New Tax Regime From April 1 Raises Exemptions, Tightens Norms

As the new income tax law will come into effect from April 1, it will bring a set of new tax provisions this time with the beginning of the 2026-27 fiscal. The new income tax law and other budgetary provisions, including higher securities transaction tax (STT) on future and option (F&O) trade and lower tax collected at source (TCS) on overseas tour packages and the liberalised remittance scheme (LRS) remittances for medical and education purposes among others.

The Income-tax Act, 2025, will replace the Income-tax Act, 1961, with effect from Wednesday. The new law aims to present the same tax policy in a more logical, accessible, and reader-friendly format. The new tax law has been simplified and several common sections and forms have been made more tax-filing friendly for the taxpayers as well.

The Income-Tax (I-T) department has said that its e-filing portal will facilitate compliance under both the old and new I-T Acts in the transition period, and all assessments, appeals, and other proceedings relating to earlier years will continue to be conducted under the old Act until their final resolution. Besides, new safe harbour provisions with a higher threshold for software companies will come into effect from April 1, as announced in the last budget for a 20-year tax holiday up to 2047 to any foreign company that procures data centre services in India.

Taxpayers filing returns for AY 2026-27, pertaining to the period governed by the old Act, in July 2026 will do so using the forms prescribed under the old Act. Advance tax payments for Tax Year 2026-27, commencing from June 2026, will be made in accordance with the new Act.

The new law also simplifies the tax timeline by doing away with the distinction between the assessment year and the previous year, replacing it with a single tax-year framework. It also allows taxpayers to claim TDS refund even when ITRs are filed after deadlines, without any penal charges.

Another major change in income tax that would come into effect from April 1 is the Budget announcement of higher STT on F&O trade. STT on futures contracts will rise to 0.05 per cent from 0.02 per cent, while STT on options premiums and exercise of options will be hiked to 0.15 per cent from the present rate of 0.1 per cent and 0.125 per cent, respectively.

The higher STT is aimed at curbing speculative bets being placed on shares in the F&O segment of equity markets and is intended to protect small investors from heavy losses in speculative trades. The number of unique individual investors trading in the equity derivatives (F&O) segment was 1.06 crore in FY25, which dropped to about 75.43 lakh in FY26 (up to December 30, 2025).

As per a Sebi study, individual investors incurred net losses of over Rs 1.05 lakh crore in FY25. The implementation of lower TCS on overseas tour packages and on remittances under the Liberalised Remittance Scheme (LRS) for medical and education purposes is aimed at helping the middle class. TCS on overseas tour packages have been slashed to 2 per cent from 20 per cent, while on remittance for medical and education purposes, the rate would be 2 per cent, against 5 per cent currently.

Also, domestic data centre companies are likely to benefit significantly from the Budget announcement, offering a tax holiday of 20 years, as it will enable them to provide services to global clients without the risk of their foreign earnings being taxed in India.

For any overseas company that procures data centre services in India, the new law also allays fears of their global income being taxed by Indian authorities. Irrespective of whether a global company sets up its own data centre in India or procures services from an Indian data centre, the tax treatment will be the same, thereby ensuring a complete level-playing field. The effective corporate tax rate in India is 25.17 per cent.