- What Actually Changed — and What Did Not
- From Assessment Year to Tax Year — The Terminology Shift
- Form 16 is Now Form 130 — Impact on Employees
- HRA Rules Updated — New Cities Added
- Deductions Under the New Act — Section Number Changes
- New Tax Regime Reinforced — What Salaried Employees Must Know
- What You Need to Do Before 31 July 2026
From 1 April 2026, India's Income Tax Act, 1961 — which governed personal and corporate taxation for 64 years — stands repealed and replaced by the Income Tax Act, 2025. For most salaried employees, the immediate reaction has been concern: Have my deductions changed? Does Section 80C still exist? Will my ITR filing process be different this year?
This guide provides clear, factual answers to what changed, what did not, and what salaried employees need to do.
If you earn salary, have FD interest, maybe some mutual fund gains, and file ITR-1 or ITR-2 every July — almost nothing changes for you this filing season. Your AY 2026-27 return (July 2026 filing) is still under the old 1961 Act. The new Act affects returns filed for income earned from April 2026 onwards. Your tax rates, deductions, and filing process are unchanged for now.
What Actually Changed — and What Did Not
| Aspect | What Changed | Effective From |
|---|---|---|
| Tax rates and slabs | No change — same slabs as FY 2025-26 | Already in effect |
| Standard deduction (new regime) | No change — ₹75,000 | Already in effect |
| Section 80C limit | No change — ₹1.5 lakh, available under old regime | Already in effect |
| Section 87A rebate | No change — up to ₹60,000 for income up to ₹12 lakh (new regime) | Already in effect |
| Terminology: Assessment Year | Replaced by "Tax Year" (equal to Financial Year) | From Tax Year 2026-27 |
| Form 16 → Form 130 | Annual TDS certificate renamed; content largely unchanged | For Tax Year 2026-27 |
| HRA metro cities | Bengaluru, Hyderabad, Pune, Ahmedabad added to 50% HRA list | From Tax Year 2026-27 |
| Section numbers | All section numbers reassigned — 80C is now Section 123, 80D is Section 124, etc. | From Tax Year 2026-27 |
| Form 122 (new) | New investment declaration form replacing the old IT declaration | From Tax Year 2026-27 |
From "Assessment Year" to "Tax Year" — What This Means Practically
Under the Income Tax Act, 1961, Indian taxpayers dealt with two separate year concepts that confused millions of people:
- Previous Year / Financial Year: April 2025 to March 2026 — the year you actually earn your salary.
- Assessment Year: April 2026 to March 2027 — the year you file your ITR and the department "assesses" your income.
Under the Income Tax Act, 2025, this distinction is eliminated. The new concept of "Tax Year" means the year you earn income is the same year referenced in your tax return. Tax Year 2026-27 covers income earned from April 2026 to March 2027 — and your ITR for that income is also called the Tax Year 2026-27 return.
For your current filing in July 2026, this change does not apply — your return is still for AY 2026-27 under the 1961 Act framework.
Form 16 is Now Form 130 — What Changes for You
From Tax Year 2026-27 (income earned from April 2026), employers must issue Form 130 instead of Form 16 as the annual TDS certificate for salary. The content and purpose remain identical — it shows your salary breakup, TDS deducted, and tax deposited by your employer.
For your July 2026 filing (AY 2026-27, covering April 2025–March 2026): Your employer will still issue the familiar Form 16. Request Form 16 Part A and Part B from your employer by 31 May 2026, or the extended deadline if announced. This is unchanged.
WhatsApp forwards claiming "Form 16 is abolished" or "Section 80C is removed" are factually incorrect. Section 80C continues to exist under the equivalent provision of the new Act (Section 123), with the same ₹1.5 lakh limit under the old tax regime. Form 16 applies for your current filing; Form 130 replaces it only from Tax Year 2026-27 onwards.
