Income Tax Act 2025: The Complete FY 2026–27 Refresher

02Personal Tax: What Stays, What Shifts

The good news — individual tax rates under the default (new) regime are unchanged for FY 2026–27. The default regime under Section 202 of ITA 2025 continues as the automatic choice for all individuals.

Old (deductive) regime still available

Taxpayers with heavy Section 80C/80D commitments, HRA claims, or mortgage interest deductions can still opt out of the default regime. The old regime's deductions (formerly Sections 80C–80U) are now housed under Sections 122–154 of ITA 2025. Base exemption remains ₹2,50,000, with the tax-free threshold at ₹5,00,000 via rebate.

HRA parity for more cities

Bengaluru, Hyderabad, Pune, and Ahmedabad now get the 50% basic salary HRA exemption — previously reserved for Delhi, Mumbai, Chennai, and Kolkata. This is a meaningful benefit for salaried employees in these rapidly growing tech hubs.

03Corporate Tax: MAT Phase-out and Buyback Reversal

Corporate tax rates remain stable, but two structural shifts demand attention: the beginning of the end for MAT, and a complete reversal of how buyback proceeds are taxed.

MAT begins sunsetting

The Minimum Alternate Tax rate drops from 15% to 14% effective 1 April 2026. More significantly, MAT becomes a "final tax" for domestic companies — no new MAT credit accumulates from this date. Existing credit balances can only be utilised up to 25% of normal tax liability per year, with a 15-year carry-forward window. This is a deliberate, phased wind-down.

ICDS repeal

The Income Computation and Disclosure Standards (ICDS), which forced companies to maintain parallel tax-accounting adjustments, will be fully repealed effective 1 April 2027. Tax accounting will align with Ind-AS/IFRS norms, eliminating the dual-bookkeeping burden.

Mega incentives for tech and global services

Startup tax holiday extended to 2030

The tax holiday for eligible DPIIT-recognised startups (formerly Section 80-IAC) has been extended. Startups incorporated before 1 April 2030 can claim a three-consecutive-year tax holiday within a ten-year window from incorporation. This is a meaningful extension from the earlier April 2025 cutoff, giving new ventures more runway to incorporate and qualify for the benefit.

04TDS/TCS: From 65 Sections to 3

This is the single biggest operational change for businesses. The old Act had 65 separate TDS/TCS sections (194C, 194I, 194J, etc.) that every accounts-payable team had memorised. The new Act collapses everything into three master sections.

TCS rate relief

Even where the final tax liability stays the same (TCS is creditable), the cash-flow impact for collectors and customers changes significantly. Update travel operator billing systems and customer advisories.

New: TDS on partner payments (Section 194T)

Partnership firms and LLPs must now deduct TDS at 10% on salary, remuneration, commission, bonus, and interest paid to partners exceeding ₹20,000 per year. This is a brand-new withholding obligation — previously, partner payments were entirely outside the TDS net. Update your partnership accounting systems to withhold and deposit by the 7th of the following month.

Additional TCS rate changes

Additionally, the higher TDS/TCS rates for non-filers (old Sections 206AB and 206CCA) and TCS on sale of goods above ₹50 lakh (old Section 206C(1H)) have been omitted in the new Act — a significant compliance relief for businesses dealing with a large vendor/customer base.

05Capital Gains, Dividends & Investment Income

While the ITA 2025 structural transition is the headline story, several investment taxation changes from recent Finance Acts are now fully baked into the FY 2026–27 landscape. These affect every investor, trader, and HNI client.

Capital gains rates — the new normal

The capital gains rate realignment introduced in July 2024 is now the established framework for FY 2026–27. Listed equity STCG is taxed at 20% (up from 15%), and LTCG at 12.5% (up from 10%) after a ₹1.25 lakh annual exemption. For immovable property acquired before 23 July 2024, taxpayers can choose between 12.5% without indexation or 20% with indexation — whichever results in lower tax.

STT increase hits F&O traders

Securities Transaction Tax rates have been raised substantially in Budget 2026, directly increasing the cost of derivatives trading. Active F&O traders should factor this into their position-sizing and strategy economics.

