New tax rules for 2026: Wider slabs and higher rebates take effect April 1

The Indian tax system undergoes a significant shift starting April 1, 2026. This date marks the official rollout of the Income Tax Act 2025, a new law that replaces the 1961 Act. The government aims to reduce legal disputes and simplify the filing process for millions of taxpayers. Alongside this legislative change, the revised tax slabs and rebate rules from the previous budget now reach their full effective scale.

Under the new regime, the basic exemption limit stands at Rs 4 lakh. However, the use of tax rebates means that many individuals will pay no tax at all. A resident individual earning up to Rs 12 lakh annually qualifies for a rebate of up to Rs 60,000 under Section 87A. This rebate effectively brings their tax liability to zero. For salaried employees, a standard deduction of Rs 75,000 further extends this benefit. Consequently, a salaried person earning up to Rs 12.75 lakh per year faces no tax outgo.

The new structure also features wider tax brackets. The highest tax rate of 30% now applies only to income exceeding Rs 24 lakh. This is a sharp increase from the previous threshold of Rs 15 lakh. By spreading the slabs, the government reduces the tax burden on middle and upper-middle-income earners.

The Income Tax Act 2025 introduces the concept of a "Tax Year," removing the old distinction between "Previous Year" and "Assessment Year." This change seeks to make the timeline of earnings and tax filings easier for the average citizen to track. The new law also cuts the total number of sections by nearly half, removing outdated rules related to abolished taxes like wealth tax.

While the new regime is the default choice, the old regime remains available for those who prefer it. Taxpayers who have large home loans or high investments in Section 80C instruments may still find the old system beneficial. However, they must actively opt out of the new regime each year to use those deductions.

Senior citizens see specific relief in the form of higher thresholds for Tax Deducted at Source (TDS). The limit for TDS on interest earned from bank deposits for seniors has doubled to Rs 1,00,000. Additionally, the TDS threshold on rental income has increased from Rs 2.4 lakh to Rs 6 lakh. These adjustments help reduce the immediate tax burden on individuals who rely on fixed income.

The government is also promoting digital compliance through a framework called "NUDGE." This system uses data to guide taxpayers toward accurate filings rather than relying solely on enforcement. As the new Act takes effect, the Central Board of Direct Taxes (CBDT) will notify new forms designed to match the simplified legal language.