Key Provisions of the New Income Tax Act 2025/2026

The new Income Tax Act, 2025 (ITA 2025), effective from April 1, 2026, introduces significant changes, particularly concerning the choice between tax regimes and available deductions. The new tax regime will continue to be the default option for individual taxpayers. However, individuals who do not have business income retain the flexibility to opt for the old tax regime while filing their income tax return for a financial year. Eligible taxpayers also have the option to switch between the two regimes annually.

Rebate and Tax Slabs

Under the updated regulations, the rebate available under Section 87A will continue to apply for taxable income up to ₹12 lakh. This provision ensures that individuals earning up to this limit may not be liable to pay any tax after applying the rebate, subject to fulfilling applicable conditions. Importantly, there are no changes announced for the income tax slabs under either the old or the new tax regime, indicating that the current slab rates will persist.

Deductions and Exemptions in the New Regime

A crucial aspect of the new concessional tax regime (corresponding to Section 115BAC under the old Act and Section 202 under ITA 2025) is the restriction on claiming many popular exemptions and deductions. Taxpayers choosing this regime will not be able to avail benefits such as Leave Travel Allowance (LTA) and House Rent Allowance (HRA), which were commonly used to reduce taxable income previously. Conversely, taxpayers opting for the old tax regime can still claim all available deductions and exemptions.

The new Income-tax Act, 2025 (ITA 2025), effective April 1, 2026, reinforces the new tax regime by offering concessional tax rates with restriction on claiming specified deductions and exemptions. While an individual taxpayer opting for old tax regime can claim all available deductions and exemptions, a taxpayer opting for the New Tax Regime u/s 115BAC (corresponding sec. 202 under ITA 2025) cannot claim them all.

Furthermore, the Central Board of Direct Taxes (CBDT) has issued Circular No. regarding income-tax deductions from salaries for Financial Year (F.Y.) 2024-25 under Section 192 of the Income Tax Act. The shift towards a deduction-like regime under the Income-Tax Act 2025 is also anticipated to simplify Cost-to-Company (CTC) structures, potentially leading to higher take-home pay for most employees by reducing the impact of fragmented allowances.