From April 1, India’s six-decade-old Income-tax Act, 1961 will be replaced by the Income-tax Act, 2025, marking a comprehensive rewrite of the country’s tax framework.
The government has emphasised that this is not a change in tax rates or slabs, but a shift in how income, deductions, salary, capital gains and disclosures are reported, verified and filed.
Not A Tax Hike, But A Reporting Overhaul
Tax rates and slabs remain unchanged under the new law. The focus, according to the government, is on more precise reporting and tighter compliance.
The new structure simplifies the law, reducing sections from 819 to 536, while also introducing clearer language and fewer cross-references.
Meal Benefits Get A Major Boost
Under the Income Tax Rules, 2026, the exemption limit for employer-provided meals has been increased from Rs 50 per meal to Rs 200 per meal.
This applies to benefits such as meal coupons, vouchers or cards like Sodexo, Pluxee and Zaggle, as well as subsidised office canteens.
With the revised limit:
- Rs 200 × 2 meals = Rs 400 per day
- Rs 400 × 22 working days = Rs 8,800 per month
- Rs 8,800 × 12 months = Rs 1,05,600 per year
Employees can now claim over Rs 1 lakh annually as tax-exempt through meal benefits, subject to employer structuring.
HRA Rules Expanded, Disclosures Tightened
The higher 50% HRA exemption category has been extended beyond Mumbai, Kolkata, Delhi and Chennai to include Bengaluru, Hyderabad, Pune and Ahmedabad. Other cities remain under the 40% bracket.
However, stricter disclosure norms apply. Salaried individuals must provide landlord details through Form 124 at the time of income computation and TDS deduction, making it mandatory to disclose landlord identity.
Form 16 Replaced By Form 130
From April 1, employers will stop issuing Form 16. It will be replaced by Form 130.
Unlike the earlier employer-generated format, Form 130 will be downloaded from the TRACES portal and will include detailed salary, deductions and tax computation. It will also be system-validated, reducing scope for mismatches.
The new form will apply not just to salaried individuals but also to pensioners and senior citizens.
ITR Filing Becomes System-Driven
The filing process will be heavily pre-filled and auto-validated, with errors and mismatches flagged more quickly.
Key changes include:
- Redesigned ITR forms with detailed disclosures
- Separate reporting of short-term and long-term capital gains
- Defined methods for asset valuation and holding periods
- Expanded eligibility for ITR-1 and ITR-4 (up to two houses)
The terms “Financial Year” and “Assessment Year” will be replaced by “Tax Year”.
Stricter PAN And Reporting Norms
PAN will now be required for more transactions, including high-value purchases such as car buying and selling.
The new framework also integrates the choice of tax regime within the ITR itself, removing the need for separate forms.
Refunds are expected to be faster for accurate filings, but delays may occur in cases of mismatches.
Impact Across Taxpayer Categories
- Salaried employees: New Form 130, HRA rules, perquisite changes
- Investors and traders: Detailed capital gains reporting
- High-income individuals: Additional disclosures
- NRIs: Cross-border asset reporting
- Senior citizens: Integrated pension and interest reporting
- Employers: Changes in payroll and salary structuring
Perquisites And Salary Structuring Changes
Revisions in perquisite limits could alter tax outgo depending on salary structure.
Notable changes include:
- Expanded HRA exemption cities
- Mandatory landlord disclosure
- Revised perquisite limits
- Increased car perquisite value
- Adjustments in transport allowances
Experts suggest that some salaried individuals may find the old regime more beneficial after recalculation.
What Remains Unchanged
- Tax slabs
- Tax rates
- No new taxes
- Existing rights and liabilities
Timeline And Broader Framework
The new law comes into effect from April 1, 2026 (FY27), with the first ITR under the new system to be filed in 2027.
However, compliance requirements related to salary, TDS, forms and PAN usage begin immediately.
The Act also focuses on faceless assessments, digital compliance, reduced human interface and lower litigation, while formally recognising digital spaces such as email, cloud and smartphones for search provisions.
Parallel Impact Of Labour Codes
Separately, Labour Codes effective November 21, 2025 mandate that wages form at least 50% of total pay, which may impact salary structures, take-home pay and tax planning.
What Taxpayers Should Do
- Recalculate benefits under old vs new tax regime
- Review salary structure with HR
- Ensure accurate landlord details for HRA claims
- Maintain proper capital gains documentation
- Track PAN usage in investments and purchases
- Verify TDS filings regularly
