New Delhi, March 31: India is poised for significant changes in its direct tax system as the new financial year 2027 begins. Starting April 1, 2026, the new Income Tax Act of 2025 will replace the nearly 60-year-old 1961 law, introducing various modifications in rules, terminology, and tax structures.
One of the most notable changes is the replacement of ‘Financial Year (FY)’ and ‘Assessment Year (AY)’ with a single ‘Tax Year.’ This aims to simplify the tax filing process and provide greater clarity for taxpayers.
Additionally, the deadline for filing Income Tax Returns (ITR) has been revised. For salaried employees, the deadline remains July 31, but those not subject to audit, such as self-employed individuals and professionals, will now have until August 31 to file.
Under the decisions announced by Finance Minister Nirmala Sitharaman, the Securities Transaction Tax (STT) on futures and options has been increased, making derivative trading more expensive.
The rules for claiming House Rent Allowance (HRA) have also been tightened. In certain cases, landlords will now need to provide information such as their PAN. Moreover, cities like Bengaluru, Hyderabad, Pune, and Ahmedabad have been added to the list of areas eligible for higher HRA exemptions.
The government has also provided some relief to employees. Tax benefits related to meals have been increased, and the annual limit for tax-free gifts has been raised. The previous tax system’s exemptions for children’s education and hostel expenses have also been enhanced.
Now, taxes on share buybacks will be classified as capital gains instead of dividends, impacting investors. Furthermore, tax exemptions on Sovereign Gold Bonds will only apply to those bonds purchased during the initial issue.
Under the new regulations, interest on loans taken against dividends or income from mutual funds will no longer be eligible for tax deductions.
Taxpayers can now submit a single declaration to avoid TDS on multiple income sources. When purchasing property from NRIs, a TAN will no longer be required; a PAN will suffice.
The Tax Collected at Source (TCS) on foreign travel has been reduced to 2%, while TCS on funds sent abroad for education and medical expenses has also been lowered.
Taxpayers will have until March 31 to revise their returns; however, late submissions after December will incur additional fees.
Moreover, interest received on compensation awarded by the Motor Accident Claims Tribunal has been completely exempt from tax.
The government has notified the Income Tax Return forms (ITR-1 to ITR-7) for the assessment year 2026-27, aiding individuals, pensioners, and other taxpayers in filing their returns within the stipulated timeframe.
Experts note that the updated forms include significant changes. For instance, the ITR-1 (Sahaj) form will now allow income from two houses, whereas previously it was limited to one. This is expected to streamline the filing process for many taxpayers.
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