The Income Tax Act of 1961 is being replaced after over six decades, marking a significant shift in the financial landscape as the new Income Tax Act of 2025 takes effect on April 1, 2026. This transition is poised to impact taxpayers across various income brackets, although the new regime will not revise tax slabs for the financial year 2026-27.
Under the new structure, the income tax slabs remain unchanged: individuals earning up to Rs 4 lakh will continue to pay no tax, while those in the Rs 4-8 lakh range will face a 10% tax rate. The rates escalate to 15% for incomes between Rs 12-16 lakh, 20% for Rs 16-20 lakh, 25% for Rs 20-24 lakh, and a maximum of 30% for incomes exceeding Rs 24 lakh.
Additionally, the FASTag Annual Pass fee will see a slight increase from Rs 3,000 to Rs 3,075 starting April 1, 2026. This adjustment is part of a broader set of changes aimed at streamlining tax processes and enhancing revenue collection.
In a notable development, the Tax Collected at Source (TCS) for overseas education and medical treatment will be reduced from 5% to 2%, effective the same date. This reduction is expected to ease the financial burden on families seeking education and healthcare abroad.
Moreover, the deadline for filing ITR-3 and ITR-4 has been postponed to August 31, applicable from the financial year 2025-26 (Assessment Year 2026-27). This extension is likely to provide taxpayers with additional time to prepare their returns amidst the changes.
In terms of regulatory adjustments, the Central Board of Direct Taxes signed a record 219 Advance Pricing Agreements (APAs) during the financial year 2025-26, reflecting a proactive approach to international tax compliance.
The new Income Tax Act also simplifies tax regulations significantly, reducing the number of sections from 819 to 536 and cutting the total number of tax rules from 399 to 190. Such streamlining is expected to facilitate easier compliance for taxpayers.
Furthermore, the tax-free limit for meal vouchers has increased from Rs 50 to Rs 200 per meal, while the annual cap for gifts and vouchers has risen from Rs 5,000 to Rs 15,000. These changes are designed to enhance employee benefits and boost morale in the workplace.
Another significant adjustment is the increase in the tax-free ceiling for interest-free loans from employers, which has risen from Rs 20,000 to Rs 2,00,000. This change aims to provide greater financial flexibility for employees.
Lastly, the minimum working days required to become eligible for leave has been reduced from 240 to 180 days per year, a move that may positively impact employee work-life balance.
As these changes unfold, observers anticipate a period of adjustment for taxpayers and businesses alike, with many looking to the Central Board of Direct Taxes for further guidance on compliance under the new regulations.
