New Income Tax Act 2025: What Changes from 1 April 2026 and How to Prepare

A Historic Transition: Replacing the 63-Year-Old Tax Law

India is about to witness its most significant tax legislation overhaul in over six decades. The Income Tax Act, 2025 — enacted to replace the Income Tax Act, 1961 — comes into effect on 1 April 2026. Combined with the changes announced in Union Budget 2026-27, this represents a fundamental restructuring of how India taxes income, deducts tax at source, and administers compliance.

For businesses, salaried individuals, NRIs, startups, and professionals, understanding these changes before the 1 April deadline is not optional — it is essential. This article provides a comprehensive overview of the key changes and practical steps for preparation.

Why a New Act? What Was Wrong With the Old One?

The Income Tax Act, 1961 had been amended over 4,000 times across 65 years. What began as a 298-section statute had grown into an unwieldy labyrinth of provisions, provisos, explanations, and exceptions — often contradictory, frequently litigated, and increasingly difficult for ordinary taxpayers to navigate.

The new Act aims to:

Simplify language: Plain English drafting with fewer cross-references and nested provisos
Reduce litigation: Clearer provisions to minimise interpretational disputes
Modernise compliance: Technology-first approach with automated processes
Consolidate amendments: Integrate decades of piecemeal changes into a coherent framework

Finance Minister Nirmala Sitharaman noted that the new income tax forms have been “redesigned such that ordinary citizens can comply without difficulty.” New simplified rules and forms are being notified ahead of the 1 April implementation.

Key Changes Effective from Budget 2026-27

1. TDS and TCS Rationalisation: The Biggest Practical Impact

The Budget 2026 overhaul of TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) provisions is the most immediately felt change for both individuals and businesses.

TCS Rate Reductions

Category	Old TCS Rate	New TCS Rate (2026)
LRS — Education & Medical Remittances	5%	2%
Overseas Tour Packages	5% / 20%	2% (flat)
Alcoholic Liquor, Scrap, Minerals	Various	2% (rationalised)

Impact for NRIs and students abroad: If you are remitting money for education or medical treatment under the Liberalised Remittance Scheme (LRS), your upfront TCS burden drops significantly. For a ₹20 lakh education remittance, the TCS drops from ₹1,00,000 to ₹40,000 — an immediate cash flow improvement of ₹60,000.

Simplified TDS for Property Purchases from NRIs

Previously, when a resident Indian purchased immovable property from an NRI seller, the buyer had to apply for a TAN (Tax Deduction Account Number) and navigate complex Section 195 provisions. Budget 2026 eliminates the TAN requirement — buyers can now deduct TDS using their PAN and file a simplified challan-cum-statement. This change, effective from 1 October 2026, significantly eases NRI property transactions.

Automated Lower/Nil TDS Certificates

For small taxpayers, freelancers, consultants, and senior citizens whose income falls below the taxable threshold, obtaining a certificate for lower or nil TDS was previously a cumbersome process requiring manual application to the Assessing Officer. Budget 2026 introduces a rule-based, automated electronic mechanism — eligibility will be determined by objective parameters like income level and compliance history, without officer discretion.

Single Form 15G/15H Submission via Depository

Senior citizens and small investors no longer need to submit Form 15G or 15H separately to every bank and company. A single submission to the depository will be automatically shared with all linked entities — eliminating unnecessary TDS deductions and the need for refund claims.

2. Manpower Services Brought Under TDS

Supply of manpower services is now brought within the ambit of “payment to contractors” for TDS purposes. TDS will be deducted at 1% or 2% on such payments. This impacts staffing companies, outsourcing providers, and any business that engages contract labour through manpower agencies.

3. Share Buyback Taxation Overhaul

All share buybacks will now be taxed as capital gains (previously treated as dividend income). An additional buyback tax applies to promoters, making the effective tax rate 22% for corporate promoters and 30% for non-corporate promoters. This is a significant change for closely-held companies and family businesses planning capital restructuring.

4. Foreign Asset Disclosure: Amnesty for Small Taxpayers

A six-month disclosure scheme has been introduced for individuals with minor foreign assets — targeting former students with dormant overseas bank accounts, tech professionals holding ESOPs/RSUs of foreign companies, and relocated NRIs. The undisclosed foreign income tax rate has been reduced from 60% to 30%, and the 10% penalty has been removed (though the 200% penalty for misreporting continues).

5. Extended ITR Filing and Revision Timelines

Non-audit trusts: Filing deadline extended to 31 August (from 31 July)
Revised returns: Deadline extended from 31 December to 31 March (with a nominal fee)
ITR-1 and ITR-2: Filing deadline remains 31 July

6. Cloud Services and Data Centre Tax Holiday

Foreign companies providing cloud services using data centres in India will receive a tax holiday until 2047. Additionally, a safe harbour of 15% on cost is provided for related entities operating data centres. This is a major incentive for global tech companies considering India as a data centre hub — directly relevant for foreign companies planning India entry.

7. IT Services Safe Harbour Expansion

Software development, IT-enabled services, KPO services, and contract R&D have been consolidated into a single “Information Technology Services” category with a common safe harbour margin of 15.5%. The threshold for availing safe harbour has been dramatically increased from ₹300 crore to ₹2,000 crore. This is excellent news for India’s IT and LPO industry.

What Businesses Must Do Before 1 April 2026

For Companies and LLPs:

Audit your TDS/TCS processes: Review all existing deduction rates, thresholds, and categories against the new provisions. Update your accounting software and ERP systems.
Review manpower contracts: If you engage staffing agencies, factor in the new TDS on manpower services. Update vendor agreements and payment processes.
Reassess buyback plans: If your company was planning a share buyback, the new capital gains treatment and promoter buyback tax may require restructuring the approach.
Update compliance calendars: Map the new filing deadlines, form numbers, and procedural requirements under the 2025 Act.
Train your finance team: Ensure your accounts and compliance team understands the new Act’s structure, section numbering, and rule references.

For Individuals and NRIs:

Disclose foreign assets: If you have dormant overseas bank accounts, ESOPs, or RSUs from foreign employers — use the six-month amnesty window. The reduced 30% rate is significantly better than the penalties for non-disclosure.
Update Form 15G/15H: Once the new depository-based system is live, submit a single form to avoid unnecessary TDS on interest and dividends.
Plan property transactions: If buying property from an NRI seller, the simplified TDS process from October 2026 may make it worth timing your purchase.
Review your tax regime choice: The new regime remains the default. Evaluate whether the old regime with deductions is still beneficial for your specific situation.

How Juris Altus LLP Can Assist

Our Tax Advisory and Corporate Compliance practice is helping businesses and individuals transition smoothly to the new tax framework. Our services include:

New Act Transition Audit: Comprehensive review of your current tax position and identification of changes that affect your business
TDS/TCS Compliance Setup: Updated processes, rate tables, and software configuration guidance
NRI Tax Planning: Foreign asset disclosure, property transaction structuring, and LRS advisory
Corporate Restructuring: Buyback taxation analysis, safe harbour assessments, and transfer pricing advisory
FEMA & Cross-Border Compliance: For foreign companies entering India — integrated tax + FEMA + corporate law advisory

This article is for informational purposes only and does not constitute tax advice. Tax laws are complex and change frequently — always consult a qualified tax professional or chartered accountant for advice specific to your circumstances.

Author: Juris Altus LLP — Tax Advisory & Corporate Compliance Practice
Published: March 2026

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