Dividend and mutual fund income — deduction removed

The 20% standard deduction that was previously allowed against dividend income and mutual fund distributions under ‘Income from Other Sources’ has been abolished. Dividend and MF income is now taxed on the full gross amount with no deductions. This increases the effective tax burden for investors with significant portfolio income — factor this into dividend yield calculations and distribution planning.

06Every Form and Section Number Has Changed

The new Income-tax Rules, 2026 retire every legacy form designation. The old alphanumeric system (Form 16, 16A, 15G, 24Q, etc.) is replaced by a strictly sequential numeric system. Every payroll module, banking platform, and TDS software needs reconfiguration.

Key section number mappings

Beyond form numbers, the section numbers your team references daily have also changed. Bookmark this table — you'll need it every day until the new numbers become muscle memory:

07Filing Deadlines, Penalties, and New Obligations

The compliance calendar and penalty architecture have both been restructured. Some changes offer relief; others tighten the screws.

Return filing calendar shifts

Revised return window extended

The revised return window expands from 9 months to 12 months from the end of the tax year (i.e., until 31 March of the following year, versus the earlier 31 December deadline). A late fee applies for revisions filed beyond the 9-month mark: ₹1,000 for income up to ₹5 lakh, ₹5,000 for income above ₹5 lakh. This gives businesses a meaningful additional window to correct omissions — but budget for the fee.

Fee-based penalty architecture

Several traditional penalties are converted into a graded fee system under ITA 2025. Late returns, delayed audit reports, and late revised returns now trigger specific fee tiers based on income thresholds. Update engagement letters to reflect the shift from "penalty risk" to "fee liability" for technical defaults.

FAST-DS 2026 amnesty

The Foreign Assets of Small Taxpayers Disclosure Scheme (FAST-DS 2026) offers a 6-month amnesty window for residents who failed to disclose foreign assets or income. The cost: 30% tax on fair market value + 100% penalty (effectively ~60% of the asset value) + ₹1 lakh processing fee. Eligibility caps: ₹1 crore general, ₹5 crore for assets acquired while non-resident. This provides immunity from prosecution under the Black Money Act, 2015.

08Assessment, Disputes, and Presumptive Taxation

Several long-running procedural controversies are resolved, and the presumptive taxation framework gets a meaningful upgrade.

JAO vs FAO jurisdiction — settled

The bitter dispute over whether reassessment notices must be issued by the Faceless Assessing Officer (FAO) is resolved. The law now explicitly provides: the Jurisdictional Assessing Officer (JAO) initiates reassessment (issues notices under Sections 280/281), then the case routes to NaFAC for faceless adjudication. This is retrospective from 1 April 2021, insulating past notices from challenge.

Other procedural changes

Presumptive taxation — consolidated and expanded

The separate presumptive schemes (old Sections 44AD, 44ADA, 44AE) are consolidated under Section 58 of ITA 2025. Thresholds are raised significantly, subject to maintaining 95% digital transactions.

Non-resident presumptive taxation — new scheme

A new presumptive scheme targets foreign companies providing technology or specialised services for domestic electronic manufacturing facilities. Effective from AY 2026–27, the scheme deems 25% of specified gross receipts as taxable income — bypassing complex transfer pricing audits and cost-attribution exercises. This is designed to attract global tech suppliers into India's manufacturing ecosystem with a simple, predictable tax framework.

09Your FY 2026–27 Readiness Checklist

Use this checklist to ensure your team and systems are ready for the parallel-law year.

Governance

Systems and templates

Compliance calendar

Form 141 (challan-cum-statement) must be filed within 30 days from end of the month in which deduction is made.

Client communication

Issue a formal client advisory covering: the parallel-law year, new form numbers they'll see in payroll/TDS certificates, the 31 August due date for non-audit business returns, the extended revised-return window, capital gains rate changes for investors, Section 194T impact for partnership/LLP clients, and SGB tax treatment for secondary market holders. Proactive communication reduces confusion and builds trust.