A Reckoner for the Income Tax Act, 2025 (Effective from 1st April 2026)

A plain-English guide to the six rule changes every Indian taxpayer should know before filing for FY 2026–27.

For most of us, 1^st April is just another date on the calendar. This year, it isn't. The Income Tax Act 2025 and the new Income Tax Rules, 2026 come into force from this date, and they bring with them a fresh set of numbers, thresholds, and even renamed forms. Some of it works in your favor. Some of it asks for sharper paperwork. None of it should be ignored.

The headline question - old regime or new regime, has not gone away. But the underlying math has shifted enough that even taxpayers who had made up their minds last year would do well to run the numbers again. Here is a clear, ground-level view of what changes from 1^st April 2026 and what you should do about it.

The Old Regime Still Has a Case (Just a Narrower One)

The new Income Tax Rules, 2026 have lifted several exemption ceilings for taxpayers who continue with the old regime. That said, the new regime remains the default, in line with the government's broader push to simplify filing for the average salaried earner.

For taxpayers with sizeable home loans, life insurance premiums, NPS contributions, and rent-paying salaried professionals in metro cities, the old regime can still be the better pick. For someone earning over ₹25 lakh and not claiming HRA, however, the gap is now down to a marginal ₹21,000 to ₹25,000 in favor of the old regime, based on standard tax-calculator estimates that assume full utilization of Section 80C (₹1.5 lakh), Section 80D (₹75,000 for self, spouse, children, senior citizens and parents), and Section 24(b) home loan interest (₹2 lakh).

In other words: unless you are actively claiming a meaningful HRA exemption or a large home loan deduction, the new regime is now the easier call for most people.

Feature	Old Regime (FY 2026–27)	New Regime (Default, FY 2026–27)
Basic exemption limit	₹2.5 lakh	₹4 lakh
Standard deduction	₹50,000	₹75,000
Section 80C, 80D, HRA, LTA	Available	Not available
Home loan interest (self-occupied)	Up to ₹2 lakh deduction	Not available
Rebate under Section 87A	Income up to ₹5 lakh	Income up to ₹12 lakh
Best suited for	Taxpayers with high deductions (home loan, HRA, insurance)	Salaried with limited deductions, freelancers, senior citizens with simple incomes

Exemption Ceilings Finally Get a Reality Check

Several long-standing exemption limits have been revised upward, some of them dramatically. The Children's Education Allowance, frozen at ₹100 per child per month since the 1990s, has been raised thirtyfold to ₹3,000 per child per month. The Hostel Allowance has similarly been raised thirtyfold, from ₹300 to ₹9,000 per child per month. Tax-free employer gifts now sit at ₹15,000 a year, up from ₹5,000. And the HRA benefit has been extended to four more cities that were earlier classified as non-metro: Bengaluru, Hyderabad, Pune, and Ahmedabad. For salaried professionals living in these four cities, this is a genuine, money-in-pocket win.

Provision	Earlier Limit	Limit from 1st April 2026
House Rent Allowance (metro cities)	50% of basic salary	50%, extended to Bengaluru, Hyderabad, Pune, Ahmedabad alongside the four metros
Children's Education Allowance	₹100 per child per month	₹3,000 per child per month
Hostel Allowance	₹300 per child per month	₹9,000 per child per month
Gifts from employer (tax-free)	₹5,000 per year	₹15,000 per year

New PAN Rules Kick In

The thresholds for quoting your Permanent Account Number on financial transactions have been revised, and in many cases tightened, from 1^st April 2026. The intent is clear, bring more high-value cash dealings under the reporting net while easing reporting for genuine immovable property purchases.

Type of Transaction	Limit Until 31st March 2026	Limit from 1st April 2026
Cash withdrawal from a bank account	Over ₹20 lakh in a financial year	₹10 lakh and above in a financial year
Cash deposits in banks or post offices	Over ₹50,000 in a single day	Over ₹10 lakh in a financial year
Immovable property transactions	₹10 lakh and above	₹20 lakh and above
Sale or purchase of motor vehicle	All transactions (except two-wheelers)	Above ₹5 lakh (includes motorcycles, excludes tractors)
Cash paid at hotels or restaurants	Over ₹50,000 at one time	Over ₹1 lakh in aggregate per year

If you are buying a property up to ₹20 lakh, the PAN-quoting requirement no longer applies, a small relief. But if you regularly withdraw or deposit cash in chunks, the lower limits mean your transactions will surface in the tax department's data systems much sooner than before.

Old ITR Forms, New Names

The familiar Form 16 and Form 26AS will now go by different numbers. The structure and purpose remain the same, only the labels change. Worth noting when you receive documents from your employer or download statements from the income tax portal so that you do not waste time looking for paperwork that no longer exists under its old name.

