1961 Act Ends... Changes in Income Tax Act & Rules effective From Today
Effective today, 10 major changes under the Income Tax regime have come into force across the country.
To simplify tax terminology and streamline the tax system, the government has enacted a new Income Tax Act (Income Tax Act 2025), which will become effective from April 1, 2026. This legislation will replace the previous Income Tax Act of 1961. Under this new law, several rules have undergone revision.
These range from HRA claims and PAN-related regulations to new tax provisions within the stock market.
Ten significant changes have been introduced—spanning everything from the process of claiming HRA to ITR filing deadlines and the designation of the "Tax Year." Additionally, modifications have been made to Form 16 and other income certificates. Let us explore exactly what changes will take effect under this new legislation.
1.Tax Year
For the purpose of filing ITRs, the concepts of the "Financial Year" (FY) and "Assessment Year" (AY) have been abolished. To simplify the process, these have been consolidated into a single designation: the "Tax Year." Previously, the distinction between the Financial Year and the Assessment Year often led to confusion; this issue has now been resolved through this change.
2. ITR Deadlines
Under the new law, the deadlines for filing Income Tax Returns (ITRs) have also been revised. There remains no change to the final submission date for ITR-1 and ITR-2, which remains July 31st. However, the deadline for filing ITR-3 and ITR-4 has been extended to August 31st.
3.Higher Taxes for F&O Traders
The new legislation also introduces changes to the rules applicable to those trading in the stock market. With the increase in the Securities Transaction Tax (STT), trading in derivatives has become more expensive. Under Futures and Options (F&O), the Securities Transaction Tax (STT) has been increased from 0.02% to 0.05%. Additionally, the tax on option premiums and the excise duty on options have been raised from 0.1% and 0.125% to 0.15%.
4. Rules Regarding HRA Claims
The benefit of House Rent Allowance (HRA) will continue to be available as before, but certain conditions have been introduced. Employees must now submit their landlord's PAN details along with valid proof of rent payment. In certain instances, providing complete details of the landlord—including their PAN number and the rent amount—will be mandatory when claiming HRA.
Furthermore, another significant change has been made regarding HRA claims. Cities such as Bengaluru, Hyderabad, Pune, and Ahmedabad have now been included in the category eligible for a 50% HRA exemption, alongside Mumbai, Delhi, Chennai, and Kolkata. Under the previous regulations, this benefit was restricted solely to metropolitan cities. Under the new regulations, individuals residing in locations such as Noida and Gurugram can claim a 40% tax exemption on HRA.
5. Tax-Free Limit on Meal Cards
The tax exemption limit for food cards provided by companies has been increased from the previous rate of ₹50 per meal to ₹200 per meal. This benefit applies to food and non-alcoholic beverages provided by companies.
6. Exemption on Gifts and Vouchers
The annual tax-free limit for company-issued gift cards, vouchers, and coupons has been raised from ₹5,000 to ₹15,000 per employee. This benefit will be applicable under both the old and new tax regimes.
7. Exemption in Education Allowance
Under the old tax regime, a significant increase has been made to children's allowances. The Education Allowance per child has been raised from ₹100 to ₹3,000 per month, while the Hostel Allowance has been increased from ₹300 to ₹9,000 per month.
8. Separate Tax on Share Buybacks
Previously, tax was levied on share buybacks as 'deemed dividends' based on applicable slab rates; however, it will now be taxed under the 'Capital Gains' category. This implies that you may now be required to pay a higher amount of tax. For individual promoters, this tax will be approximately 30%, whereas for corporate promoters, it will be around 22%. For retail investors, either Short-Term Capital Gains (STCG) tax or Long-Term Capital Gains (LTCG) tax may be applicable, depending on the holding period of the shares.
9. Changes in PAN Rules
Applying for a PAN card solely on the basis of an Aadhaar card is no longer valid. Applicants are now required to submit additional supporting documents along with their application. Furthermore, a PAN has been made mandatory for cash deposits totaling ₹10 lakh or more in a financial year, the purchase of vehicles exceeding ₹5 lakh in value, payments exceeding ₹1 lakh for hotel stays or events, and real estate transactions involving immovable property valued at over ₹20 lakh.
10. Income Tax Forms
Form 130 will now be issued in place of Form 16. Similarly, Form 131 will replace Form 16A; Form 168 will replace Form 26AS; Form 138 will replace Form 24Q; and Form 140 will replace Form 26Q. Corresponding changes have been made to the names of other forms as well. However, there has been no alteration in the actual function or purpose of these forms; only their names have been changed.