New Income Tax Law: The New Income Tax Law Comes into Effect on April 1st—What Changes Can Be Expected?

The new Income Tax Act, 2025, is set to come into force on April 1, 2026. However, taxpayers need not be concerned regarding the filing of their returns.

In a set of FAQs (Frequently Asked Questions) released by the Income Tax Department on Monday, it was clarified that income earned during the current financial year 2025-26—that is, between April 1, 2025, and March 31, 2026—will be assessed under the existing Income Tax Act, 1961; consequently, the forms notified under this Act will be utilized for this purpose.

New Law Applicable Only to Income Arising from Financial Year 2026-27 Onwards

The new law will apply exclusively to income arising from the financial year 2026-27—specifically, income earned from April 1, 2026, onwards. The Central Board of Direct Taxes (CBDT) has notified the Income Tax Rules, 2026, introducing a revised framework for allowances and perquisites applicable to salaried employees. This framework incorporates certain tax reliefs while simultaneously enforcing stricter compliance regulations.

Key changes introduced in the newly notified rules include an upward revision of the exemption limit for House Rent Allowance (HRA). While previously only four cities across the country qualified for the 50 percent exemption category, this number has now been expanded to eight.

Furthermore, the limits for children's education and hostel allowances have also been increased, now standing at ₹3,000 per month and ₹9,000 per month, respectively. Under the new legislation, the terms "Financial Year" and "Assessment Year" will be replaced by the term "Tax Year," with the aim of fostering greater uniformity within the tax structure and enhancing its comprehensibility. Other Key Features – E-filing Portal

It will facilitate compliance under both the old and new Income Tax Acts. All assessments, appeals, and other proceedings pertaining to previous years will continue under the old Act until their final resolution. Advance tax payments for the Tax Year 2026-27—commencing in June 2026—will be made in accordance with the new Act. Taxpayers will be able to claim TDS refunds on ITRs filed after the deadline without incurring any penalty charges.

In cases where the assessment of a taxpayer's income for the Assessment Year 2024-25 has already commenced prior to the enactment of the new Act, the provisions of the old Act shall apply.