New Income Tax Rules 2026: What Every Taxpayer Needs to Know

Every year, around late January, millions of Indians share a common ritual. We gather around our screens, tea in hand, waiting for the Finance Minister to tell us how much of our hard-earned money we get to keep. The Union Budget is like an annual report card for the nation’s finances and this time, the changes are worth paying close attention to. Whether you are a salaried professional, a business owner, or an investor in equities and mutual funds, the new income tax rules effective from April 2026 will affect how you plan, save, and invest.

So let’s break down what’s changed, what stays the same, and what you should actually do about it.

The New Tax Regime Gets More Attractive

The government has been nudging taxpayers towards the new tax regime for a few years now. And the Budget 2025 made that nudge a lot harder to ignore. Here are the key changes under the new regime, which remains the default option:

1. No income tax on earnings up to Rs 12 lakh per year: Thanks to the increased rebate under Section 87A (now Rs 60,000), if your total income is up to Rs 12 lakh, your tax bill is effectively zero. For salaried individuals, this goes up to Rs 12.75 lakh because of the Rs 75,000 standard deduction. Think of it this way someone earning Rs 1 lakh a month pays no income tax at all.
2. Revised tax slabs with lower rates: The basic exemption limit has been raised to Rs 4 lakh (from Rs 3 lakh). Income between Rs 4–8 lakh is taxed at 5%, Rs 8–12 lakh at 10%, Rs 12–16 lakh at 15%, Rs 16–20 lakh at 20%, Rs 20–24 lakh at 25%, and anything above Rs 24 lakh at 30%. These wider slabs mean more money stays in your pocket at every income level.
3. The old regime stays unchanged: If you still prefer the old tax regime because you claim HRA, Section 80C, home loan interest, and other deductions, nothing changes there. The old slabs and rates remain the same. But do the maths carefully for most people earning below Rs 15–18 lakh, the new regime is now clearly better.

The Income Tax Act 2025: A Fresh Start

This is the big structural change that doesn’t grab headlines but matters a great deal. The Income Tax Act of 1961 yes, the one that’s been around since before most of us were born is finally being replaced. The new Income Tax Act 2025 comes into effect from 1st April 2026. It trims down from over 800 sections to about 536 and simplifies the language so that ordinary taxpayers can understand what they’re reading. The tax rates and slabs remain the same, so don’t worry about any hidden surprises there. The goal is simpler compliance, fewer disputes, and redesigned ITR forms that are easier to fill.

TDS and TCS: Less Paperwork, Higher Thresholds

TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) rules have been rationalised. This is good news for both individuals and businesses. Here’s what’s changed:

• Higher TDS thresholds: The threshold for TDS on interest income from banks has been raised to Rs 1 lakh for senior citizens and Rs 50,000 for others. Rent TDS now kicks in at Rs 50,000 per month instead of the earlier annual limit of Rs 2.4 lakh. Professional fees threshold has gone up from Rs 30,000 to Rs 50,000. All of this means fewer deductions at source and less refund-chasing later.
• TCS on foreign tour packages reduced: If you’re planning a holiday abroad, TCS on overseas tour packages has been cut to 2% from the earlier 5% and 20% rates. TCS on education and medical expenses under LRS has also been reduced to 2%. This makes outbound remittances a bit easier on your cash flow.
• Simplified declarations for senior citizens: Senior citizens no longer need to file separate Form 15H with every company paying dividends or interest. A single declaration to the depository now covers mutual funds, dividends, and bonds. Less paperwork for those who deserve it most.

What Changes for Equity and Mutual Fund Investors

If you invest in stocks, mutual funds, or derivatives, pay attention to these changes:

• STT on futures and options has gone up: Securities Transaction Tax (STT) the tax you pay every time you buy or sell securities has been increased for derivatives. STT on futures has jumped from 0.02% to 0.05%, and on options premium from 0.1% to 0.15%. The government’s intent is clear: they want to discourage excessive speculative trading in the F&O segment. If you’re an active derivatives trader, your transaction costs just went up.
• Share buybacks taxed as capital gains: Until March 2026, amounts received from share buybacks were treated as dividends and taxed at your slab rate. From April 2026, buybacks will be classified under capital gains. This means the tax is calculated based on the difference between your purchase price and the buyback price, which is often more favourable for long-term investors.
• No interest deduction on borrowed investments: Income from dividends and mutual fund redemptions will now be computed without allowing any deduction for interest paid on borrowings used to make that investment. So if you’ve taken a loan to invest in dividend-yielding stocks or mutual funds, you can no longer set off the interest cost against that income.
• Sovereign Gold Bonds: exemption only for original subscribers: The capital gains tax exemption on redemption of Sovereign Gold Bonds (SGBs) now applies only if you purchased the bonds at original issue. If you bought them from the secondary market, the gains on redemption will attract capital gains tax. This is a meaningful change for SGB investors who picked up bonds on the exchange.

Filing Returns: More Time, More Flexibility

A couple of welcome changes make the ITR filing process a bit less stressful. The deadline for filing updated returns (ITR-U) has been extended from 2 years to 4 years from the end of the assessment year. So if you realise you missed reporting some income or made an error, you have a longer window to correct it though you’ll pay a higher additional tax the longer you wait. The government has also extended the deadline for filing revised returns to 31st March, and the new ITR forms under the Income Tax Act 2025 are being redesigned to be simpler and more intuitive.

What Should You Do Right Now?

Tax rules change every year, but your financial habits shouldn’t be reactive. Here’s how to put this information to use:

1. Re-evaluate old vs new regime: Sit down with your salary slip, your rent receipts, your 80C investments, and your home loan details. Run the numbers for both regimes. For most people earning under Rs 15–18 lakh, the new regime now wins. But if you have a large home loan or pay significant rent in a metro, the old regime might still work better.
2. Review your derivatives strategy: The higher STT on F&O makes speculative short-term trading more expensive. If you’re an options buyer, the impact on your breakeven is real. Consider whether your trading strategy still makes sense with the revised cost structure.
3. Check your SGB holdings: If you hold SGBs bought from the secondary market, factor in the capital gains tax on redemption. This may change your holding period decisions.

To sum up, the direction of travel is clear. The government wants a simpler tax system with fewer exemptions, lower rates under the new regime, and tighter rules around speculative trading and borrowed-money investments. For long-term equity investors and disciplined savers, these changes are largely positive. The tax saved at lower income levels can be redirected into SIPs, direct equity, or even retirement planning. The best thing you can do right now is to review your tax structure for FY 2026–27, consult your financial advisor if needed, and make sure you’re not leaving money on the table.