India’s direct tax system is set for a major overhaul as the new Income Tax Act, 2025 will come into force from April 1, 2026. The government says the new law aims to simplify tax rules, reduce paperwork, and make compliance easier for individuals and businesses.
The change matters because it will affect every taxpayer from the next financial year. While tax rates largely remain stable, the new law introduces simpler forms, revised compliance rules, and updated reporting systems. The reform replaces the six-decade-old Income Tax Act, 1961 with a modern framework.
New Income Tax Act to Take Effect from April 1, 2026
The Finance Bill confirms that income tax from April 1, 2026 will be charged under the new Income Tax Act, 2025.
The new law is designed to replace the old Act that has been in force for more than 60 years. It aims to simplify language, reduce complexity, cut down multiple proceedings and penalties, and introduce easier compliance processes. Officials say the goal is to create a modern and simpler tax system that is easier for taxpayers to understand and follow.
No Major Change in Tax Slabs for FY 2026-27
One of the biggest questions for taxpayers was whether the new law would change tax rates.
According to budget announcements, income tax slabs and rates will largely remain unchanged for FY 2026-27. This means taxpayers under both the new tax regime and old tax regime will broadly continue with the existing rate structure.
New Tax Regime Slabs (FY 2026-27)
Under the new regime, the slab structure is expected to remain as follows. Income from ₹0 to ₹4 lakh will attract no tax. Income between ₹4 lakh and ₹8 lakh will be taxed at 5%. Income from ₹8 lakh to ₹12 lakh will be taxed at 10%. Income from ₹12 lakh to ₹16 lakh will attract 15% tax. Income from ₹16 lakh to ₹20 lakh will be taxed at 20%. Income between ₹20 lakh and ₹24 lakh will attract 25% tax. Income above ₹24 lakh will be taxed at 30%.
There is also a rebate of up to ₹60,000 for eligible individuals under the new regime. This can effectively make income up to ₹12 lakh tax-free in certain cases, depending on eligibility.
Simplified Rules and Forms from April 1
The government has released draft Income-tax Rules, 2026 to implement the new Act.
Under the new framework, the number of rules is expected to reduce from 511 to around 333. The number of forms may also drop from 399 to about 190. Many outdated and redundant provisions are being removed, and the language of the law is being simplified to make compliance easier.
The aim is to ensure that filing returns and following tax procedures becomes more straightforward for ordinary taxpayers.
Simpler ITR Filing and Compliance System
The new compliance structure focuses on ease of filing and fewer technical hurdles.
The system will introduce simplified ITR forms for different taxpayer categories. There will be reduced paperwork for registrations, audits, and appeals. Reporting systems for businesses and individuals are also expected to be streamlined.
Officials say most taxpayers will need to deal with fewer forms compared to the earlier system, which should reduce confusion and errors.
Extended Window for Updated Returns
Another major change is the longer time allowed to correct tax returns.
Under the new system, taxpayers can file an updated return for up to 48 months. This allows corrections even after the normal revised return deadline has passed. The move is expected to help taxpayers fix mistakes and avoid legal disputes.
The extended window is seen as a major step toward voluntary compliance.
Changes in PAN Rules and Reporting Requirements
The draft rules also propose updates to PAN-related compliance.
The changes include revised situations where PAN must be quoted, new reporting rules for certain transactions, and updated thresholds for cash deposits and purchases. These steps aim to improve transparency and track high-value transactions more effectively.
Tax Treatment Changes for Some Transactions
The new framework also introduces changes in how certain transactions are taxed.
For example, share buyback proceeds will be taxed as capital gains from April 1, 2026. Earlier, such proceeds were treated as dividends and taxed differently. The change is expected to simplify the taxation of corporate buybacks.
Old Tax Regime to Continue as an Option
Despite the push for the new regime, the old tax regime will still remain available.
Taxpayers will continue to claim deductions and exemptions under the old system. Benefits such as House Rent Allowance (HRA) and other allowances will remain available. This ensures flexibility for taxpayers who prefer the traditional deduction-based system.
The dual-regime approach allows individuals to choose the structure that suits them best.
Key Compliance Deadlines and Procedural Changes
The new system also updates some deadlines and procedures.
In certain non-audit cases, the return filing deadline may extend to August 31. TDS and TCS provisions are expected to be rationalised, and the number of penalty proceedings may be reduced under the new Act.
These changes are aimed at lowering compliance pressure on taxpayers.
Why the New Income Tax Act Matters
The new law is one of the biggest tax reforms in recent years.
It replaces a law that is over 60 years old. It simplifies rules and reduces paperwork. It introduces easier return filing systems and offers a longer window to correct tax returns. It also modernises the tax system to suit digital transactions and a growing economy.
For most individuals, the biggest immediate impact will be simpler procedures rather than major tax rate changes.
What Taxpayers Should Do Before April 1
With the new law coming into force, taxpayers should start preparing early.
They should check which tax regime is better for their income level. It is important to review deductions and exemptions under the old regime. Keeping financial records ready for the new financial year will also help avoid last-minute confusion. Taxpayers should also stay updated on the final rules and forms issued by the government.
Early preparation can make the transition smoother.
The Bottom Line
From April 1, 2026, India will shift to a new Income Tax Act designed to simplify compliance and modernise the tax system.
While tax slabs remain mostly unchanged, the biggest impact will come from simpler rules, fewer forms, extended return windows, and updated reporting requirements.
For most taxpayers, the new law will mean less paperwork and easier filing, but it will still be important to understand the new compliance rules before the next financial year begins.
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Last Updated on: Wednesday, February 11, 2026 1:23 pm by Digital Herald Team | Published by: Digital Herald Team on Wednesday, February 11, 2026 1:23 pm | News Categories: Business