Income tax rule changes from April 1: 13 key updates you must know

An important reform to India's tax system will take place on April 1, 2026, when the Income-tax Act, 2025, goes into effect. These modifications will have an impact on how people, companies, and investors calculate taxes, report income, and adhere to TDS/TCS regulations.

From the way share buybacks and dividends are taxed, to the rationalisation of TCS and capital gains rules, these updates are designed to simplify compliance and ensure fairer taxation. Here’s a detailed look at 13 key changes coming into effect on 1 April that everyone should be aware of. These were announced by FM Nirmala Sitharaman on 1 February, 2025 while presenting the Union Budget 2026.

Key tax changes effective from 1 April 2026

Previously, proceeds from buybacks were treated as deemed dividends, subject to income tax at slab rates. From 1 April 2026, buyback proceeds will be taxed as capital gains.

Tax exemption on redemption of SGBs now applies only to bonds purchased at the original issue. Redemption of bonds bought in the secondary market will attract capital gains tax.

Income from dividends and mutual funds will be computed without allowing any deduction for interest expenditure, irrespective of any borrowing.

Several TCS rates have been rationalised to simplify collection and reduce the taxpayer burden:

Overseas tour packages: From 5%/20% to flat 2%.

Overseas education and medical remittances under LRS reduced from 5% to 2%.

Historically, companies paying Minimum Alternate Tax (MAT) at 15% could carry forward MAT credits to offset future taxes. From 1 April 2026, MAT is proposed as a final tax at 14%, meaning no further MAT credit accumulation. Existing credits earned till 31 March 2026 remain usable.

Members of the armed forces invalided out of service due to service-related disability will enjoy full tax exemption on disability pension, covering both the service element and the disability element. This provides clarity and relief for veterans and their families.

Income received on compulsory acquisition of land under the RFCTLARR Act (except Section 46) will be exempt from tax from 1 April 2026. Transactions before this date will follow existing rules. This ensures certainty for landowners and avoids disputes regarding the taxability of compensation.

Salaried individuals, however, will continue to adhere to the existing 31 July deadline.

Interest received on awards from the Motor Accident Claims Tribunal, whether by the claimant or legal heirs, will now be fully exempt from income tax. Additionally, no TDS will be deducted on such interest, ensuring recipients receive the full benefit of the compensation.

Employers can now claim deductions for contributions to the Employees’ Provident Fund (PF) and the Employees’ State Insurance (ESI) if they are deposited up to the ITR filing deadline.