NEW DELHI: Asignificant overhaul of India’s direct tax framework will come into effect from April 1 with the rollout of a new income-tax regime aimed at simplifying compliance and enhancing transparency.
One of the most notable changes is the introduction of a unified Tax Year, replacing the long-standing distinction between the Previous Year (PY) and Assessment Year (AY).
This reform seeks to eliminate confusion by establishing a single reference period for income, assessment, and compliance timelines. For individual taxpayers, the move is expected to make return filing more intuitive and reduce procedural ambiguities that have persisted for decades.
The reforms also expand benefits under House Rent Allowance (HRA), particularly for taxpayers residing in cities such as Bengaluru, Hyderabad, Pune, and Ahmedabad.
These cities will now be treated at par with traditional metros, with the exemption threshold raised from 40 per cent to 50 per cent of basic salary. However, stricter disclosure norms have been introduced, requiring taxpayers to declare their relationship with landlords—an effort to curb misuse and enhance transparency.
In a major relief for families, tax-exempt allowances for children’s education and hostel expenses have been substantially increased. The education allowance has been raised from Rs 100 to Rs 3,000 per month per child, while the hostel allowance has gone up from Rs 300 to Rs 9,000. Additionally, the tax-free limit on employer-provided meals and food coupons has been increased fourfold—from Rs 50 to Rs 200 per meal—reflecting inflationary trends and boosting take-home income.
However, some changes may lead to higher tax liability. The valuation of perquisites for employer-provided cars has been revised upwards, with taxable values now ranging between Rs 2,000 and Rs 7,000 per month, along with Rs 3,000 for chauffeur services. A structured valuation framework has also been introduced for electric vehicles.
The reform package includes a broader revision of perquisites and exemptions, such as higher transport allowances for differently abled employees, increased limits for tax-free gifts and vouchers, and updated rules for employer-provided loans and education benefits. These changes reflect an effort to modernise outdated thresholds while expanding coverage.
On the procedural front, several tax forms have been consolidated or replaced. Form 130 will replace the widely used Form 16, while Form 124 will take the place of Form 12BB. A new compliance requirement—Form 157—has also been introduced for individuals leaving India, particularly for reporting cross-border income.
Taxpayers claiming foreign tax credit exceeding Rs 1 lakh will now require certification from a Chartered Accountant under Form 44, replacing the earlier Form 67. This is aimed at tightening reporting standards and ensuring greater accuracy in international tax claims.
Further proposals under Budget 2026, pending Presidential assent, include extending compliance timelines. The deadline for filing revised returns may be extended to March 31 of the following tax year, while the due date for filing original returns for non-audit taxpayers could shift from July 31 to August 31. These measures are expected to ease compliance pressure and provide greater flexibility.
On the indirect tax front, rationalisation of Tax Collected at Source (TCS) has been proposed, particularly for overseas tour packages and remittances for education and medical purposes. Rates may be reduced to 2 per cent from the current 5–20 per cent, offering relief in cash flow for households.
Another key initiative is the proposed Foreign Assets Disclosure Scheme, which would allow small taxpayers a six-month window to voluntarily declare previously undisclosed foreign assets by paying applicable taxes and levies. The scheme is seen as a compliance-driven approach to widening the tax base without aggressive enforcement.
Overall, the reforms signal a decisive shift towards a more streamlined, transparent, and taxpayer-friendly system. While the transition may require some adjustment, especially for salaried individuals, the broader objective remains clear—reducing complexity, improving compliance, and aligning India’s tax administration with its evolving economic landscape.
Agencies