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New Tax Regime Starts April 2026: File This Year Under Old Rules

India will implement the new Income Tax Act, 2025 from April 1, 2026, but taxpayers can file returns for the upcoming financial year under the existing 1961 law for a smooth transition. The Central Board of Direct Taxes has notified updated rules offering higher exemption limits for Housing Rent Allowance and children's education allowances. The rules also introduce stricter documentation requirements for deductions and replace "financial year" with a unified "tax year" concept. These changes aim to simplify the framework and improve compliance for salaried employees and professionals.

Key Points: New Income Tax Act 2025: Transition Rules & Key Changes

  • File FY25-26 income under old 1961 Act
  • New Act applies from FY 2026-27 onwards
  • Higher HRA & children's allowance limits
  • Stricter documentation for deductions
  • "Tax year" replaces financial/assessment year
2 min read

Taxpayers to file under existing law as new income tax regime begins April 1

India's new Income Tax Act begins April 2026. File FY26 returns under old law. Learn about HRA, allowance hikes, and stricter compliance rules.

"Income for FY26... will be assessed and filed... under the current law - Tax Experts"

New Delhi, March 23

India is set to roll out the new Income Tax Act, 2025 from April 1, 2026, but taxpayers need not worry about filing this year as returns can be prepared and filed under the existing Income Tax Act, 1961, officials and tax experts said, ensuring a smooth, year‑wise transition.

The current law will continue to apply for this filing cycle, they said, adding that the government is adopting a clear, phased approach.

Income for FY26 (April 1, 2025-March 31, 2026) will be assessed and filed in AY 2026-27 under the current law, while the new Act will apply only to income earned from FY 2026-27 onwards, experts clarified.

The Central Board of Direct Taxes (CBDT) notified the Income Tax Rules, 2026, introducing a revised framework for allowances and perquisites for salaried employees with some tax relief and tighter compliance.

Key changes in the newly notified rules include higher Housing Rent Allowance (HRA) exemption thresholds with more cities qualifying for the 50 per cent bracket, increased children's education and hostel allowances up to Rs 3,000 per month and Rs 9,000 per month respectively.

It also raised limits for certain tax‑free benefits such as gifts and meal vouchers; a revised method for valuing perquisites such as company cars. Meanwhile, the rules made documentation and disclosure requirements stricter for HRA and other deductions.

Further, the terms "financial year" and "assessment year" will be replaced with a "tax year" to bring greater uniformity and to improve clarity of the tax framework.

The Income Tax Department's Draft Income‑tax Rules, 2026 proposed a comprehensive renumbering of tax forms that would improve reporting ease and enhance compliance for taxpayers, professionals, and institutions.

It had new form templates and replaced legacy form numbers that evolved over decades and will reduce ambiguity and duplication in filings for taxpayers, analysts said.

- IANS

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Reader Comments

P
Priya S
The increase in children's education and hostel allowance is a very positive step! ₹3000 and ₹9000 per month is much more realistic with today's costs. As a parent, this directly helps with managing household expenses. Thank you for this revision. 🙏
A
Aman W
"Tighter compliance" and "stricter documentation" sounds like more paperwork headaches for the common salaried person. They give with one hand (higher limits) and take away with the other (more scrutiny). Hope the new forms are truly simpler and not just a renumbering exercise.
S
Sarah B
Clarity on the transition timeline is very helpful. Filing for FY26 under the old law removes immediate uncertainty. The shift to a single "tax year" concept is a good modernization move, aligning with simpler global practices. Looking forward to less ambiguous forms.
V
Vikram M
Finally, an update to those archaic allowance limits! The HRA thresholds and children's allowances were from a different era. While the relief is modest, it's a step in the right direction. The key will be how smoothly the IT department handles the new rules and forms.
K
Kavya N
As a CA, I appreciate the attempt to reduce duplication and ambiguity. The legacy form numbers were a jungle. My respectful criticism: please ensure adequate training for frontline IT officials and a robust helpdesk. A great law fails if implementation is poor. The success lies in the execution.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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