&imwidth=800&imheight=600&format=webp&quality=medium "Budget 2026: FM Sitharaman confirms India's new Income Tax act to take effect from THIS date")
Indian Union Finance Minister Nirmala Sitharaman, on Sunday (Feb 1), while presenting the Budget 2026-27, confirmed that the new Income Tax Act, 2025, will soon replace the old 1961 law. The timeline for this significant change has been set for April 1, 2026. She said the new system will feature simpler rules and redesigned forms so that “ordinary citizens can comply without difficulty”. Here's all you need to know.
India's new Income Tax Act
Finance Minister Nirmala Sitharaman has announced sweeping changes to India’s direct tax framework, unveiling a new Income Tax Act that will come into force from April 1, 2026. Presenting the Union Budget 2026–27, Sitharaman said the government has completed a comprehensive review of the Income Tax Act, 1961, “in record time”. The new Income Tax Act, 2025, will replace the existing law, with simplified rules and redesigned forms to make compliance easier for taxpayers. "In July 2024, I announced a comprehensive review of the Income Tax Act, 1961. This was completed in record time, and the Income Tax Act, 2025 will come into effect from 1 April 2026."
She said the new forms will be notified shortly, “giving adequate time to taxpayers to familiarise themselves with the new requirements”.
Also read | What Budget 2026 means for your salary: Is there a change in income tax slabs? All you need to know
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Key relief for Indians
Among key relief measures, the finance minister announced that any interest awarded by the Motor Accident Claims Tribunal to a natural person will be fully exempt from income tax, with procedural requirements removed. “I propose that any interest awarded by the Motor Accident Claims Tribunal to a natural person will be exempt from income tax, and any tedious procedures in this regard will be done away with.”
Sitharaman also proposed cutting the Tax Collected at Source (TCS) on overseas tour packages to 2 per cent, down from the current 5 per cent and 20 per cent, without any minimum threshold. TCS rates for education and medical expenses under the Liberalised Remittance Scheme (LRS) will also be reduced from 5 per cent to 2 per cent.
“I also propose to reduce the TCS rate for pursuing education and for medical purposes under the Liberalised Remittance Scheme (LRS) from 5 per cent to 2 per cent. The supply of manpower services is proposed to be specifically brought within the ambit of payments to contractors for the purpose of TDS, to avoid ambiguity. Thus, TDS on these services will be at the rate of either 1 per cent or 2 per cent only.”
