Ready to step into FY27? 10 income tax changes that can impact your pocket from April 1, 2026

India’s direct tax landscape is set for a major reset from April 1, 2026, as the new Income-tax Act, 2025 replaces the decades-old 1961 law. The overhaul brings structural and procedural changes aimed at simplifying compliance, streamlining timelines and aligning tax rules with a modern economy. From revised return deadlines and a new ‘tax year’ concept to higher Securities Transaction Tax (STT) and changes in buyback taxation, the updates will affect salaried individuals, businesses and investors alike. Here is a detailed look at the key income tax changes coming into effect from the start of FY27.

New Income-tax Act, 2025 replaces old law

The biggest shift is the replacement of the Income-tax Act, 1961 with the Income-tax Act, 2025. The new framework uses simpler language and reorganises provisions to make compliance easier. It reflects changes in India’s economy, technology and financial markets over the past six decades.

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‘Tax year’ concept replaces old system

One of the most notable changes is the introduction of a single ‘tax year’. This replaces the earlier system of ‘previous year’ and ‘assessment year’, which often confused taxpayers.

Under the new structure, income earned and taxed will fall within one unified period, making filing and understanding tax obligations simpler and more intuitive.

No change in income tax slabs

For FY27, income tax slab rates remain unchanged under both the old and the concessional tax regimes. This means there is no immediate impact on the tax liability of individuals purely from slab revisions.

ITR filing deadlines revised

The government has rationalised return filing timelines to reduce last-minute pressure and improve compliance.

• July 31: Individuals filing simple returns (ITR-1, ITR-2)
• August 31: Businesses and professionals not requiring audit
• October 31: Companies and audit cases
• November 30: Special cases

Revised return window extended to 12 months

Taxpayers will now get more time to correct mistakes in their returns. The revised return filing window has been extended from nine months to 12 months from the end of the tax year.

However, a fee will apply if revisions are made after nine months:

• Rs 1,000 for income up to Rs 5 lakh
• Rs 5,000 for income above Rs 5 lakh

STT hiked on futures and options

The government has increased Securities Transaction Tax (STT) rates in the derivatives segment to curb excessive speculation.

• Options (sale): 0.10% → 0.15%
• Options (exercise): 0.125% → 0.15%
• Futures: 0.02% → 0.05%

TCS rates rationalised across transactions

Tax Collected at Source (TCS) rates have been revised to simplify the system and reduce confusion.

Key changes include:

• Alcohol: 1% → 2%
• Tendu leaves: 5% → 2%
• Scrap and minerals: 1% → 2%
• Overseas tour packages: flat 2% (earlier 5%/20%)
• LRS education/medical remittance above Rs 10 lakh: 5% → 2%

Meanwhile, TCS on luxury goods like motor vehicles remains unchanged at 1%.

Employer-paid commute now fully exempt

The scope of tax exemption on employer-provided commuting benefits has been expanded. Earlier, only company-provided vehicles were exempt.

Now, any commuting expense paid or reimbursed by the employer for travel between home and workplace will not be treated as a taxable perquisite. This offers additional relief to salaried employees.

Share buybacks to be taxed as capital gains

A major shift has been introduced in the taxation of share buybacks. From April 1, 2026, buyback proceeds will be treated as capital gains instead of dividend income.

This change alters how investors calculate tax on such transactions and may lead to a higher effective tax outgo, especially for promoters and large shareholders.

No interest deduction on dividend, MF income

The new law tightens rules on deductions. Taxpayers will no longer be allowed to deduct interest expenses incurred to earn dividend or mutual fund income.

Earlier, such deductions were permitted up to 20 per cent of the income. The removal of this benefit could increase taxable income for investors relying on passive earnings.