New Tax Rules Effective April 1, 2026: A Practitioner's Guide to the Income-tax Act, 2025 and Related Changes

Introduction

April 1, 2026 marks the most significant reset in India's direct tax framework in over six decades. The Income-tax Act, 1961 stands repealed, replaced by the Income-tax Act, 2025, along with a fresh set of Income-tax Rules, 2026, notified by the CBDT on March 20, 2026. Alongside this structural overhaul, Budget 2026 has brought a clutch of changes to TCS rates, securities transaction tax, capital gains treatment, and return-filing timelines. For company secretaries, tax practitioners, and finance teams, this is a year where "business as usual" compliance calendars need a fresh look. This article summarises what has actually changed, what continues unaffected, and what practitioners should be doing right now.

The Income Tax Act, 2025: Structural Overhaul, Not a Policy Rewrite

It's important to set expectations correctly: the Income-tax Act, 2025 is principally a simplification and consolidation exercise, not a wholesale change in tax policy. The government has been explicit that the objective is shorter, clearer language, removal of redundant and obsolete provisions, and a more logical structure - not a new tax regime in the political sense.

"Tax Year" replaces "Previous Year" and "Assessment Year"

The single most visible change is terminology. The Act does away with the dual reference of "previous year" and "assessment year" that has confused generations of taxpayers, and replaces it with a unified concept: the Tax Year, a twelve-month period beginning April 1. Income earned in Tax Year 2026-27 will be assessed after the year ends, exactly as under the old dual-year system - the substance is unchanged, only the labelling is simplified. What was called the "assessment year" under the 1961 Act is now simply referred to as the financial year succeeding the relevant tax year.

Transitional protection - Nothing retrospective

Practitioners fielding client queries should note the transitional position clearly: the repeal does not disturb any tax year beginning before April 1, 2026. Assessments, appeals, search proceedings, and Advance Pricing Agreements already in motion under the 1961 Act continue under that Act until final resolution. Returns for AY 2026-27 (covering income earned in FY 2025-26, i.e., before the new Act took effect) will still be filed using the old forms, even though the filing itself may happen after April 1, 2026 - while advance tax for Tax Year 2026-27 onward follows the new Act. The e-filing portal will run both regimes in parallel for some time.

Income-tax Rules, 2026: The Operational Layer

The Income-tax Rules, 1962 - which had swelled to over 500 rules - have been replaced with a leaner set of roughly 333 rules under the new Act's rule-making powers. Beyond the reduction in bulk, a few changes carry real compliance weight:

• Perquisite valuation revised: children's education and hostel allowances, meal vouchers, and employer-provided car and accommodation perquisites have been recalibrated to reflect current cost levels - meal vouchers remain exempt, now up to ₹200 per day, and accommodation exemptions are now assessed against criteria such as city population, salary level, and whether the accommodation is owned or leased by the employer.
• HRA "metro" definition expanded: the list of cities qualifying for the enhanced 50% HRA exemption (as opposed to 40% for non-metros) has been widened to include four additional cities, recognising demographic shifts and the growth of new urban centres.
• PAN quoting thresholds revised and several TDS/TCS-related forms renumbered and consolidated, with the CBDT publishing FAQs and guidance notes to help taxpayers map old form numbers to the new ones.
• Cross-border and capital-market compliance tightened: a prescribed formula now governs computation of income attributable to Indian assets in offshore share transfers, aimed at reducing valuation disputes in indirect transfer cases. Separately, stock exchanges must now maintain audit trails for seven years, prevent deletion of transaction records, and submit monthly reports on modified trades - a data-integrity requirement clearly aimed at capital-market surveillance.
• Dividend distribution discipline: companies declaring dividends must now maintain share registers, hold the relevant general meetings, and pay dividends only within India, tightening domestic control over the distribution process.

