Introduction
India's income tax framework is undergoing its biggest transformation in over six decades. The Union Budget 2025 introduced major relief for the middle class with revised tax slabs, while the Union Budget 2026 focused on compliance simplification and the implementation of the new Income Tax Act, 2025 — which replaces the old Income Tax Act, 1961 from 1st April 2026.
This blog covers all the key changes point-wise, separately for salaried individuals and business/professional taxpayers, across both financial years.
Part A: Changes Applicable from FY 2025-26 (AY 2026-27)
These changes were introduced by the Union Budget 2025 and are effective from 1st April 2025.
I. For Salaried Individuals
1. Revised Income Tax Slabs Under New Tax Regime (Default Regime)
The new tax regime has been made more attractive with lower rates and wider slabs. The revised slabs for FY 2025-26 are:
Income Slab (Rs.) | Tax Rate (FY 2025-26) | Previous Rate (FY 2024-25) |
|---|---|---|
Up to 4,00,000 | Nil | Nil (up to 3,00,000) |
4,00,001 to 8,00,000 | 5% | 5% (3L to 7L) |
8,00,001 to 12,00,000 | 10% | 10% (7L to 10L) |
12,00,001 to 16,00,000 | 15% | 15% (10L to 12L) |
16,00,001 to 20,00,000 | 20% | 20% (12L to 15L) |
20,00,001 to 24,00,000 | 25% | 30% (above 15L) |
Above 24,00,000 | 30% | 30% (above 15L) |
Key Takeaway: The basic exemption limit has increased from Rs. 3 lakh to Rs. 4 lakh, and a new 25% slab has been introduced for Rs. 20-24 lakh income, bringing down the effective tax burden significantly.
2. Income Up to Rs. 12 Lakh is Now Tax-Free
The rebate under Section 87A has been enhanced to Rs. 60,000 (from Rs. 25,000). This means any resident individual with taxable income up to Rs. 12 lakh under the new regime will pay zero income tax.
For salaried individuals, with the standard deduction of Rs. 75,000, the effective tax-free income becomes Rs. 12.75 lakh.
3. Standard Deduction Continues at Rs. 75,000
The enhanced standard deduction of Rs. 75,000 (increased from Rs. 50,000 in Budget 2024) continues to apply under the new tax regime for salaried individuals and pensioners.
4. Old Tax Regime — No Changes
The old tax regime slabs and rates remain completely unchanged. Taxpayers can still opt for the old regime while filing their ITR if it is more beneficial.
Income Slab (Rs.) | Tax Rate (Below 60 Years) |
|---|---|
Up to 2,50,000 | Nil |
2,50,001 to 5,00,000 | 5% |
5,00,001 to 10,00,000 | 20% |
Above 10,00,000 | 30% |
5. Tax Savings Comparison — New Regime FY 2025-26 vs FY 2024-25
Gross Income (Rs.) | Tax in FY 2024-25 (New Regime) | Tax in FY 2025-26 (New Regime) | Savings (Rs.) |
|---|---|---|---|
10,00,000 | 42,500 | Nil | 42,500 |
12,00,000 | 80,000 | Nil | 80,000 |
12,75,000 (Salaried) | 91,250 | Nil | 91,250 |
15,00,000 | 1,45,600 | 1,10,500 | 35,100 |
20,00,000 | 3,02,600 | 2,60,000 | 42,600 |
25,00,000 | 4,68,000 | 3,57,500 | 1,10,500 |
Note: The above figures are approximate and include 4% health and education cess. Actual amounts may vary slightly based on individual circumstances.
6. ULIPs Taxed as Capital Gains
From FY 2025-26, maturity proceeds from Unit Linked Insurance Plans (ULIPs) with annual premiums exceeding Rs. 2.5 lakh will now be taxed as capital gains under Section 112A. This brings ULIPs at par with equity mutual funds.
7. Self-Occupied House Property — Relaxation
Earlier, you could claim two house properties as self-occupied (with nil annual value) only if you couldn't live in one due to work relocation. Now, the condition has been removed — you can claim up to two house properties as self-occupied for any reason.
8. Revised TDS Thresholds (More Cash in Hand)
TDS Section | Nature of Payment | Old Threshold (Rs.) | New Threshold (Rs.) |
|---|---|---|---|
194A | Interest on Bank Deposits (Others) | 40,000 | 50,000 |
194A | Interest on Bank Deposits (Senior Citizens) | 50,000 | 1,00,000 |
194 | Dividend | 5,000 | 10,000 |
194K | MF Income | 5,000 | 10,000 |
194DA | Life Insurance Maturity | 1,00,000 | 1,00,000 |
What This Means: Higher TDS thresholds mean less tax is deducted at source, giving you better cash flow throughout the year.
