Why Is This Change Happening Now?

India’s original Income Tax Act was drafted in 1961 — a time when there were no smartphones, no digital banking, and barely any global trade. Over six decades, thousands of amendments were added to it, turning a manageable document into a complex labyrinth of clauses, sub-clauses, and provisos that even seasoned Chartered Accountants found difficult to navigate.

Finance Minister Nirmala Sitharaman announced the new law during the Union Budget 2026-27 presentation. The government’s goal was clear: to replace complexity with clarity, and to build a tax system that ordinary citizens can actually understand and comply with on their own.

This is a revenue-neutral reform — meaning the government is not using this as an opportunity to collect more taxes. The rates stay the same. What changes is how the system is organized, explained, and administered.

Tax Slabs Remain Unchanged — But Here’s the Relief

One of the most common questions Indians have been asking is: “Will my taxes go up?” The answer is no. The income tax slabs and rates introduced in Budget 2025 continue to apply under the new Act as well. The new tax regime remains the default tax regime.

For salaried individuals, the effective tax-free limit goes up to ₹12.75 lakh once you factor in the ₹75,000 standard deduction that continues under the new regime. The enhanced rebate of ₹60,000 ensures that anyone earning up to ₹12 lakh pays zero income tax.

The Biggest Win: Simpler Filing and Extended Deadlines

Ask any salaried Indian about their annual tax filing experience and you will likely hear a story of confusion, last-minute panic, and fear of making an error. The new Act directly addresses this pain point.

The deadline for filing income tax returns has been extended from December 31 to March 31. This additional three-month window means taxpayers now have much more time to verify their income, reconcile their Form 26AS, and file a clean, accurate return without being rushed.

Updated returns — which allow you to correct mistakes after the original filing — can now be filed within 48 months (4 years) from the end of the relevant tax year. Earlier, this window was only 24 months. This extended window significantly reduces anxiety around minor errors and omissions.

Salaried Employees: What Changes for You

If you draw a monthly salary, several everyday allowances you receive from your employer are getting a meaningful upgrade in their exemption limits. The previous limits were set decades ago and had become largely irrelevant given current costs of living in Indian cities.

Children’s Education and Hostel Allowance

The exemption limits for children’s education allowance and hostel allowance have been revised upwards to reflect actual market rates and inflation. Parents sending their children to school or college from another city will find this particularly useful.

Car Perquisite Valuation

If your employer provides a car, the way the taxable “perquisite” value is calculated is being updated to more accurately reflect actual usage costs. For many employees this will mean a lower taxable perquisite value than before.

Meal Vouchers Now Tax-Free Up to ₹200 Per Day

Under the proposed rules, meal vouchers provided by employers are tax-free up to ₹200 per day under the new tax regime. If you receive sodexo coupons or digital meal benefits from your company, this change directly benefits you.

Changes That Affect Businesses and Corporates

The reforms are not limited to individual taxpayers. Companies operating in India will also see some structural changes in how they are taxed, particularly those currently on the Minimum Alternate Tax (MAT) framework.

MAT Becomes a Final Tax

From April 1, 2026, the Minimum Alternate Tax will transition to become a final tax at a reduced rate of 14% (down from the existing 15%). Companies that have accumulated MAT credit up to March 31, 2026 can continue to use it as a set-off against their new regime tax liability — but only up to one-fourth of their total tax liability in any given year.

No More ICDS Headache

One persistent irritant for company accountants has been maintaining two parallel sets of accounts — one under Indian Accounting Standards (IndAS) and another under Income Computation and Disclosure Standards (ICDS). From tax year 2027-28 onwards, the requirement for a separate ICDS-based computation is being done away with. This will significantly reduce compliance burden for mid-sized and large companies.

TDS and TCS: Key Changes That Affect Your Income

Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) rules have been rationalized extensively under the new Act. Here are the changes most likely to affect you directly.

Interest received on compensation awarded by the Motor Accidents Claims Tribunal (MACT) is now fully exempt from TDS — regardless of the amount. Previously, this was subject to TDS if the interest crossed ₹50,000. This is a significant relief for accident victims and their families who were often losing a portion of their compensation to tax deductions.

From October 1, 2026, the TCS rate for remittances under the Liberalized Remittance Scheme (LRS) for education and medical purposes will be reduced from 5% to 2%. Similarly, the TCS on overseas tour packages drops to a flat 2% regardless of the package amount. For Indian parents sending children abroad for education, this translates into real cash savings.

On the legal dispute front, the mandatory pre-deposit required to file a tax appeal has been reduced from 20% to 10% of the outstanding demand. This makes it easier for small taxpayers to challenge incorrect tax assessments without blocking huge amounts of cash upfront.

What About NRIs? A Special Benefit

The new Act introduces a noteworthy provision for Non-Resident Indians returning to work in India. If an NRI was a non-resident for five consecutive years before returning, their foreign income — income that accrues or arises outside India — will be exempt from Indian tax for the first five tax years after their return, provided they return under a government-notified scheme to render services in India.

This is designed to attract skilled Indian talent working abroad back to the country, and could be relevant for professionals in global finance, technology, and healthcare who are considering returning to India.