New Delhi, March 31: As India enters FY27, the government will implement the Income Tax Act 2025 from April 1, replacing the decades-old Income Tax Act 1961 and introducing sweeping reforms in compliance, structure, and taxation.
A key structural change is the introduction of a unified “tax year,” replacing the existing Financial Year (FY) and Assessment Year (AY) system, aimed at simplifying return filing and improving clarity for taxpayers.
Filing timelines have also been revised, with the July 31 deadline retained for salaried individuals, while non-audit taxpayers, including professionals and self-employed individuals, will now have time until August 31 to file returns.
The reforms include an increase in Securities Transaction Tax (STT) on derivatives trading, raising costs in the futures and options segment. At the same time, compliance norms for House Rent Allowance (HRA) claims have been tightened, requiring additional disclosures such as landlord PAN details.
Employee-related benefits have been enhanced, including higher exemptions on meal benefits and tax-free gifts, alongside increased allowances for children’s education and hostel expenses under the old tax regime.
In a significant shift, taxation on stock buybacks will move to the capital gains framework, replacing the earlier treatment as deemed dividends, impacting both promoters and retail investors.
The government has also revised the tax treatment of Sovereign Gold Bonds, limiting redemption exemptions to those acquired during original issuance, and disallowed interest expense deductions against dividend and mutual fund income funded through borrowings.
To streamline compliance, taxpayers can now submit a single declaration to avoid TDS across multiple income streams. Property buyers dealing with non-resident Indians can deduct TDS using PAN, removing the earlier requirement of obtaining a TAN.
Relief measures include a reduction in Tax Collected at Source (TCS) on foreign tours to 2%, along with lower TCS rates on remittances for education and medical purposes abroad.
Taxpayers will also benefit from an extended window to revise returns until March 31, although additional charges will apply for delayed filings beyond December.
Additionally, interest received on compensation from Motor Accident Claims Tribunal awards has been made fully tax-exempt.
The government has notified updated income tax return forms (ITR-1 to ITR-7) for AY 2026–27, with changes such as allowing reporting of income from up to two house properties under ITR-1, aimed at simplifying compliance for individual taxpayers.