9. Updated Return (ITR-U) Filing Extended to 4 Years
You now get 48 months (4 years) from the end of the assessment year to file an Updated Return, instead of the earlier 24 months. However, additional tax applies based on the delay.
Filing Timeline | Additional Tax |
|---|---|
Within 12 months of AY end | 25% of tax + interest |
12 to 24 months | 50% of tax + interest |
24 to 36 months | 60% of tax + interest |
36 to 48 months | 70% of tax + interest |
10. Capital Gains — Simplified Holding Periods
Asset Type | Holding Period for LTCG |
|---|---|
Listed Equity Shares & Equity MFs | 12 months |
Unlisted Shares & Other Assets | 24 months |
STCG on Equity: 20% (increased from 15% w.e.f. Budget 2024)
LTCG on Equity: 12.5% (above Rs. 1.25 lakh exemption per year)
LTCG on Other Assets: 12.5%
II. For Business Persons & Professionals
1. Partner Remuneration — Limits Doubled (Section 40(b))
This is a major relief for partnership firms. The allowable deduction limits for remuneration to working partners have been doubled.
Book Profit Slab | Old Limit (Up to FY 2024-25) | New Limit (FY 2025-26 onwards) |
|---|---|---|
First Rs. 3,00,000 / Rs. 6,00,000 of book profit (or in case of loss) | Rs. 1,50,000 or 90% of book profit, whichever is higher | Rs. 3,00,000 or 90% of book profit, whichever is higher |
On balance of book profit | 60% | 60% |
Important: Partnership deed must be updated to reflect the new limits. Also, ensure the remuneration quantum is mentioned in the deed as per CBDT Circular No. 739.
2. New TDS on Partner Payments — Section 194T
From 1st April 2025, all partnership firms and LLPs must deduct TDS at 10% on payments to partners (salary, remuneration, interest, bonus, commission) if total payments exceed Rs. 20,000 in a financial year.
Payment Type | TDS Rate | Threshold |
|---|---|---|
Salary / Remuneration to Partners | 10% | Rs. 20,000 p.a. |
Interest on Capital to Partners | 10% | Rs. 20,000 p.a. |
Bonus / Commission to Partners | 10% | Rs. 20,000 p.a. |
3. Presumptive Taxation — Clarity on Profit Declaration
The new Income Tax Bill 2025 has clarified a longstanding confusion. Now under Section 44AD and Section 44ADA, taxpayers must declare the higher of:
The prescribed percentage (6%/8% for business, 50% for professionals), OR
The actual profit earned during the year
Scheme | Eligible Turnover Limit | Presumptive Profit Rate |
|---|---|---|
Section 44AD (Business) | Rs. 3 Crore (if 95% digital receipts) / Rs. 2 Crore (otherwise) | 6% (digital) / 8% (cash) |
Section 44ADA (Professionals) | Rs. 75 Lakh (if 95% digital) / Rs. 50 Lakh (otherwise) | 50% of gross receipts |
Section 44AE (Goods Carriage) | Up to 10 vehicles | Rs. 1,000 per ton per month (heavy) / Rs. 7,500 per month (other) |
4. Equalisation Levy Removed
The 6% equalisation levy on digital advertisements paid to non-resident service providers (exceeding Rs. 1 lakh) has been abolished from 1st April 2025.
5. Presumptive Taxation Extended to Non-Residents in Electronics Manufacturing
A new section (44BBD) allows non-residents engaged in electronics manufacturing in India to compute profits at 25% of the amount received for services/technology provided.
Part B: Changes Applicable from FY 2026-27 (Tax Year 2026-27)
These changes were introduced by the Union Budget 2026 and the implementation of the new Income Tax Act, 2025, effective from 1st April 2026.
I. For Salaried Individuals
1. No Change in Tax Slabs or Rates
The Union Budget 2026 did not announce any changes to the income tax slabs or rates. The slabs introduced in Budget 2025 will continue to apply for FY 2026-27.
