates:
The ITA 2025 introduces a unified “Tax Year”, eliminating the prior distinction between “previous year” and “assessment year” found in the ITA 1961. Furthermore, the existing individual slab rates under both the old and new concessional tax regimes will remain unchanged, ensuring stability in personal tax obligations.
- Revision of Due Dates for Filing Returns:
To grant additional time to taxpayers involved in business or profession whose accounts are not subject to an audit, as well as to partners of firms (and their spouses where applicable) and specific trusts that do not require audits, changes to the due dates for filing income tax returns are proposed. Specifically, the due date for filing returns for non-audit business/profession cases and related partners will be extended from 31 July to 31 August. Conversely, individuals filing simple returns (e.g., ITR-1 and ITR-2) will still face the 31 July deadline.
The revised due date schedule is as follows:
- 30 November: Assessees under special provisions (e.g., section 172 cases), including partners and applicable spouses.
- 31 October: Companies, assessees with audited accounts, and partners of audited firms (including applicable spouses).
- 31 August: Assessees with non-audit business/profession income and partners in non-audit firms (including applicable spouses).
- 31 July: All other assessees.
These amendments will take effect from 1 April 2026 under the ITA 2025 (for Tax Year 2026-27 onward) and from 1 March 2026 under the ITA 1961 (for Assessment Year 2026-27, i.e., Previous Year 2025-26).
- Extension of Time Limit for Filing Revised Returns:
Section 263 of the ITA 2025 will allow taxpayers to revise an original or belated return to correct omissions or errors. Currently, such revisions must be made within nine months from the end of the tax year or before assessment completion, whichever comes first. It is proposed to extend this limit to twelve months from the end of the tax year to provide more opportunity for revisions.
A fee will also apply for revised returns filed after nine months but within the twelve-month period:
- For total income up to Rs. 5 lakh: Rs. 1,000.
- For total income exceeding Rs. 5 lakh: Rs. 5,000.
- Increase in Rates of Securities Transaction Tax (STT):
The framework for STT, established by the Finance (No. 2) Act, 2004, is set to be revised as of 1 April 2026, in light of the considerable growth in derivatives trading and concerns over increased speculative activity in futures and options.
Proposed STT adjustments are as follows:
- Sale of options in securities: 0.10% to 0.15%
- Sale of exercised options: 0.13% to 0.15%
- Sale of futures in securities: 0.02% to 0.05%
- Rationalisation of TCS Rates on Specified Transactions:
The rates of Tax Collected at Source (TCS) on certain specified transactions will be rationalized to simplify their application and align with evolving economic and compliance standards.
| Transaction / Category | Earlier TCS Rate | Proposed / New TCS Rate |
|---|---|---|
| Sale of alcoholic liquor for human consumption | 1% | 2% |
| Sale of tendu leaves | 5% | 2% |
| Sale of scrap | 1% | 2% |
| Sale of minerals (coal, lignite, iron ore) | 1% | 2% |
| Remittance under LRS exceeding Rs 10 lakh (education / medical treatment) | 5% | 2% |
| Remittance under LRS exceeding Rs 10 lakh (other purposes) | 20% | 20% (No change) |
| Sale of overseas tour packages (travel, stay, etc.) | 5% up to Rs 10 lakh; 20% above Rs 10 lakh | 2% (uniform rate) |
| Sale of motor vehicles or other luxury items | 1% | 1% (No change) |
ALSO READ: India’s New Income Tax Rules Effective From April 1, 2026: Full Breakdown for Taxpayers
- Perquisite Exclusion for Home-to-Office Travel:
Under section 17 of the ITA 1961, the value of any vehicle provided by the employer for an employee’s commute was excluded from taxable perquisites. The ITA 2025 expands this exclusion, stating that section 17(2)(e) now applies not just to vehicles directly provided by employers but also to any commuting expenses incurred or reimbursed by them. Thus, this broadened exemption ensures that employer-covered commuting costs are not treated as taxable perquisites, enhancing clarity and flexibility in structuring employee transportation.
- Taxation of Share Buybacks:
Currently, amounts received by shareholders during a buyback by a company are treated as dividend income under section 2(40)(f). The ITA 2025 proposes a change to this treatment, stating that buyback proceeds will be taxed under “Capital gains” instead of as dividend income.
Additionally, a higher effective tax rate of 30% (including applicable additional tax) will apply to promoters, while promoter companies are proposed to be taxed at 22%, with these rates subject to applicable surcharges and cess. These amendments are expected to take effect from 1 April 2026, applying to Tax Year 2026-27 onward.
- Disallowance of Interest Deduction Against Dividend and Mutual Fund Income:
Section 57 of the ITA 1961 allowed a deduction for interest expenses incurred to earn dividend or mutual fund income, subject to a 20% ceiling. The ITA 2025 proposes a significant change, as section 93(2) will completely disallow any deduction for interest incurred in generating dividend or mutual fund income, thus removing the partial deduction benefit and potentially increasing taxable income for investors earning such passive income.
However, interest expenditures incurred for other forms of interest income will still be deductible under general income computation provisions. Therefore, while the ITA 2025 tightens the deduction framework for passive investment, it retains the allowability of interest expenses for other taxable interest income.
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