As the financial year 2026 comes to a close, India is set to usher in significant tax reforms with the implementation of the Income Tax Act 2025 from April 1. The new law will replace the decades-old Income Tax Act 1961 and is aimed at simplifying the country’s tax framework while making it more investment-friendly.

One of the key changes is the introduction of a single tax filing system called “Tax Year,” replacing the earlier dual system of initial and assessment income tax returns. This move is expected to reduce confusion and streamline compliance for taxpayers.

The deadlines for filing returns have also been revised. While salaried individuals filing ITR-1 and ITR-2 will continue to have a July 31 deadline, those filing ITR-3 and ITR-4, including self-employed professionals, will now get time until August 31.

For market participants, trading in derivatives will become more expensive due to an increase in the Securities Transaction Tax. The tax on futures and options has been raised, along with higher rates on option premiums and related charges.

Changes have also been introduced in salary-related benefits. House Rent Allowance claims will now require stricter documentation, including submission of the landlord’s PAN and proof of rent payments. At the same time, tax exemption on company-provided meal cards has been significantly increased to ₹200 per meal.

Employees will also benefit from a higher tax-free limit on gift cards, vouchers and coupons, which has been raised to ₹15,000 annually. Under the old tax regime, education and hostel allowances for children have seen a substantial increase, enhancing tax relief for families.

The taxation of share buybacks has been restructured, with such income now treated as capital gains instead of dividends, potentially increasing tax liability for certain investors. Similarly, tax exemptions on Sovereign Gold Bonds will now apply only to those purchased directly under RBI schemes, with secondary market purchases attracting capital gains tax.

In a move affecting investors, income from dividends and mutual funds will now be calculated without allowing deductions on interest expenses. Additionally, procedural simplifications have been introduced, including allowing a single declaration to avoid TDS on multiple income sources.

For non-resident Indian property transactions, buyers can now deduct TDS using their PAN, removing the earlier requirement of a TAN. The tax collected at source on foreign travel has also been reduced to a flat 2 percent, offering relief compared to previous higher rates.

Another notable change is the complete tax exemption on interest earned from compensation awarded by Motor Accident Claims Tribunals.

These reforms mark a significant shift in India’s taxation system, with the government focusing on simplification, compliance, and easing the burden on taxpayers while tightening certain regulations.