The new law will apply from the tax year 2026–27 and will introduce several procedural and structural changes without altering existing income tax slabs.
Tax year to replace financial and assessment year
The system will shift to a single “tax year” concept, replacing the earlier distinction between financial year and assessment year. This change is expected to make the tax framework easier to understand and align filing processes more clearly for taxpayers.
ITR deadlines will be revised
Return filing timelines will be restructured based on taxpayer categories.
Individuals filing standard returns such as ITR-1 and ITR-2 will have to submit returns by July 31, while those with business or professional income not requiring audit will get time until August 31.
Companies and taxpayers requiring audit will need to file by October 31, and special cases will have a deadline of November 30. These revised timelines will come into effect from the 2026–27 tax year.
Revised return window will be extended
Taxpayers will get additional time to correct errors in their filings, as the deadline for revised returns will be extended to 12 months from the end of the tax year, compared with 9 months earlier.
However, a fee will apply if returns are filed after nine months, with lower penalties for income up to ₹5 lakh and higher charges beyond that threshold.
STT on derivatives will increase
The Securities Transaction Tax on certain derivative trades will be raised. Tax on options sales will increase to 0.15% from 0.10%, exercised options will be taxed at 0.15% instead of 0.125%, and futures transactions will see STT rise to 0.05% from 0.02%.
TCS rates will be rationalised
Tax Collected at Source under the Liberalised Remittance Scheme will be reduced to 2% from 5% for education and medical remittances above ₹10 lakh. Overseas tour packages will also attract a uniform 2% TCS, while other remittances will continue to be taxed at 20%.
Share buyback proceeds will be taxed as capital gains
Income from share buybacks will be treated as capital gains in the hands of recipients. Individual promoters will be taxed at 30%, while company promoters will face a 22% tax rate under the revised framework.
Sovereign Gold Bond tax treatment will change
Tax benefits on Sovereign Gold Bonds will be restricted to bonds purchased at the original issue price. Bonds acquired through the secondary market will attract capital gains tax.
Relief measures will be introduced
Interest earned on compensation awarded by Motor Accident Claims Tribunals will be fully exempt from tax, and no TDS will be deducted on such income. In addition, employer-provided transport facilities or reimbursements for commuting between home and office will no longer be treated as taxable perquisites.
PAN-based TDS system will be simplified
The process for deducting tax at source on property purchases from non-residents will be simplified. Buyers will be able to deposit TDS using PAN-linked challans, removing the requirement to obtain a TAN.
Pension tax exemption rules will be tightened
Tax exemption on armed forces pensions will be limited to personnel discharged due to physical disability. Pension received on regular retirement will not qualify for this exemption under the new rules.
Draft rules may expand allowances and reporting thresholds
Proposed Income Tax Rules, 2026, if approved, will increase certain allowances and expand PAN-linked reporting requirements. Education allowance is proposed to rise to ₹3,000 per month per child, while hostel allowance may increase to ₹9,000 per month per child.
PAN requirements are also likely to apply to a wider set of high-value transactions, including annual cash movements above ₹10 lakh, vehicle purchases above ₹5 lakh, higher-value hotel payments, and property transactions exceeding ₹20 lakh.