Mumbai, April 1: The Income Tax (I-T) Act, 2025, and its accompanying 2026 rules officially come into force on April 1, 2026, marking the start of the 2026-27 financial year. While income tax slabs remain unchanged under both the Old and New regimes, the new legislation introduces substantial revisions to corporate perquisites, tax collection rates, and investment levies. Salaried professionals, particularly those opting for the Old Tax Regime, will see a significant recalibration of tax-exempt allowances, though experts warn that new vehicle taxes and labour code adjustments could offset some of these benefits.

Major Boost for Education and Housing Exemptions

The new Act provides a long-awaited update to various monthly allowances. The exemption for children’s education has been raised from INR 100 to INR 3,000 per month, per child, while hostel expenditure exemptions have jumped from INR 300 to INR 9,000 per month. In a move reflecting shifting urban demographics, the government has expanded the list of "metro" cities for House Rent Allowance (HRA) purposes. Income Tax Act 2025: Will TDS Rules on Bank Interest Change?

Residents in Ahmedabad, Bengaluru, Hyderabad, and Pune are now eligible for a 50 per cent  salary exemption under the Old Regime, up from the previous 40 per cent limit. These cities join Delhi, Mumbai, Kolkata, and Chennai in the higher bracket.

Revised Corporate Perks and Meal Cards

Corporate benefits see a mix of relief and tighter regulation. Exemption limits for tax-free meal cards (such as Sodexo or Pluxee) have increased from INR 50 to INR 200 per meal under the Old Regime. Additionally, the annual tax-free limit for corporate gift vouchers has been tripled to INR 15,000. For employees receiving corporate loans, the threshold for tax-free "small loans" has been raised from INR 20,000 to INR 2 lakh, provided they are for medical emergencies or general use. However, loans exceeding this amount with below-market interest rates will be taxed based on the gap between the actual rate and the State Bank of India's (SBI) lending rate.

Rising Costs for Vehicle Users and Traders

The new year brings higher tax hits for those using company-provided transport. Under both tax regimes, the taxable value for corporate cars has been standardised:

  • Engines up to 1.6 litres: INR 8,000 per month.

  • Engines above 1.6 litres: INR 10,000 per month.

"For a senior executive using a large SUV with a chauffeur, these shifts could add over INR 1.2 lakh to taxable income annually," noted CA Nitin Kaushik, suggesting these hikes may cancel out other minor benefits. Investors also face a steeper cost of trading. The Securities Transaction Tax (STT) on futures has risen from 0.02 per cent to 0.05 per cent, while the tax on options transactions has increased from 0.1 per cent to 0.15 per cent. Furthermore, income from share buybacks will now be taxed as capital gains. From New Income Tax Act to Railway Tickets; Major Financial Changes Kicking In From April 1.

Rationalisation of Tax Collected at Source (TCS)

The government has streamlined TCS rates to reduce compliance hurdles. While the rate on alcoholic beverages has doubled to 2%, several other categories saw reductions:

  • Overseas tour packages: Reduced to a flat 2 per cent (previously up to 20 per cent).

  • LRS Remittances (Education/Medical): Lowered to 2 per cent.

  • General LRS Remittances: Simplified to a single 2 per cent flat rate without a threshold.

Impact of New Labour Codes on Take-Home Pay

Beyond direct taxation, the potential implementation of the four new Labour Codes may alter monthly "in-hand" salaries. The codes mandate that the "basic wage" must comprise at least 50 per cent of the total salary. For many employees, this restructuring will lead to higher Provident Fund (PF) contributions. While this increases long-term retirement savings, it will likely lead to a reduction in monthly take-home pay as companies reduce "special allowances" to maintain the same overall Cost to Company (CTC).

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(The above story first appeared on LatestLY on Apr 01, 2026 12:05 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).