Income Tax Act 2026: 7 Major Changes for Salaried Employees in FY 2026-27

For the first time in over six decades, the foundation of Indian taxation has changed. On April 1, 2026, the Income Tax Act 2025 officially came into force, repealing the legendary but increasingly complex Income Tax Act of 1961. This isn't just a routine budget update; it is a complete structural overhaul designed to align the law with India's digital-first economic reality.

For salaried professionals, the transition brings both relief and homework. While the new code is written in "plain language" to reduce litigation, many familiar section numbers have disappeared, replaced by a more logical grouping. If you are starting your financial planning for FY 2026-27, understanding these 7 major shifts is critical. Using the latest tax slab calculator can help you decide between the old and new act regimes. to maximizing your take-home pay and ensuring compliance.

1. The End of the "Assessment Year" Confusion

One of the most welcome changes in the 2025 Act is the unification of the tax cycle. Previously, taxpayers had to navigate two different years: the "Previous Year" (when you earned) and the "Assessment Year" (when you filed). This often led to confusion in ITR forms and TDS challans.

Under the Income Tax Act 2025, we now use a single "Tax Year." For the current cycle, you are simply earning and planning for Tax Year 2026-27. All official communications, portals, and certificates will now reference this unified timeline, simplifying the digital filing experience.

2. Section Mapping: Familiar Faces, New Names

The most significant hurdle for taxpayers in 2026 is the renumbering of core deduction sections. While the benefits remain largely the same, the IDs you provide to your HR or quote in your tax-saving declarations have changed. The Act has consolidated 819 sections of the old code into just 536 sections.

3. New Tax Slabs for FY 2026-27 (New Tax Regime)

While the tax rates were largely carried forward from the Budget 2025 changes, the Income Tax Act 2025 makes the New Tax Regime the permanent default. The basic exemption limit has been stabilized at ₹4 lakh, and when combined with the enhanced Standard Deduction of ₹75,000 and Section 87A rebate, individuals with a total income of up to ₹12.75 lakh can effectively pay zero tax.

4. Standard Deduction: A Permanent Boost

The "Information Gain" from the new act lies in the permanence of higher deductions. The standard deduction, which was ₹50,000 for years, is now fixed at ₹75,000 for those choosing the New Tax Regime. In the Old Regime, it remains at ₹50,000.

5. TDS Compliance: Form 24Q is Now Form 138

For employers and finance teams, the reporting formats have changed. The quarterly statement of TDS on salary, which was previously filed under Form 24Q, has been replaced by Form 138. Similarly, the TDS certificate issued to employees (formerly Form 16) has a new counterpart. Many professionals are now using AI tools for ITR filing to handle these new form mappings automatically.

6. Meal Cards and Perquisites

The Income Tax Rules 2026, which accompany the new Act, have significantly revised the valuation of perquisites. Salaried employees can now receive tax-free meal benefits of up to ₹200 per meal during working hours, a massive jump from the previous ₹50 limit that had been stagnant for decades. This change alone could provide a meaningful reduction in taxable salary for many corporate employees.

7. Capital Gains & Set-off Continuity

A major concern during the transition was the loss of past tax credits. The Income Tax Department has clarified that any capital losses or business losses incurred under the 1961 Act can be carried forward and set off against income under the 2025 Act. This ensures a seamless transition for long-term investors and entrepreneurs who are shifting their books to the new framework.

Last Updated: May 06, 2026 | Source: Income Tax Department, Government of India (Official Website)