Budget 2026 Changes Landing on April 1

A separate set of Budget 2026 announcements also takes effect from this date, independent of the new Act's structural changes:

TCS rate rationalisation

• TCS on sale of alcoholic liquor for human consumption, scrap, and minerals rises from 1% to 2%.
• TCS on sale of tendu leaves, and on LRS remittances for education and medical treatment, is reduced from 5% to 2%.
• TCS on LRS remittances for overseas tour packages is simplified to a single flat 2% rate, replacing the earlier dual structure of 5% and 20% depending on the amount remitted.

Securities Transaction Tax and capital gains

• Buyback proceeds, previously taxed as deemed dividends at slab rates in the hands of shareholders, are now taxed as capital gains - with an effective rate of 30% where the promoter is an individual and 22% where the promoter is a company.
• Capital gains exemption on maturity of Sovereign Gold Bonds now applies only to investors who bought the bonds at initial issue; SGBs acquired on the secondary market will attract capital gains tax on redemption.

TDS on property purchases from NRIs Buyers acquiring immovable property from an NRI seller can now discharge TDS obligations under Section 194-IA using a PAN-based challan, dispensing with the earlier requirement to obtain a separate TAN registration - a welcome procedural simplification for individual buyers who previously found TAN compliance disproportionate to a one-off transaction.

Updated return filing - tighter and costlier From April 1, 2026, updated returns can no longer be filed for FY 2020-21 (AY 2021-22), as that window has now closed. For FY 2021-22 through FY 2024-25, the additional fee for filing an updated return has been revised upward on a staggered basis. The due date for filing a revised return has also moved to March 31, aligning it with the end of the relevant assessment cycle, while belated return due dates remain unchanged.

Adjacent Compliance Changes Worth Tracking

While outside the Income-tax Act strictly speaking, two related developments are relevant to the same April 1, 2026 compliance calendar that CS and compliance professionals track:

• Companies Compliance Facilitation Scheme (CCFS-2026): a one-time window for defaulting companies to file pending ROC forms at reduced additional fees, with relief from penalties and prosecution, and a concessional route for strike-off of defunct companies via Form STK-2 - useful for cleaning up dormant or non-compliant entities without the usual director-disqualification exposure.
• GST composition scheme transition: taxpayers wishing to move from regular GST to the composition scheme for FY 2026-27 needed to file Form CMP-02 by March 31, 2026; this window has now closed, and GST-registered exporters and SEZ suppliers need a fresh Letter of Undertaking (LUT) for FY 2026-27 to continue zero-rated supplies without upfront tax payment.

What Practitioners Should Do Now

1. Re-map client compliance calendars to the Tax Year terminology, while keeping a clear internal note of which filings for FY 2025-26 still fall under the old Act and forms.
2. Update TDS/TCS configuration in payroll and vendor-payment systems to reflect the revised rates, particularly for LRS remittances and scrap/mineral transactions.
3. Review buyback-linked transactions for FY 2026-27 in light of the shift from deemed-dividend to capital-gains treatment - this changes both the incidence of tax and who bears it.
4. Flag SGB holdings acquired in the secondary market separately from those bought at initial issue, given the differentiated capital gains treatment on redemption.
5. Evaluate dormant or non-compliant group entities for the CCFS-2026 window before it lapses, particularly where director disqualification risk exists.
6. Cross-train teams on the renumbered forms - a mismatch between old and new form references is likely to be the most common source of avoidable filing errors this year.

Conclusion

The Income-tax Act, 2025 delivers on its stated promise of simplification - shorter provisions, a single "Tax Year" concept, and consolidated rules - without disturbing the substantive tax position of years already closed or in progress. The real practical burden for FY 2026-27 lies less in the Act's restructuring and more in the accompanying operational detail: revised TCS rates, the buyback-to-capital-gains shift, tighter updated-return timelines, and a new set of form numbers to learn. For practitioners, the safest approach this year is not to assume continuity - every client engagement touching FY 2026-27 onward deserves a fresh check against the new Rules and forms, rather than a carryover of last year's checklist.

The author is an Associate Company Secretary with practical experience in IPO compliance, corporate governance, and cross-border transaction structuring.