7 Major Income Tax Changes from 1 April 2026 That Could Impact Your Finances

New Income Tax Act, 2025

After more than six decades, the Income Tax Act, 1961 is being replaced by the New Income Tax Act, 2025. This is arguably the most significant structural reform in Indian direct tax since the original Act came into force. The new law does not introduce wholesale changes in tax rates or liability in most cases — its primary objective is simplification, consolidation, and modernisation of the legislative text.

The new Act eliminates redundant provisions, consolidates scattered sections, and introduces cleaner language to reduce ambiguity that had historically triggered litigation. Many exemptions, deductions, and computational rules carry over but are reorganised into a more logical structure. Certain provisions that had become obsolete due to retrospective amendments or judicial decisions have been dropped.

The Income Tax department is expected to issue revised forms, circulars, and FAQs ahead of the filing season. Taxpayers and practitioners should track updates from the CBDT to ensure compliance with the new citation framework from FY 2025-26 onwards.

Revised ITR Due Date Extended to 31 March — With a Fee After 31 December

Under the Income-tax Act, 2025, the window to file a revised return has been extended from 9 months to 12 months from the end of the relevant tax year. Since the tax year ends on 31 March, 9 months = 31 December and 12 months = 31 March of the assessment year. The revised return can now be filed up to 31 March, or before completion of assessment, whichever is earlier.

However, this extended window carries an important cost: if you file a revised return after 31 December (i.e., beyond the 9-month mark), a statutory fee under Section 428(b) of the Income-tax Act, 2025 and Section 234I of the Income-tax Act, 1961 will apply. Filing within 9 months (by 31 December) remains free of any such fee. The belated return due date remains unchanged.

For taxpayers who discover errors or omissions between January and March — a wrong deduction claimed, an income head missed, a TDS mismatch — this is a genuine relief. Previously such corrections required a rectification application or appeal. Now a simple revised return suffices, at the cost of a modest statutory fee.

TCS Rate Changes Across Six Categories — Effective April 2026

Similar to the rationalisation exercise in the previous budget, Budget 2026 has revised TCS (Tax Collected at Source) rates across multiple categories with effect from 1 April 2026. The stated objectives are to ease compliance, reduce refund delays for taxpayers, and address confusion arising from the dual-rate structure that existed in certain remittance categories.

Understanding the LRS Changes

The Liberalised Remittance Scheme (LRS) changes deserve special attention. Prior to April 2026, TCS on overseas tour packages was levied at 5% for amounts up to ₹7 lakh and at 20% for amounts above. This dual structure created confusion and hardship for travellers. The flat 2% rate — without any threshold — simplifies the framework significantly and reduces the upfront tax burden for those booking international travel packages.

Similarly, the reduction from 5% to 2% for education and medical remittances acknowledges the essential nature of these expenditures and provides relief to families sending money abroad for these purposes.

Securities Transaction Tax (STT) Hike on F&O Transactions

Budget 2026 has revised the Securities Transaction Tax (STT) rates applicable to futures and options (F&O) transactions on recognised stock exchanges, effective 1 April 2026. STT is a transaction-level tax collected at the point of trade — it applies regardless of whether the trader is in profit or loss on the trade.

The hike is targeted at the derivatives segment, where retail participation and volumes have grown significantly in recent years, drawing concern from SEBI and the Finance Ministry regarding retail investor losses. The higher STT marginally increases transaction costs for high-frequency and intraday derivatives traders.

Equity delivery investors and equity mutual fund investors are unaffected — STT on delivery trades remains at 0.1% and the hike is confined to the F&O segment.

Buyback Taxation: Proceeds Now Taxable as Capital Gains in Shareholder Hands

The taxation of share buybacks has gone through two significant changes in quick succession, and it is important to understand both to appreciate what the Finance Bill 2026 actually does.

The October 2024 change (immediate prior position): Prior to the Finance Act 2025, companies paid a 20% buyback distribution tax at the corporate level and shareholders received buyback proceeds tax-free. The Finance Act 2025 (effective October 2024) abolished company-level buyback tax and made buyback proceeds taxable as deemed dividend in the hands of shareholders — at applicable slab rates (up to 30% for individuals).

The Finance Bill 2026 change (now effective 1 April 2026): The Budget 2026 goes further and restructures this again. Buyback proceeds will now be taxed as capital gains in the shareholder's hands rather than as deemed dividend. The cost of acquisition of shares tendered in the buyback will be allowed as a deduction, so only the gain (proceeds minus acquisition cost) is taxable — not the full proceeds. Short-term or long-term capital gains rates apply depending on the holding period.

Companies structuring capital return decisions must compare the post-tax cost of buybacks versus dividends afresh under this framework. For most retail investors, the shift to capital gains treatment is a net positive versus the October 2024 deemed-dividend position.

Interest Deduction Against Dividend Income Disallowed from April 2026

Under the existing provisions, taxpayers who borrowed funds to invest in dividend-yielding shares or mutual fund units could claim a deduction for the interest paid on such borrowings against their dividend income. This deduction was capped at 20% of the dividend received, but it still provided meaningful relief to leveraged investors.

From 1 April 2026, per the Union Budget 2026, this deduction is no longer available. Taxpayers can no longer offset interest expenses — however directly linked to dividend-earning investments they may be — against dividend income or income from mutual fund units.

This change has implications for portfolio structuring. If you have leveraged positions in dividend-yielding instruments, the post-tax return on those positions will decline from FY 2025-26 onwards. It may be worth reviewing whether such positions remain economically justified after the deduction removal.

Mutual fund investors receiving dividend (IDCW) payouts should similarly factor this in, particularly those who have taken margin or loans against their portfolio. Consider switching to growth options if the tax arithmetic no longer works in your favour under the new rules.

ITR-3 and ITR-4 Due Date Extended to 31 August for Non-Audit Taxpayers

Budget 2026 has extended the income tax return filing deadline for taxpayers who are required to file ITR-3 (individuals and HUFs with business or profession income, not under tax audit) and ITR-4 (Sugam — individuals, HUFs, and firms opting for presumptive taxation under Sections 44AD, 44ADA, 44AE) from 31 July to 31 August.

This one-month extension applies to non-audit taxpayers only. It will also apply retroactively to FY 2025-26, meaning the very first filing season under this extended timeline is the one coming up in mid-2026.

Despite the extended deadline, it is always advisable to file early. Delayed filing delays refunds, and any discrepancies discovered post-filing require a revised return (whose own deadline has now been extended to 31 March, as discussed above).