Income Slab (Rs.) | New Tax Regime Rate | Old Tax Regime Rate (Below 60) |
|---|---|---|
Up to 4,00,000 | Nil | Nil (up to 2,50,000) |
4,00,001 to 8,00,000 | 5% | 5% (2.5L to 5L) |
8,00,001 to 12,00,000 | 10% | 20% (5L to 10L) |
12,00,001 to 16,00,000 | 15% | 30% (above 10L) |
16,00,001 to 20,00,000 | 20% | — |
20,00,001 to 24,00,000 | 25% | — |
Above 24,00,000 | 30% | — |
2. New Income Tax Act, 2025 Comes Into Force
The historic new Income Tax Act, 2025 (replacing the Income Tax Act, 1961) becomes effective from 1st April 2026. Key highlights include:
Reduces sections from 819 to 536 for simpler understanding
Introduces the "Tax Year" concept replacing "Previous Year / Assessment Year"
Simplified language and structure using the SIMPLE framework (Simple, Intelligible, Minimal, Practical, Lucid, Efficient)
New simplified Income Tax Rules and redesigned ITR forms will be notified
What This Means for You: While the law changes, your actual tax computation remains the same. The new Act reorganises the law for easier understanding — you won't pay more or less tax just because the Act changed.
3. Staggered ITR Filing Deadlines
Budget 2026 introduces different due dates based on the ITR form you file:
ITR Form | Applicable To | Due Date (From FY 2026-27) |
|---|---|---|
ITR-1 (Sahaj) | Salaried individuals (income up to Rs. 50 lakh) | 31st July |
ITR-2 | Individuals with capital gains, multiple properties | 31st July |
ITR-3 | Business/Professional income (non-audit) | 31st August (Extended from 31st July) |
ITR-4 (Sugam) | Presumptive income taxpayers (non-audit) | 31st August (Extended from 31st July) |
ITR-5/6/7 | Firms, Companies, Trusts (audit cases) | 31st October (No change) |
4. Extended Deadline for Revised ITR
The deadline for filing a revised return has been extended from 31st December to 31st March of the assessment year. However, if you revise after 31st December, a nominal fee applies:
Total Income | Fee for Late Revised Return (after 31st Dec) |
|---|---|
Up to Rs. 5,00,000 | Rs. 1,000 |
Above Rs. 5,00,000 | Rs. 5,000 |
5. No Interest Deduction on Dividend & MF Income
From FY 2026-27, you will not be able to claim interest expense as a deduction against income from dividends or mutual fund units — even if the investment was made using borrowed funds.
6. TCS Changes — Relief for Students & Travellers
TCS Category | Old Rate | New Rate (FY 2026-27) |
|---|---|---|
Foreign remittance for education (under LRS) | 5% | 2% |
Foreign remittance for medical purposes (under LRS) | 5% | 2% |
Foreign tour packages | 5% | 2% |
7. SGB Taxation — Only Original Subscribers Get Exemption
From FY 2026-27, Sovereign Gold Bonds (SGBs) will be exempt from capital gains tax at maturity only if they were originally subscribed and held continuously till maturity. SGBs purchased from the secondary market will not get this exemption.
8. Decriminalisation of Tax Offences
Budget 2026 partially decriminalises income tax offences, reducing the fear of imprisonment for smaller defaults:
Tax Amount Involved | Consequence |
|---|---|
Up to Rs. 10 lakh | Only fine — No imprisonment |
Rs. 10 lakh to Rs. 50 lakh | Imprisonment up to 6 months (reduced) |
Above Rs. 50 lakh | Imprisonment up to 2 years (reduced) |
9. Senior Citizen Deduction Increased
The deduction limit for senior citizens has been increased from Rs. 50,000 to Rs. 1,00,000, offering additional relief to elderly taxpayers.
II. For Business Persons & Professionals
1. MAT — Now a Final Tax at 14%
From FY 2026-27, Minimum Alternate Tax (MAT) is proposed to become a final tax at a reduced rate of 14% (down from 15%). No new MAT credit will be generated after 31st March 2026. However, MAT credit accumulated up to that date can still be utilised for set-off.
MAT Parameter | Old Provision | New Provision (FY 2026-27) |
|---|---|---|
MAT Rate | 15% | 14% |
MAT Credit | Carry forward & set-off allowed | No new credit from 1st April 2026 |
Old MAT Credit | Available | Continues to be available for set-off |
2. ICDS to be Merged with IndAS
A Joint Committee of MCA and CBDT will be formed to incorporate Income Computation and Disclosure Standards (ICDS) into Indian Accounting Standards (IndAS). From Tax Year 2027-28, separate accounting under ICDS will be done away with.
