India’s direct tax system is set for a major overhaul as the Income Tax Act, 2025 comes into force from April 1, 2026, replacing the decades-old Income Tax Act, 1961. The reform introduces significant changes in tax structure, terminology, compliance timelines, and reporting processes.
Single ‘Tax Year’ Replaces FY and AY
One of the biggest changes is the introduction of a unified ‘Tax Year’, replacing the existing concept of Financial Year (FY) and Assessment Year (AY). This move is expected to:
- Simplify tax filing
- Reduce confusion among taxpayers
- Improve clarity in compliance
Revised ITR Filing Deadlines
The government has revised return filing timelines:
- Salaried individuals: Deadline remains July 31
- Non-audit taxpayers (self-employed, professionals): Extended to August 31
Taxpayers will also get time until March 31 to revise returns, though late revisions after December may attract additional fees.
Key Announcements by Finance Minister
As announced by Nirmala Sitharaman, several policy changes have been introduced:
- Higher Securities Transaction Tax (STT): Futures and options trading to become costlier
- Stricter HRA Rules: PAN details of landlords may be mandatory in certain cases
- Expanded HRA Cities: Bengaluru, Hyderabad, Pune, and Ahmedabad added to higher exemption category
Relief Measures for Taxpayers
The government has also provided certain reliefs:
- Increased tax benefits on meal allowances
- Higher annual limit for tax-free gifts
- Enhanced deductions for children’s education and hostel expenses (under old tax regime)
Changes Impacting Investors
Several provisions affecting investors include:
- Share buyback taxation shifted from dividend to capital gains
- Tax exemption on Sovereign Gold Bonds only if purchased during original issuance
- No tax deduction allowed on interest paid for loans taken to earn dividend or mutual fund income
Simplified Compliance and TDS/TCS Changes
- A single declaration can now help avoid TDS across multiple income sources
- No TAN required for TDS deduction on property purchases from NRIs—PAN will suffice
- TCS on foreign travel reduced to 2%
- Lower TCS on remittances for education and medical purposes
Tax-Free Interest on Compensation
Interest received on compensation awarded by Motor Accident Claims Tribunals has been made fully tax-free, providing relief to claimants.
ITR Forms Notified for AY 2026-27
The government has notified updated ITR forms (ITR-1 to ITR-7) for Assessment Year 2026-27, enabling taxpayers to begin filing returns on time.
Key Update in ITR-1 Form
Experts highlight a major change in the ITR-1 (Sahaj) form:
- Taxpayers can now report income from two house properties (earlier limited to one)
This is expected to simplify filing for many individuals and pensioners.