HRA Rules Updated — Bengaluru, Hyderabad, Pune, Ahmedabad Added
Effective from Tax Year 2026-27, the Income Tax Rules, 2026 expand the list of cities qualifying for the 50% HRA exemption (higher tier). Previously, only four cities qualified: Delhi, Mumbai, Kolkata, and Chennai. Four more cities are now added:
- Bengaluru
- Hyderabad
- Pune
- Ahmedabad
Employees in these four cities who pay rent will now compute HRA exemption at 50% of salary (basic + DA) instead of the earlier 40%. This is a meaningful increase for employees in these cities — for example, an employee with ₹60,000 monthly basic salary in Bengaluru gains an additional ₹6,000 per month (₹72,000 per year) in HRA exemption.
Note: This change applies from Tax Year 2026-27 (April 2026 income onwards), not for your current filing.
New HRA Disclosure Requirement — Rent Paid to Family Member
From Tax Year 2026-27, if you pay rent to a parent, spouse, or sibling and claim HRA exemption, and the annual rent exceeds ₹1 lakh, you must disclose the relationship with the landlord and their PAN in the new Form 124. Failure to file this declaration will invalidate the HRA claim.
Deductions Under the New Act — Section Number Changes (From Tax Year 2026-27)
All section numbers under the Income Tax Act 2025 are reassigned. The deductions themselves continue to exist (under the old tax regime) but are referenced by new numbers. Here is a mapping of the most common deductions:
| Deduction | Old Section (1961 Act) | New Section (2025 Act) | Limit |
|---|---|---|---|
| Tax-saving investments (PPF, ELSS, LIC, etc.) | 80C | Section 123 | ₹1.5 lakh |
| Health insurance premium | 80D | Section 124 | ₹25,000/₹50,000 |
| Home loan interest (self-occupied) | Section 24(b) | Section 71 | ₹2 lakh |
| NPS contribution (employee) | 80CCD(1) | Section 123 | Within 80C limit |
| NPS contribution (employer) | 80CCD(2) | Section 126 | Up to 14% of salary |
| Education loan interest | 80E | Section 130 | No limit |
| Donations to approved institutions | 80G | Section 133 | 50%/100% of donation |
| Standard deduction (salary) | Section 16(ia) | Section 62 | ₹75,000 (new regime) |
The Income Tax Department has released a mapping utility on the e-filing portal that allows taxpayers and professionals to find the corresponding section of the Income Tax Act, 2025 for any provision of the 1961 Act. This is available under the "What's New" section at incometax.gov.in.
New Tax Regime Reinforced — The Default System from April 2026
Under the Income Tax Act 2025, the new tax regime (lower rates, fewer deductions) is structurally reinforced as the default system. The old regime continues but requires an active opt-out declaration each year for those without business income.
The practical implication for salaried employees in Tax Year 2026-27 (April 2026 filing next year): if your employer does not receive a declaration from you about regime choice by April 2026, TDS will be deducted under the new regime by default.
Deductions Available Under New Regime (Tax Year 2026-27 Onwards)
- Standard deduction — ₹75,000
- Employer NPS contribution — Section 126 (up to 14% of salary)
- Gratuity, leave encashment — exempt as per prescribed limits
- Interest on let-out property — no set-off cap for rental property (unlike old regime's ₹2 lakh cap)
Deductions NOT Available Under New Regime
- HRA exemption
- LTA exemption
- Section 80C (PPF, ELSS, LIC, tuition fees, home loan principal)
- Section 80D (health insurance premium)
- Section 24(b) home loan interest on self-occupied property
- Most other Chapter VI-A deductions
What Salaried Employees Need to Do Before 31 July 2026
- Collect Form 16 from your employer by 31 May 2026 (or extended deadline). Ensure both Part A (TDS details) and Part B (salary breakup) are received.
- Download AIS and Form 26AS from the income tax e-filing portal. Verify all income sources, TDS credits, and interest income match your records.
- Decide your tax regime for AY 2026-27. Run both scenarios — new regime and old regime — using your actual income and deduction figures. The old regime may still be better if you have significant HRA, home loan, or 80C investments.
- File by 31 July 2026 to avoid the ₹5,000 late fee under Section 234F.
- Submit Form 122 to your employer in April 2026 (for Tax Year 2026-27 TDS planning) declaring your tax regime choice and investment details.