3. Share Buyback — Taxed as Capital Gains
From 1st April 2026, the amount received from share buyback will be taxed as capital gains (not as dividend). Additionally:
Corporate promoters will pay an effective buyback tax of 22%
Non-corporate promoters will pay 30%
4. STT Increased on Futures & Options
Instrument | Old STT Rate | New STT Rate |
|---|---|---|
Futures | 0.02% | 0.05% |
Options | 0.10% | 0.15% |
Impact: This will increase transaction costs for F&O traders, especially those with high-frequency trading activity.
5. Simplified TDS Compliance
No TAN required for individuals/HUFs buying property from NRIs — TDS can be deducted using PAN
Single declaration for non-deduction of tax will cover mutual funds, dividends, and bonds (no repeated forms)
Simplified procedure for small taxpayers to obtain lower/nil TDS certificates
6. Employer's PF/ESI Contribution — Extended Deadline
Employers will now get the benefit of tax deduction for PF and ESI contributions if deposited by the ITR filing due date (instead of the earlier strict monthly deadlines).
7. Assessment & Penalty Orders — Merged into Single Order
To reduce litigation, assessment and penalty orders will now be combined into a single decision, avoiding multiple proceedings against the same taxpayer.
8. Appeal Pre-Payment Reduced
The mandatory pre-payment required during appeals has been reduced from 20% to 10% of the disputed tax amount — easing the financial burden on businesses fighting tax disputes.
9. Foreign Assets Disclosure Scheme (One-Time)
A 6-month voluntary disclosure window (FAST-DS 2026) allows eligible taxpayers — students, young professionals, and returning NRIs — to disclose small foreign assets and regularise their tax position.
Quick Summary: FY 2025-26 vs FY 2026-27 at a Glance
Parameter | FY 2025-26 | FY 2026-27 |
|---|---|---|
Applicable Law | Income Tax Act, 1961 | Income Tax Act, 2025 |
Terminology | Previous Year / Assessment Year | Tax Year |
Tax Slabs (New Regime) | Revised (Budget 2025) | Same as FY 2025-26 |
Tax-Free Income (New Regime) | Up to Rs. 12 lakh | Up to Rs. 12 lakh |
Standard Deduction (Salaried) | Rs. 75,000 | Rs. 75,000 |
Section 87A Rebate | Rs. 60,000 | Rs. 60,000 |
ITR Due Date (Salaried) | 31st July | 31st July |
ITR Due Date (Non-Audit Business) | 31st July | 31st August |
Revised ITR Deadline | 31st December | 31st March (with fee) |
MAT Rate | 15% | 14% (Final Tax) |
Partner TDS (194T) | 10% (New) | 10% (Continues) |
TCS for Education (LRS) | 5% | 2% |
STT on Futures | 0.02% | 0.05% |
What Should You Do Now?
If You're a Salaried Individual:
Review your tax regime — with the new slabs, the new regime may be more beneficial even if you have some deductions
Check your Form 16 — ensure the employer is computing tax as per the latest slabs
Plan investments wisely — if staying in the old regime, maximise 80C, 80D, and HRA claims
Track your capital gains — simplified holding periods and increased STCG rates will affect your mutual fund and equity returns
If You're a Business Owner / Professional:
Update your partnership deed — to reflect the new partner remuneration limits under Section 40(b)
Set up TDS compliance for partner payments — Section 194T is now live from April 2025
Review presumptive taxation eligibility — remember, you must declare actual profit if it exceeds the prescribed percentage
Prepare for the new Income Tax Act — familiarise yourself with new section numbers, simplified forms, and the "Tax Year" concept from FY 2026-27
File ITR on time — non-audit business taxpayers now have until 31st August (from FY 2026-27)
Disclaimer
The information provided in this blog is for general awareness and educational purposes only. It is based on the Union Budget 2025 and Union Budget 2026 announcements, the Finance Bill 2025, the Finance Bill 2026, and information published by the Income Tax Department of India, Press Information Bureau, and the Ministry of Finance. Tax laws are subject to amendments, notifications, and judicial interpretations. Readers are advised to consult a qualified Chartered Accountant before making any tax-related decisions.
Author: Himanshu Majithiya & Co., Chartered Accountants, Ahmedabad
Website: www.himanshumajithiya.com
Published: February 2026 | Last Updated: February 2026
Tags: Income Tax, FY 2025-26, FY 2026-27, Budget 2025, Budget 2026, New Tax Regime, Income Tax Act 2025, Salaried, Business, TDS, TCS, Presumptive Taxation, Partner Remuneration, MAT