New Income Tax Rules 2026 Explained: Key changes, allowances and what every taxpayer needs to know

India’s new Income Tax Act, which will come into effect from April 1, 2026, aims to simplify tax laws and make filing returns easier for taxpayers. Tax experts Sunil Garg and Bhanwar Borana discussed the key changes and what they mean for salaried employees, professionals, and businesses.

Reduction in sections, simplified language

The previous Income Tax Act was over 65 years old and had more than 800 sections. The new law reduces this to around 536 sections and removes many explanations and provisos that made the law complicated. The language has been simplified so that an average taxpayer can understand it more easily.

Add Zee Business as a Preferred Source

Change in Terminology: Tax Year

A major conceptual change is the removal of the terms 'Previous Year' and 'Assessment Year'. Instead, the system will now use a single term — 'Tax Year'. For example, Tax Year 2026–27 will refer to income earned during that period.

Relief measures and allowances

While tax slabs remain unchanged, several relief measures have been introduced:

• The education allowance exemption has been increased significantly.
• Hostel expenditure limits have been raised.
• Conveyance allowance for disabled individuals has been enhanced.
• Certain cities like Ahmedabad, Pune, Hyderabad, and Bengaluru have been added to the higher House Rent Allowance (HRA) exemption category (50 per cent of salary).

However, experts have suggested that NCR cities like Noida, Gurugram, Ghaziabad, and Faridabad should also be included in the 50 per cent HRA benefit.

Extended return filing and revision deadlines

One important change is the extension of the return filing deadline for certain taxpayers with business income (who are not required to undergo an audit). Their due date has been extended from July 31 to August 31.

The deadline for filing revised returns has also been extended from December 31 to March 31 of the relevant tax year. However:

• If income is up to Rs 5 lakh, a Rs 1,000 fee will apply for the revised return.
• If income exceeds Rs 5 lakh, the fee will be Rs 5,000.

This extension also applies retrospectively in certain cases, giving taxpayers a chance to correct mistakes and avoid penalties.

Increased disclosure in ITR forms

Taxpayers now need to provide more information through their ITR-2 and ITR-3 forms, while ITR-1 continues to offer pre-filled information with its simple design. Taxpayers must provide additional information, which includes their:

• Policy numbers for insurance claims
• Detailed deduction proofs
• Disclosure of foreign assets, ESOPs, RSUs, and foreign bank accounts

The process aims to eliminate fraudulent deduction claims while enhancing AI-based automated systems through its implementation. The government’s 'nudge campaign' has already targeted incorrect deduction claims, especially under sections related to donations and allowances.

Faster refunds, but accuracy is key

The tax department has improved its refund processing system because the department now issues most refunds within 24 to 48 hours. The system will experience delays when these conditions exist:

• Income does not match AIS (Annual Information Statement)
• Bank accounts are not validated
• Incorrect deductions are claimed

Taxpayers should verify their Form 16, AIS, and bank statements against each other before they submit their tax returns, according to experts.

Will tax experts still be needed?

According to experts, salaried individuals with simple income can easily file returns themselves using online tools and calculators provided on the Income Tax portal. However, those dealing with capital gains, ESOPs, F&O trading, business income, or foreign assets should consult professionals to avoid costly mistakes.