Old Form	New Form	Purpose
Form 16	Form 130	Employer's certificate showing salary, TDS, and exemptions
Form 26AS	Form 168	Consolidated tax credit statement showing TDS, TCS, and advance tax
Form 15G / 15H	Form 121	Self-declaration confirming nil taxable income to avoid TDS

Why HRA Is Still the Single Biggest Deduction Worth Claiming

For taxpayers claiming HRA, the cities expansion under the old regime is the single biggest contributor to the math. Earlier, salaried employees in Bengaluru, Hyderabad, Pune, and Ahmedabad could only claim 40% of their basic salary as HRA exemption. Under the new rules, they are now eligible for an exemption of up to 50% at par with Mumbai, Delhi, Kolkata, and Chennai.

To put numbers on it: even at the earlier 40% of basic, a Bengaluru-based employee paying ₹40,000 in monthly rent could save anywhere from ₹70,000 to ₹90,000 in annual tax, depending on the slab. For salaried employees in these four cities, the increase to 50% HRA exemption under the old regime is a meaningful gain. Separately, those opting for the new regime benefit from a ₹75,000 standard deduction making it worth running the numbers under both regimes before deciding. 

That said, do not expect employers to immediately rejig their salary structures. Any restructuring of basic pay or allowance ratios typically happens gradually, and is more common at mid-to-large corporates that actively design compensation for tax efficiency. For most employees, the practical move is to check whether your existing rent receipts, rent agreement, and landlord's PAN are in order, and then run the comparison.

How Much of This Actually Reaches Your Pocket

There is a gap between what the law allows and what the average salaried employee actually claims. Industry estimates suggest that only about 10–15% of employers offer the full menu of cafeteria-style allowances that would let an employee use all the revised limits. The prevalence is higher in public sector undertakings, legacy organizations, and large manufacturing companies, and noticeably lower in newer sectors like technology, start-ups, and e-commerce, which prefer simpler salary structures with fewer allowance heads.

On the taxpayer side, take-up is just as low. The old ceilings, particularly the ₹100-per-month education allowance, were simply too low to justify the paperwork of submitting receipts. With the ₹12 lakh tax-free limit now available under the new regime (thanks to the expanded Section 87A rebate), most salaried employees up to that income bracket have a simpler, cleaner option that needs no documentation at all.

Whether the revised limits change this behavior depends on whether your employer updates its CTC components to include the higher allowance categories. If yours doesn't, ask. A salary structure that uses the new ceilings can put meaningful money back in your hand each month without changing your CTC.

And if you do decide to claim the full set of exemptions, prepare to keep meticulous records. Rent receipts, school invoices, hostel bills, keep them filed and accessible. Notices seeking proof of deductions are no longer rare, and the burden of proof sits firmly with the taxpayer.

Conclusion: What Should You Do Before You File

The Income Tax Act 2025 is not a wholesale overhaul. It is a series of calibrated nudges that quietly favors simplicity, transparency, and the new regime, while throwing a few well-timed bones to old regime holdouts. The best move you can make is to compare both regimes properly for FY 2026–27, before the first TDS deduction of April lands on your salary slip.

Action Point	What to Do Before You File
Pick Your Regime Wisely	Compare your tax outgo under both regimes for FY 2026–27. Salaried employees can switch each year; business owners get only one switch in a lifetime.
Update PAN Records	Ensure your PAN is linked to Aadhaar and active. Quote it correctly for high-value transactions above the new lower thresholds.
Document HRA Claims	If you live in Bengaluru, Hyderabad, Pune, or Ahmedabad, keep rent receipts, the rent agreement, and your landlord's PAN ready. The 50% HRA benefit now applies to you.
Keep Investment Proofs Ready	Even under the new regime, retain proofs for any deductions you claim. Faceless assessments rely on documentation, not memory.
Note Form Number Changes	Form 16 is now Form 130. Form 26AS is now Form 168. Use the right numbers when filing or referencing in correspondence.
Plan for Faster Refunds	E-Verify your return within 30 days of filing. Pre-validate your bank account on the income tax portal to avoid refund delays.

The headline rates may not have changed, but the rules around them have. A few hours of comparing both regimes now can save you tens of thousands in tax or a notice you would rather not receive.

Whether you stay with the old regime or move to the new one, the decision should rest on numbers, not habit. Run the math for your own income, and let your tax outgo decide.

Disclaimer

This blog is for informational purposes only and should not be considered financial or tax advice. Please consult a qualified financial planner before making any investment decisions.

Web:  https://akccapital.my-portfolio.co.in/app/#/login